Activity may slow down with tighter regulation, higher costs and longer sales periods, say KU SWEE YONG and YONG YUNG SHIN
THE past two years have been stellar for en bloc sales which saw some 160 redevelopment sites being sold across the island. From 2006 till 2008, more than 11,000 units would have been withdrawn, to be redeveloped into 16,000 to 19,000 new units. The final number could be lower if developers opt to build larger and more luxurious units.
The bulk of these redevelopment sites (about 95 in all) are located in the highly sought after Districts 9, 10 and 11. This has resulted in a possible shortage of high-end residential homes in the short to medium term as units are being torn down and redeveloped into new luxury condominiums.
For the first seven months of this year alone, we estimate that 61 en bloc sites have been sold for a total value of almost $11 billion. This surpasses last year's record of $7.75 billion. For the rest of the year, we can expect a new record, both in terms of total value and number of sites sold. (See Table 1)
Going forward, we believe that en bloc activity will continue well into the next year, albeit at a much slower pace than in the past 12 months. There are several reasons for this.
Firstly, we will see larger en bloc sites in terms of size, number of units and value coming to the market. These large sites would require a little more time to obtain consensus among the sellers, as well as to find buyers with the financial muscle to acquire them.
Secondly, developers who needed to replenish their land bank have already done so and will be more selective going forward. The en bloc market could become a buyers' market with developers possibly looking to acquire only prime redevelopment sites - sites which already have 100 per cent owner consensus or even those with negligible development charges (DC) rates.
Additionally, the recent proposed amendments relating to en bloc sales under the Land Titles (Strata) Act, which could come into force in October, will reset the collective sales process for those developments yet to garner the 80 per cent consensus.
A higher level of regulation and transparency is being introduced with stricter guidelines on the setting up of an en bloc sales committee. This will slow the pace in getting the whole process started.
Besides the changes to the Land Titles (Strata) Act, the latest revision in DC rates, which were announced on Aug 31, could potentially dampen the en bloc market further. Going forward, whilst the location of the redevelopment sites remains paramount, we could expect developers' interests to be channelled towards sites with minimal or no DC.
Whether the en bloc sale fever will actually cool is anyone's guess at this point. The rising cost of land acquisition, higher DC rates, rising construction costs and the global economic climate all have a part to play in order for the market to thrive.
What's the impact?
The wave of over 60 en bloc transactions between January to July this year could give rise to several thousand millionaires. Just taking the three months of April, May and June, we tabulated that there were some 34 sites with a total of 2,796 units sold, where the owners are expected to receive an average $3 million a unit.
Taking into account the need to apply to the Strata Titles Board for approval to proceed with the sale, all 2,796 displaced families could receive 95 per cent of their money by H1 2008. Assuming at least 2,000 of these owners are looking to buy another home, this would inadvertently create a surge in demand for homes both in the primary and more so in the secondary market, especially for those who need a place to stay.
Going forward, we expect a lull as the number of en bloc sites sold could slow down in the second half due to uncertainty, the possible introduction of new en bloc laws and rising DC rates. This would remove the additional demand from owners displaced by an en bloc sale.
Ku Swee Yong is director of marketing and business development, Savills Singapore; Yong Yung Shin is analyst, research & consultancy, Savills Singapore
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