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Is Collective Sales Still Doable in 2022 After the New Cooling Measures?

Is Collective Sales Still Doable in 2022 After the New Cooling Measures?

On the late night of 15 Dec 2021, most were shocked by the new cooling measures that government had just suddenly imposed in the residential market.

Many viewed these cooling measures negatively as penalty for developers increased from 25% to 35% with interest payable to IRAS if they are unable to complete selling within 5 years from date of purchase or date of strata title board sale order whichever is applicable.

Those who wanted to buy a second and third properties are tremendously discouraged with hefty Additional Buyer’s Stamp Duties (ABSD) which government raised at least a 5% percentage point to 10% percentage point for 2nd and 3rd properties for Singaporeans, bringing ABSD to 17% for 2nd residential property and 25% for 3rd residential property.

For the first residential property, it remains unchanged at 0%.

ABSD for Permanent Residents (PR) was raised to 25% for the 2nd residential property and 30% for the 3rd residential property. For the first residential property, it remains unchanged at 5%.

ABSD for foreigners has increased from 20% to 30% for 1st and subsequent residential property.

Total Debt Servicing Ratio (TDSR) was reduced from 60% to 55%.

So How Does It Impact the Collective Sales and The Residential Market?

Cooling Measure Will Not Have A Lasting Effect In The Residential Market

Due to Continuous High Demand in the Residential Market, Property Prices Will Still Go Up and Will Only Go Up

According to flash estimate, the residential market increases 10.6% for year 2021, with the last quarter registering the highest increase of 5%.

This 10.6% increase is the highest increase in Singapore for the last decade. Hence, the government has to act to cool the residential market as massive increase of 5% per quarter is definitely not healthy for Singaporeans and PR in the long term.

There is a genuine demand from the HDB upgraders supporting the sales and a robust year of more than 13,000 new units at new launches were snapped up and more than 19,000 units of resale residential were transacted.

Not all are upset with the new cooling measures. The happiest buyers are those who genuinely want to upgrade from HDB to a private residential resale or new launch project; they will have less competition, hence, giving them more chance to upgrade to their dream homes.

Tracy Goh of PropNex believes that this year 2022 will see a continued rise in residential prices and do not foresee that the cooling measures will have much impact in the market.

Just like the car COE, COE price basically more than doubled from 2020 to 2021 as the demand for cars are unexpectedly high due to a lower supply of COEs and driven by a group of buyers who did very well in the pandemic and electric car providers.

The increase in 2021 was a real genuine demand from Singaporeans and PRs who wanted to upgrade and foreigners who choose to migrate to Singapore.

As long as this demand is genuine and not speculative, then any cooling measure will not have a lasting effect in the residential market. It will probably slow the residential market down only for a few months.

2022 opens with a very low unsold inventory of around 14,000 units as at 1 Jan 2022. Imagine 13000 units were sold in 2021 and the market is now left with 14,000 units of new launches, the residential market is obviously sorely in need of new lands to build.

With such a tight supply, the residential market is poised for another increase this year 2022.

What about the 35% remissable ABSD penalty cost to the developers?

Naturally, developers will assess their risk more cautiously. The 35% penalty is meant to awake the developers to assess the lands more prudently and to price their products attractively to the consumers to achieve a sell out within 5 years from the date of purchase.

No developer would want to be hit by such a cost as that could drown the company. A $500m land means at least $175m ABSD plus interest penalty and a $1 billion land will mean at least $350m ABSD plus interest penalty.

This increase of penalty will definitely shift the focus of land acquisition from Central Core Region (CCR) to Rest of Central (RCR) and Outside Central Region (OCR) where land prices could be less than half the price of CCR.  

So what is the future of collective sales?

Even before the cooling measures in 2021, there were only 10 collective sales that were sold and 21 collective sales that did not find a buyer in tender closing.

This year 2022, we could see less than 10 collective sales sold, not that developers do not want to buy lands from collective sales projects but because developers are now even more price sensitive to ensure a complete sell out within 5 years.

What Are the Challenges?

  • Collective sales are now getting more and more challenging to get 80% signatures as resale prices have increased last year and owners are facing difficulty to find replacement properties for those collective sales projects where profit is less than 35%.

  • The en bloc profit of 35% or less may not be enough to incentivise them to agree to a collective sale. But as the years pass, the owners will find it more and more difficult to en bloc as resale transactions are expected to increase further with passing years. Hence, this will drive the expectations of owners wanting a higher reserve price.

  • En Bloc profits are also reduced as government increased development charges (in most sectors, govt has increase more than 50% for the past 5 years.

  • For 99 years leasehold projects, the top up premium (TUP) also increases yearly and the TUP just keeps ballooning in the years ahead. This will ultimately erode all profits from the collective sale. In short, if the collective sale has no en bloc potential now, it is unlikely to have en bloc potential in the future.

  • Before a collective sale can go into a tender launch, it is necessary to get 80% signatures based on 80% strata area and 80% share value; and the practice of most collective sale committee is just to raise the reserve price (RP) so that 80% signatures can be achieved. However, such practice ultimately destroys the collective sale projects as the RP becomes unattractive to the developers. It is for this reason; more than 90 collective sale projects could not find a buyer in year 2018 to year 2020. And this mistake kept repeating itself in every collective sale initiative.

