Ah, the en bloc sale. Everyone wants a slice of this profit cake. We’ve come to associate an en bloc sale with huge windfalls, and the potential sale of Tampines Court at $970 million is set to be the latest and the biggest in the past decade.
I vaguely remember how my dad used to scrimp and save just so we could keep our Faber Garden unit till it en blocs. He believed the condominium estate had huge potential as the land’s plot ratio was under-utilised, and there were rumours that an upcoming MRT stop (since revealed to be the future Springleaf station on the upcoming Thomson-East Coast Line) will be near the back gates.
So 6 years ago when a committee was set up and the condo was put up for an en bloc offer, my family was so excited. We’d talk about it over dinners and fantasised what we’d do with the profits. This excitement continued until…
Poof! There were no takers and the en bloc ultimately failed (oops)!
Having gone through such an experience for the past decade, I’m going to save you from experiencing the same disappointment.
Here are 5 signs why your desired en bloc isn’t going to happen:
1. Your estate is just too big
As we’ve seen with properties like Faber Garden and Amber Park, an estate can be too big for developers to afford buying over at a reasonable price.
Furthermore, since 2011, developers in Singapore have to be Qualifying Certificate (QC) holders. This means they’re given 5 years to complete construction and obtain the Temporary Occupation Permit and Certificate of Statutory Completion, better known as TOP and CSC. Then, they have to sell off all the units within 2 years after completion. This means they only get 5 to 7 years to bao ka liao do everything.
This includes tearing down the development, building it, marketing and selling it, and completing the construction. If they don’t meet the respective deadline, they’ll have to pay what is commonly called an “extension fee” ranging from 8% to 24% of the land price.
Because of the tight time frame, few developers would want to buy a large estate, and risk paying expensive extension fees. They’d rather buy an equally large plot of undeveloped land, and save time because they don’t have to do the extra work of tearing down buildings.
2. There hasn’t been much development or transformation in your area
If there hasn’t been much development or transformation in your area, chances are the land value around your estate won’t have risen much. Developers will have less reason to purchase your estate if they don’t see any future potential in the surrounding neighbourhood.
On the other hand, it really only takes one major change to your surroundings to push the value of your land far beyond the imagination.
Take Rio Casa’s en bloc acquisition for example. A developer was willing to pay 27% more than the land’s asking price. Why? Because Paya Lebar Airbase, which is literally next door, is slated to move to Changi by 2030. Rio Casa would then be next to both a maturing Hougang estate, as well as a new estate bigger than Bishan or Toa Payoh.
Which brings me to my next point…
3. The land space in your estate has been maximised
If you’re living in an estate that has 30 to 40 over levels in each building, and the blocks are closely packed together, there’s a high chance the plot ratio of area your estate is in has already been maximised.
At the risk of oversimplifying the definition, the plot ratio determines how many floors (both above and under ground) you can build on a site. In an area with a plot ratio of 1.4, for example, buildings typically won’t go beyond 5 stories, while in an area with a plot ratio of 2.8, buildings typically go up to 36 stories.
Developers naturally would want to look for land with a high plot ratio, since that way they can maximise their profits by making their buildings as tall as possible.
4. The demographic who lives or works in estate is older
Forgive us for stereotyping, but it’s probably not far from the truth to say that when senior citizens have lived in an estate for decades, they usually plan to live out their last years there. Novelty no longer attracts them since in their retirement years, they are more concerned about stability. They’re likely to be sentimental about the area and property, where they have raised successful children and dedicated their lives to its upkeep.
Since an en bloc sale requires residents or tenants to consent by a majority of at least 80% and 90% by share value and strata area, nostalgia and sentiment play no small part in an en bloc sale’s success.
When faced with an attempt to put Queensway Shopping Centre up on an en bloc sale, tenants rallied together to sign a petition against it and quickly got signatures of at least 20% of total tenants. As it is a strata-titled mall, each business owns its own unit.
Tenants and visitors report an emotional connection to the place, even if it weren’t as bustling as before. This means that the prices must be very attractive to shake their resolve.
5. The location or property is unique, or irreplaceable to residents or tenants
Aside from nostalgia, another reason that would make residents or tenants think twice is when the estate or property is irreplaceable, in terms of location, size, and views.
For instance, Mandarin Gardens was put up for an en bloc sale in 2018 but it only managed to garner 68% consent from residents, despite an unprecedented high asking price of $2.927 billion.
The cooling measures of July 2018 made it expensive for residents to get a replacement property then, sure. But Mandarin Garden residents stated two main things about the property which made them reluctant to let go of their home in an en bloc sale.
Location: From Mandarin Gardens’ location, residents enjoyed highly coveted sea views and proximity to an upcoming MRT station, Siglap MRT.
Spaciousness: The condominium had units as big as 3,800 sq ft, and many owners felt that they would not be able to get the same type of space to replace their current homes.
In a nutshell, the deciding factor of whether your estate gets an en bloc offer rests upon several factors, both within your control and unfortunately, beyond your control.
There’s no way to say for sure if your estate is the next Tampines Court or the next Faber Garden, but if your estate meets these 5 signs, then it might be time to lower your expectations.
What are your thoughts on the recent en bloc discussion? Let us know! We’d love to hear from you.