En-Bloc Good Times To Roll On

Source : Asia Property Report, Nov 17, 2007

Are the stars no longer aligned in favour of en-bloc sellers? In recent months, there has been a confluence of bearish factors, from the sub-prime market crisis in the US to higher development charge (DC) rates and a tightening of en-bloc sales rules at home. Yet, although en-bloc sales showed clear signs of cooling off during the third quarter of the year, professionals are still fairly bullish, pointing out that there are still plenty of en-bloc projects to come to the market.

“There was a slowdown in en-bloc sales over the summer, partly because of the Hungry Ghost month and partly because people were taking a wait-and-see attitude ahead of the new legislation,” Lui Seng Fatt, Jones Lang LaSalle’s Regional Director and Head of Investments, told Property Report.

“While the new rules may make it more cumbersome and may reduce supply a bit, the demand side remains very strong. Developers are turning units around very fast and will need to continue replenishing their land bank, especially in Districts 9, 10, 11 and 15.”

Steven Ming, Savills Singapore’s Director of Investment Sales, agrees, adding that the amended rules to the Land Titles (Strata) may delay some projects by three-six months.

“Our view of the en-bloc market going forward is good for as long as the property market remains robust, which we think will continue. Therefore, there’s little reason why developers wouldn’t continue to replenish their land bank,” he said.

Record sales and counting
Over the last two years, some 160 sites have been sold for redevelopment, the bulk of them in the highly sought-after Districts 9, 10 and 11.

Major deals include the sale to CapitaLand of the Farrer Court site, which at 838,488sqft is the largest residential collective sale site sold to date, in terms of both site area and absolute price. On a per square foot (psf) basis, The Ardmore, which was sold to SC Global for S$2,337psf in June, still holds the record for being the priciest collective sale site sold in Singapore.

En-bloc sales in the first nine months of the year had already reached a total value of S$11.61 billion for the 92 sites sold, considerably more than the S$8.22 billion for the 78 sites sold in the whole of 2006, estimated Jeremy Lake, Executive Director for Investment Properties at CB Richard Ellis.

But in the third quarter, only 20 sites were sold, for a total of S$2 billion, with no transactions in September. This was a marked drop from the 32 collective sale deals transacted in the second quarter.

“There are several reasons behind this significant fall. There started to be a mismatch between overly high pricing expectations and what developers were ready to pay,” Lake explained, adding that the sub-prime issue also had an impact. “The residential market is driven by sentiment, and developers chose to wait and see.”

But the trumpeted raise in the DC rates probably had little impact on the market. The rates were raised twice over the summer, first because of a change in the formula for computing them in July, which pushed them up 40% across the board, then a second time when the government announced new DC rates for all property, with the average DC for non-landed residential developments raised by 58%.

“While the majority of en-bloc sales would have DC rates, the DC component is still relatively small and anybody that says it changed everything is inaccurate,” Lake said. “The change in DC should ultimately have little impact on en-bloc sales.”

Cooling off period
Meanwhile, the amended rules governing collective sales, which took effect in October, are expected to slow down en-bloc activity, property experts said.

The changes provide additional safeguards and greater transparency for owners involved in en-bloc sales, with new rules for the formation and election criteria for a sales committee, as well as keeping homeowners regularly updated on bids received and how sales proceeds will be divided.

The amended law should also help owners better understand the legal implications of en-bloc sales, and gives them a five-day cooling-off period during which they can change their minds. One important change addressed the imbalance in voting rights in some mixed retail, office and residential developments, by adding a new level of owner consent by floor area, before a sale can proceed.

While the changes will give owners more say in a collective sale, they come at the price of a lengthier sale process. “The number of transactions is likely to tail off because it makes the sale process so much more cumbersome,” Lake pointed out.

But the slower en-bloc pipeline could have a silver lining for those that do come to the market in the coming months. With fewer sites coming onto the market, those that are correctly priced are likely to be snapped up, especially as demand for high-end properties remains strong.

Chia Ngiang Hong, Group General Manager of City Developments Limited, agrees that the pace of en-bloc sales is likely to slow down in the near term due to the more stringent procedures and requirements. “However, market sentiments still remain quite positive and we’re likely to see the pace gathering momentum again once the market gets used to the new rules,” he said.

“There will still be considerable interest in the en bloc market next year although the earlier enthusiasm experienced is likely to be slightly abated as the property market consolidates.”

Lui believes sales will remain very strong in the key districts, especially District 15, because many en-bloc sellers from Districts 9, 10 and 11 are now moving slightly outward and looking for space in District 15, whether for owner occupation or further investment growth.