With collective sales on the rise again, it is timely to examine factors that challenge such deals in the current cycle.
It was a saga worthy of a soap opera. In 2007, Horizon Towers was on the verge of breaking the then en bloc price record when, over a period of more than two years and several flip-flopping court and Strata Titles Board (STB) decisions, minority owners eventually blocked the transaction. This was, among other reasons, on the basis that two members of the sale committee had acted in bad faith by not disclosing that they had purchased additional units in the Leonie Hill Road development after the sale process had begun. The High Court decision has become a landmark case in the law books, and further litigation went on until 2013.
Persistent government measures to cool the overheated property market led it into the doldrums in the intervening years. But with land banks dwindling, developers can no longer wait it out. According to real estate services provider Colliers, 27 residential collective sales totalling S$8.13 billion were transacted last year – the largest haul in a decade. Such sales in the first two months of 2018 have already totalled over S$3.1 billion. Horizon Towers itself is on the market again.
The new bout of en bloc fever has once more brought about eye-watering prices, but the new batch of collective sales does not come without challenges, this time ranging from conservation concerns to traffic congestion.
After a failed conservation attempt, Pearl Bank Apartments was sold last month for S$729 million to developer CapitaLand, which has confirmed that it will demolish the iconic horseshoe-shaped building in Chinatown.
Heritage lovers are dismayed to lose yet another one of Singapore’s last few high-rise living pioneers, questioning why conservation requires owners’ absolute consent when a sale only needs an 80 per cent majority. Others, however, point out that the ageing structure is too costly to maintain and repair. The tension between the pro-heritage and pro-redevelopment camps is likely to continue, if not intensify, as more and more older buildings with historical potential are put on sale.
Meanwhile, owners at Tampines Court hoping to collect their S$970 million en bloc windfall are facing delays, believed to be a result of a new Urban Redevelopment Authority (URA) requirement. Under the Pre-Application Feasibility Study rule introduced in November, developers must assess at their own cost whether their plans will increase traffic in the surrounding neighbourhood and, if so, propose solutions to manage it.
The regulation arose because developers increasingly prefer to intensify the number of dwelling units instead of upping the plot ratio, which comes with a government levy. Purchaser Sim Lian Group had intended to almost quadruple the 560 apartments at the privatised Housing and Urban Development Company (HUDC) estate in its new offering. This led to the Land Transport Authority asking Sim Lian to sacrifice a portion of the land to build a new link to the Pan-Island Expressway before URA grants permission for redevelopment to go ahead.
Lack of trust
The en bloc windfall is often unequal, working against those who have purchased their units more recently. The monetary gain may barely cover stamp duties and renovation costs for them and is therefore not as lucrative, leading to their obvious reluctance to join the majority – and a general lack of trust.
While in the past owners tended to empower sales committees to make the final call in, for instance, appointing lawyers and agents, stakeholders in the current wave increasingly choose to take a vote on their preferred advisors, leading to a prolonging of the process. Communication has also moved into Facebook groups and other social media platforms, where stakeholders should be aware of fake news campaigns and potential maligning of pro-sale homeowners. En bloc attempts have been known to be fraught with friction. The third attempt to collectively sell former HUDC estate Pine Grove is the latest example, with meetings turning sour and a defamation lawsuit underway.
Land ownership regimes
While Singapore land has progressed and modernised, many en bloc potentials, being some of the oldest properties, were originally registered under the Registration of Deeds Act. This is an archaic system and such properties have to jump through more hoops to prepare them for sale under the current collective sale regime, which mainly envisages properties that already have been strata titled.
Few of these flats have surveyed floor areas. In other words, the owners do not know the actual floor areas of their properties, which makes it difficult for such developments to sell collectively with less than full consensus. So, not only do such developments not have management corporations (which means owners are left to call meetings, keep minutes, count votes, send notices and even collect maintenance funds on their own), they may also need to shell out a hefty sum to carry out a registered survey before they can start signing on a collective sale agreement.
Fresh en bloc fever has struck again, so much so that the Financial Times ran a commentary on Singapore’s property market this past weekend. But a forced sale of such a valuable asset class is bound to be mired in difficulty. Lawyers often talk about caveat emptor (buyer beware) in transactions. Here the seller too should tread with care.