  • On the other hand, government releases government land sales (GLS) programme and it is expected to increase much more this year 2022 to cater to developers’ demand. The fact that developers prefer to bid for GLS is obvious. Under the GLS, government can afford to sell at 85% less than the market land value as their intention is to stabilise the market. However, collective sale projects can never sell below RP unless another 80% signatures are achieved to lower the RP which is an uphill task when resale market is strong.

  • In addition, GLS need not go through Strata Title Board (STB) as it is an outright purchase and developers are in full control of the timeline. In collective sale, minorities who oppose the collective sales can cause timeline to be derailed at STB and some even go to High Court to fight the collective sales. This is a time management risk that developers will have to undertake when they look at collective sales to replenish their land banks.

  • In conclusion, as much as we expect this year 2022 to be another good year for real estate with prices advancing; the collective sales projects will face challenges listed above and many will not find a buyer when they reach the market as their high expectations will drive developers away to bid for GLS.

Developers Choice: Small, Medium or Big Sites?
En Bloc Sales 2022 Developers Choice: Small, Medium or Big Sites?

Developers are facing huge challenges with the new property curbs, not only that there are other factors such as higher construction costs, supply chain disruptions, border closures and potential construction delays.

Despite these, all these challenges WILL NOT Deter their hunger for land acquisition as there are still demand for luxury homes and profits to be made.

Since all sites that are launch for sale in the collective sale market comes with different sizes and quantum, which one does the developer prefer in 2022?

Small Site. Small site has the least risk though at the same time yield small profits. Some small and medium developers still prefer these sites, even business owners and entities may want to own it. Price range is around S$20 million to S$100 million.

Medium Site. As home hunters’ interests for new luxury homes still remain high even in 2022, developers might go for medium site that can yield around 200 to 500 new units, usually will cost them about S$200 million to S$600 million.

This is most ideal to most developers and any site that meet these criteria will be in their target list.

Big Site. These sites measure more than 600,000 to 800,000 potential gross floor area. Big redevelopment sites usually can build up 600 units to 900 new units.

The price tag will range from $750m to $1 billion to acquire the lands.

Nevertheless, despite all the challenges, potential good en bloc sites that have great locale, reasonable reserve price, high demand of new homes in the area and if developers can see themselves selling completely in 5 years, then collective sales projects will find the buyers.

How about Mega sites that exceeded $1 billion?

Naturally, for year 2022, it is likely that developers will avoid mega sites.

The interest can return if the site proves to be irresistible with great location and great views and reasonable reserve price.

Why Must Sell Your Property En Bloc Now

Collective Sales Hit S$2 billion Mark in 2021
Peace Centre Mansion Finally Sold En Bloc in 2021

Sold at S$650 million, Peace Centre & Peace Mansion was the Highest Collective Sale in 2021

Maxwell House Singapore Sold En Bloc for S$276.8 Million

Maxwell House Made Headlines in May 2021 and is the Only Site That Sold Within CBD

Ji Liang Gardens Sold En Bloc Instagram

Ji Liang Gardens One of the District 15 Hot Sites (RCR) Also Found Its Buyer

At the end of December 31, 2021, a total of 10 sites were reported sold. The total collective sales reached over S$2 billion.

Launched in January, the combine sites of 2, 4 and 6 Mount Emily Road were the first to be sold, ZACD Group picked up the site for S$18 million.

The second site that enter developer land bank was Surrey Point in district 11, ASK Development made up of Creative Investments, Kay Lim Realty and Santarli Capital Venture purchased the site for S$47.8 million.

After these 2 sites in prime zone sold, developer change their sight at district 15, Malacca Hotel site was acquired around March and the buyer & sale price remain unknown.

The district 1 property Maxwell House launched in April gathered a lot of attentions from investors, the prime site was acquired for S$276.8 million by joint venture of Chip Eng Seng, Chuan Holdings and SingHaiyi.

The second site sold in district 15 was Ji Liang Gardens marketed by PropNex Singapore. Owners just made their first attempt selling through tender and was rewarded with successful result. It was sold at $18.6m and buyer remain anonymous.

Third quarter of the year past, the collective sale market witnesses another multi-million-dollar site sold. Flynn Park located at Yew Siang Road was snatched by joint venture of Sunway Developments and Hoi Hup Realty for S$371 million.

En bloc fever reached a new degree with Watten Estate Condo Sold in October, for a huge amount of S$550.8 million, it became one of the top sales of 2021.

The hotly fought prime site was won by joint venture of UOL Group and Singapore Land Group (SingLand).

After ZACD Group bought Mount Emily Road site in early 2021, they now acquired La Ville, an attractive freehold site in district 15.

The bidding war was won by them and they pay for S$152 million for the Tanjong Rhu plot.

Success found its way to Peace Centre & Peace Mansion owners after 5 long attempts at collective sale. The 1 Sophia Road prime site was acquired during “private treaty negotiation process”.

Joint venture of SingHaiyi, Chip Eng Seng and Ultra Infinity find it hard to let it pass and finally decided to pick up the site and bought for S$650 million.

This will be the highest collective sale in 2021.

The last batch of owners that taste collective success were Bukit Timah and Duke’s Road site owners. Royal Golden Eagle and Hillcrest Investments paid S$53.9 million for the acquired land.

Out of 10 sites sold in 2021, 5 of them are within core central region (CCR), prime zone of Singapore. 3 of them are in district 15 zone, Rest of Central Region (RCR).

We remain optimistic that more sites at Outside Central Region (OCR) and Rest of Central Region (RCR) will be targeted by developers in 2022 as their stocks will be running out soon.