What is en bloc?
A word coming from French origins, en bloc refers to something done ‘as a whole’ or ‘in a mass’. When we mention this term in Singapore, many are able to quickly connect it with en bloc sales, where two or more properties are sold to a single purchaser. Usually, this takes place when residents from an older development come into an agreement to sell their homes to a property developer, or sometimes even the government.
One example of the most recent successful large scale en bloc sale in the Boulevard vicinity was the Park House, which was sold for S$375.5 million or S$2,910 psf ppr back in June 2018. Following its success, developments in its vicinity namely 5 Oxley Rise, Oxley Garden and Orchard Bel Air were also put up for sale, albeit to less success as all three developments subsequently closed without sales.
Why do we need en bloc sales?
Being one of the smallest countries in the world with limited land size, it is crucial for Singapore to fully utilize each and every piece of land available. Every six months, the Urban Redevelopment Authority (URA) releases Government Land Sales (GLS) sites where developers can turn to as a way to top up their land banks, other than the private residential route.
With the amount of new developments popping left and right, older developments start taking a step back and might even lose out due to the lack of effectiveness in land usage. This is when potential rise for possible en bloc sale for these developments, as developers can come in to e.g. demolish an existing low storey development and build a towering 30-storey development in its place, where they can then make more money.
En bloc VS Resale
Some might wonder: why go for an en bloc sale and not a normal resale? What is the difference? Though both generally refer to the act of selling your home, the process and end result differs greatly. Take the table below as example:
Right off the bat, en bloc sales and typical resales already clearly affect a different number of people. While the typical resale can be carried out by the owner of the property as and when they decide to, en bloc sales can only come to fruition if at least a certain percentage of owners in the development agree to.
While the initial rule was for there to be full, 100% consensus back in the 1990s before an en bloc sale could take place, it was further revised in 2007 by Land Titles (Strata) Act to 80% consensus for private residential properties that are 10 years and older, or 90% consensus for properties that are less than 10 years old.
How long does it take?
Due to the number of people it involves as well as the higher price point per transaction, the en bloc sale typically takes a much longer time to fulfill as compared to your normal, everyday resale. From the process of gaining sufficient consensus, putting up the development for public tender and finding the most suitable buyer, owners might have to wait up to 2 years before everything can be finalized and profits are received.
Why are en bloc sales more profitable?
Simply put - the potential of profits on the developer’s end. The main reason why a developer would be interested in bidding and purchasing a plot of land where your property sits on is because they feel that redevelopment of the land will help them earn a tidy sum that far outweighs what they have paid.
Imagine this: The condo that you are staying in is currently under en bloc sale. The property itself, not particularly impressive, only consists of 8-storey towers with each tower placed far apart. This sets up a high level of potential where developers can then come in to demolish the existing towers to build 30-storey towers, making use of the space much more effectively. The sale of each unit in the towers can then more than sufficiently cover what they have paid to acquire the plot of land.
You might be thinking ‘how does this benefit me?’. To get this point, there has to be at least 80% consensus in selling the development. Naturally, no one would want to give up an apartment they have been staying in in exchange for a low price, especially taking in account the fact that they will have to look for an alternative home. Some other concerns may also include emotional attachment to the property, difficulty in finding an alternative suitably priced home, as well as the potential loss of freehold status for certain private properties.
As such, in order to make this a lucrative deal, developers will then have to up the ante and offer attractive prices to homeowners to convince them to give up their homes.
Prospect of profit = no dissent?
However, this does not mean that the prospect of making a tidy sum via en bloc sale is enough to entice all property owners. Looking back at the consensus rate, a minimum 80% approval means there can be a maximum 20% of homeowners that do not agree to the sale, who are then able to file an appeal in court.
Take the recent Chuan Park en bloc sale for example, where dissenters have filed an objection with the Strata Titles Board. The main reason cited for the objection was due to the lack of transparency between the Collective Sale Committee (CSC), marketing agent ERA Realty and Chuan Park owners.
The top issue brought forward by the owners was the failure to ‘disclose material facts relating to a higher development baseline’, which translated to a discount for the buyers. Two other key issues that were raised includes method of apportionment (MOA) of sales proceeds, which was claimed to be disadvantageous due to a higher basis taken by valuation than strata area and share value; while the other issues touched on ‘irregularities in obtaining owners’ consent to the en bloc sale’, where they shared that 3 different reserve prices were used during talks.
This shows that en bloc sales are not as straightforward as one might think, where the prospect of profitability outweighs all other concerns.
Do cooling measures affect en bloc sales?
Most definitely. Ever since the implementation of cooling measures such as increasing Additional Buyer’s Stamp Duty (ABSD) rates, developers have slowed down in their bid for en bloc offers as they are now required to pay 40% ABSD, which can amount to a large sum given that en bloc sales are generally in the millions and can even go over a billion dollars.
Take the table below as an example of how the percentage of ABSD have increased over the years, affecting the amount property developers have to pay.
En Bloc VS SERS
Now that you know the difference between en bloc and resale, what about en bloc and SERS? These two are largely similar with the exception of the property type it applies to - en bloc sales are only for private properties where either a property developer or government takes over the development. SERS is the counterpart scheme albeit for HDBs.
In comparison, homeowners under SERS also have little to no choice in the sale of the property, whereas in en bloc sales as mentioned above, residents generally have a say until a consensus is reached. A benefit of the SERS programme would be the fact that relocation is guaranteed and residents will not have to househunt.
Identifying en bloc potential
With all that’s said and done, many might hope for the opportunity of their home going up for en bloc. In reality, chances can be quite slim. Here are some of the factors that might affect the en bloc potential:
One common indicator for land value going up can be new developments in the vicinity, new MRT station, or even a makeover of certain aspects in the area. This in turn translates to investment potential as the land becomes more attractive, garnering more profits in the long run.
As mentioned previously, properties, especially older ones, run a higher risk of mismanaging the usage of land. Towers can be built too far apart, or buildings built too low, which then increases the potential of demolishing and transforming it into a densely-packed development. More units = more profits.
Other than the possibility of ineffective land usage, older properties also require 10% lesser consensus compared to newer ones. Convincing 80% of residents will always be easier than having to convince 90% of them after all, making the age of properties a factor.
While there can be possibilities of other en bloc sites, take a look at the table below for some of the en bloc sites this year.