En Bloc Singapore 2017 List – En Bloc Fever

The en bloc property sales wave in Singapore has reached fever high in the last few months, with owners of old housing units taking away proceeds as massive as S$2m per unit. Some properties have actually netted mind-boggling figures.

Amber Park Condo, for example, fetched enough for owners of individual units to take home between S$4.3m to S$8.3m in gross proceeds.
Normanton Park is another one whose price was noticeably high. After adding other incidental costs to its already high sales price of S$830.1m, its land price resulted to around S$969 per sq ft per plot ratio (psf ppr).

Cumulatively, the more than 28 properties that have been sold en bloc this year 2017 have fetched around S$8.65 billion, a figure that is expected to continue rising.

Not only residential properties are in the Collective Sales Market, even mixed development, commercial and industrial property are joining too.

Many En Bloc property owners are salivating at the prospects of becoming overnight millionaires.

Evidently, developers are prepared to buy property at staggering prices. It is surprising that in some instances bidders have offered prices well above the property owners’ asking price, and it goes to show how bullish the developers are about the market.

Amber Park and Rio Casa transactions are good examples. Their respective asking prices of S$768m and S$450 million were exceeded, with the properties ultimately fetching S$906.7 million and S$575 million respectively.

Recently, investors in real estate have had no qualms parting with S$500 million or more to acquire development properties in Singapore, which is a clear shift from the way industry players have conducted business in the past.

For instance, in May this year, Logan Property, in a joint venture with Nanshan Group, entered into a contract with the government to acquire a site at Stirling Road, and they ended up buying the property at S$1.003b.

Yet unlike in the past, many property owners do not see that massive transaction as a one-off. Many of them are of a similar mindset, which is that it is best to strike when the iron is hot, sell off their old properties and head for retirement as millionaires.

The market seems to have been provoked around the 3^rd quarter of last year 2016, when Shunfu Ville was scooped for S$638m and passed as the biggest en bloc sales deal in 9yrs.

Now, the collective sales wave that picked up in May this year 2017 seem unstoppable.

The question is: Why the apparent rush to sell?

The Collective Sales Idea Has Opened New Opportunities

Some years back, developers spent huge sums of money to secure large government sites, as individual property owners willing to sell had inadequate square feet to offer.

Now, with rationed government land sales, the collective sales idea by ordinary citizens has taken root and opened new opportunities to individual property owners.

Individuals are now coming together and forming a collective sales committee to sell their properties as a unit. This mode of selling, while helping the developer acquire massive land in preferred locations, also leaves property owners with sums of money they would never have dreamt of.

The GLS programme is a threat

Ms Tang Wei Leng, Managing Director at Colliers International, contends that property owners unanimously hold the position the government is going to be more proactive in its Government Land Sale (GLS) programme in the coming year.

It is for that reason, Leng says, property owners are bent on capturing potential buyers before January 2018, to avoid facing competition from the government.

In this regard, property owners are cohesive, coming together fast and furious, not wanting to miss the boat of this current en bloc fever.

High Property Prices Are Alluring

On the contrary, property developers are bullish. According to Karamnjit Singh of JLL, land prices have been on the rise, and that has made it viable for property owners to sell en bloc.

He notes that every time there is a successful collective sale that clinches a handsome price, other offers for collective sales emerge soon after. In short, the sudden appetite to sell property en bloc may not only be anticipatory, but a normal response to an inviting market.

In the meantime, developers are prepared to buy what they can afford before more properties are offered at higher prices.

However, it would not be surprising if the government offloaded a bigger portion of land for sale under GLS than usual, considering that up on its agenda is stabilization of land prices.

Singh says the prevailing rise in property prices reminds him of a similar boom in 2006/7, during which period there was a steep rise in en bloc sales. In his opinion, many developers who are bent on selling en bloc now want to capitalise on an opportunity that has been elusive for the last decade.

Moreover, the fact that many of those properties are significantly older than the last time the property market had a boom, makes it easy for the property owners to make up their mind to sell.

Besides the likelihood of prices under GLS being comparatively lower than those of private property under collective sale, there are many developers who would opt for a state tender simply because it is hassle free.

With en bloc sales, a developer’s project could be delayed due to court injunctions brought about by sections of property owners objecting to the sale.

According to Ms Leng, every developer values certainty when it comes to project launch timelines because it guarantees a healthy cash flow, which she says is important considering that project margins are often slim.

• When many sites become overpriced and difficult to sell
• When government implements its GLS Programme more liberally, releasing plenty more land for sale.
• When market sentiments turn cautious either over an economy downturn or decreasing sales data

From the look of things, the real estate market will remain vibrant despite ABSD and other taxes being in place. Earlier in the month, respected financial services provider, Morgan Stanley, said the rise in property prices would be faster than people anticipate.

He pointed out that home prices would rise by 2% in the year, and get to reach their peak at 10% as 2018 comes to an end.

The firm’s forecast is easy to understand, as rising land rates inevitably translate to high prices of housing units once the margin has been loaded onto the developer’s costs.

So, the cycle of property owners escalating their asking prices following earlier precedents of high psf ppr continues, and prices of new developments continue to rise. Still, the tide of en bloc sales could subside in instances such as those explained here below.

• When many sites become overpriced and difficult to sell

So far, this year the money grossed in buying old properties for redevelopment has exceeded what developers cumulatively spent in the past 4-yrs on similar properties.

According to Vikrant Pandey, the investment bank analyst, the impact of this has been creation of a new class of home buyers; new millionaires prepared to spend lavishly on homes in the middle and high ends of the price spectrum.

Such change of fortunes for ordinary Singaporeans is bound to lure other property owners into offering their aging properties for sale under collective agreements. And, as long as developers can find buyers for their new housing units, they will continue to bid at the prices offered by the property owners, or even higher.

• When government implements its GLS Programme more liberally, releasing plenty more land for sale.

If the supply of land for development is increased by the government releasing more of its land into the property market, property prices would drop, and en bloc sales would no longer be enticing.

• When market sentiments turn cautious either over an economy downturn or decreasing sales data

2007 was a fantastic year for collective sales.   When sub prime problem hit United States in end 2007, there was great fear of a rippling effect which caused Lehman Brothers to crash on 15 September 2008, causing our real estate market in Singapore to lose all steam and prices began to dive south dramatically till banks even had more stringent lendings and many property owners were affected.

It could also be a scenario that buyers do not bite on the new launches causing developers to rethink their strategies for land bidding exercises.

For collective sales to be continuous bullish, banks must also be willing to support the developers purchase of lands.   So once this support is taken off,  collective sales will also die down.

All in all, for property owners to continue reaping benefits of en bloc sales, they need to be prudent in their offers. Mr. Alex Oh, who is executive director at Orange Tee Advisory, warns against pegging property asking prices to the highest psf ppr in the market. He advises sellers to consider other pertinent factors as well, since not all properties have the same advantages. That way, they do not risk jeopardizing their own chances of making a sale.

As Galven Tan, capital markets’ CBRE director, points out, soon developers are going to find their realistic margins too tiny to pursue, and property owners seeking to sell en bloc will hit a dead end.

Mr. Hong Boon Tan, who is in charge of capital markets at JLL, concurs. He prefers to see a vibrant property market with reasonable prices. Market observers also have concerns that the market might experience a housing glut in the no-so-far future.

Obviously, if that happened, developers would find it difficult to break even, let alone sell out their new developments at meaningful margins. Consequently, they would have no appetite to buy more property for redevelopment.

These observers also say that property owners eager to sell would similarly be disappointed if the country’s economy began to slow down sharply.