Is your condo going en bloc?

Residential collective sales gaining momentum, set to continue next year

by Stella Hoh
05:55 AM Nov 05, 2010

Collective sale transactions have totalled $975.6 million so far this year and over 90 per cent of this total is made up of residential transactions. Renewed confidence in the Singapore home market and an increasing number of residential transactions over the past months lead us to believe that the "en bloc" trend will continue to gain momentum moving into next year.

Since the phenomenon of collective sales began in the mid-1990s, more than 400 buildings have been sold en bloc. Historically, the focus has always been on the residential sector rather than mixed-use developments as the latter often face challenges that arise when apportioning the sales proceeds to satisfy the owners.

This is further complicated by the allotment of share value, which vests more shares per square metre for shops in comparison to offices or residential units and the location or frontage of the units.

Despite these challenges and among a handful of total mixed-use collective sales, Jones Lang LaSalle successfully brokered most of such sales, including Katong Mall, Kim Seng Plaza and Eng Cheong Tower. It is currently marketing Paramount Hotel and Shopping Centre, the tender of which closes on Nov 23.

The rise in the popularity of collective sales this year could be attributed to improving fundamentals of the Singapore property market and the widening gap between new sale and resale prices for homes.

Median prices for new sales average 48 per cent above those of resale transactions during the first three quarters of this year. These factors seem to have encouraged owners of older properties to band together and attempt a collective sale of their estates.

The collective sale process begins with the formation of a sales committee. The committee appoints solicitors and a real estate consultant to act on its behalf, for the owners' consideration. The appointment of the sales committee, real estate consultants and solicitors, and the terms and conditions of the collective sale agreement, are finalised through extraordinary general meetings.

Most importantly, a reserve price and a method of apportioning the sale proceeds have to be approved by the owners. Following this, the collective sale development has a maximum period of 12 months to secure the mandate from at least 80 per cent of the owners by both share value and strata floor area if the estate is older than 10 years.

Upon achieving this 80 per cent mark and before the next 12 months are up, the site is launched for sale by tender. Upon the award of tender or the final negotiation of the sales and purchase agreement, the owners will apply to the Strata Title Board (STB) for an order for sale. If there is 100 per cent consensus to sell from the owners, the STB application process is not required.

Mediation and the STB order for sale follow. However, if the STB order is not obtained, application to the High Court is required and the time required to obtain the sale order will be subjected to the proceedings of the High Court. Minority owners may contest the sale of the property - often this occurs when there is a difference over the apportionment method. In this case, the STB will be the mediator.

Completion of the sale typically takes three months and is then followed by a four-to-six month period of vacant possession. Generally speaking, the end-to-end collective sale process takes between 18 and 36 months and requires matching a developer or investor to the site for sale.

Apartment owners in a building opting for a collective sale are usually seeking a potential price gap or "premium" from selling their apartment by collective sale as opposed to an individual sale. In the case of owner-occupiers, the cost of a replacement property is a major consideration.

Developers or investors are often seeking potential gains from the pricing gap between new sale and resale transactions, as mentioned earlier. When the forward cycle remains on the uptrend, potential gains will be maintained if not widened.

Developers or investors are also seeking gains from land intensification - or the gap between baseline and maximum permissible gross floor area (GFA) for redevelopment purposes.

The property measures announced in August may have some impact on the prices of new residential launches, especially in the upgraders market. However, developers, especially the small to medium-sized ones, will look to replenish their land supply in a strong and improving economic situation.

In the current market for collective sales, investor interest seems to be focused on the Central, City fringe and East Coast. However, successful collective sales have been recorded mainly in upgraders' locations, including Balestier and Toa Payoh (District 12), Geylang and Eunos (District 14) and Serangoon, and Hougang (District 19).

In particular, District 19 has stood out this year in terms of transactional value. Jones Lang LaSalle recently closed the collective sale of Glenville at Lim Tua Tow Road off Upper Serangoon Road for $39.5 million and set a benchmark price in excess of $700 per square foot per plot ratio (psf ppr) for the Serangoon area.

In line with the increase in the popularity of residential collective sales, we are seeing a bounce back in terms of transactional values. The largest collective sale transacted so far this year was the sale of Meng Garden in the River Valley area, which sold for $137 million or $1,380 psf ppr. This is a significant quantum and still competitive when compared with the latest collective sales in the vicinity that were transacted in 3Q07.

Considering that Jones Lang LaSalle's prime capital values have returned to the 3Q07 level, land values have yet to catch up when compared to Grange Court, which sold for $72.8 million or S$1,710 psf ppr, and Char Yong Garden for $420 million or $1,800 psf ppr. Incidentally, Char Yong Garden was successfully sold by Jones Lang LaSalle.

As long as economic conditions continue to improve, we expect collective sales prices will continue to trend up. Collective sale volumes will be maintained next year, in line with moderate growth in capital values expected off the back of recent government measures, as the price gap between new sale and resale prices remains large.

The writer is Head of Investments at Jones Lang LaSalle.

Source: www.todayonline.com