Singapore’s en bloc fever
En bloc refers to a collective sale where an entire property development like a condo or an HDB cluster, including the land, is sold to a single buyer (i.e. a property developer or government respectively).
Of course, the finer ins and outs are much more complex. How do I know if my property has en bloc potential? Am I given a new home? In fact, hold up, why are these guys even trying to tear down my house?!?!
With the recent en bloc fever going on in the Singapore condo market, we’ve put together a comprehensive guide to the 101s of en bloc sales:
Condo en bloc sales
A condo en bloc sale happens when a developer wants to buy up the land on which the property stands, typically to use the land to build something new.
For the en bloc to happen successfully, majority of the owners in the property development – at least 80% of owners in a property that’s 10 years or older, or at least 90% of owners in a property that’s less than 10 years old – must agree to the sale.
To entice these condo owners to agree to the en bloc deal, developers typically offer a price that’s higher than the market resale value, meaning these owners stand to enjoy a high profit margin.
Because this involves all of the owners in the property, the entire en bloc process is a relatively long process that takes about 1.5 to 2 years.
How to spot condos with en bloc potential
Now that you know how and why an en bloc happens, you’ve probably gathered that “en bloc potential” means developers foresee the opportunity to make more money out of the land than what they’re paying for it.
Typically, condos with en bloc potential sport these characteristics:
1. They have an under-utilised land plot ratio
In other words, the proportion of the number of units against the land size. (You can find out the land plot ratio of each area in URA’s Master Plan.)
Most notably, condos with large common areas and low-rise blocks are practically screaming for an en bloc to happen.
The logic behind this? Developers can demolish the existing condo and build a more densely-packed, high-rise condo in its place. With more units to sell, there’s more money to be made.
It isn’t always this straightforward, though. For instance, land plots that are too huge might be too expensive for developers in the first place. Some developers might choose to go for smaller sites because there’s a consequently smaller risk.
Take for instance the mega Braddell View, which you might think sports great potential – it’s sat in a prime location, and is one of Singapore’s largest private residential site.
But its en bloc attempt since March this year has proved unsuccessful, with no bidders for the land.
In the words of Knight Frank‘s head of research Lee Nai Jia, “Developers are more wary about such a large site. It’s a huge quantum, and they may want to use the funds for other opportunities in the market.”
2. Revised plot ratios
Or, from time to time, the government may increase the land plot ratio of a particular area (i.e. allow more units to be built on a certain plot of land) to attract en-bloc bids.
This will be reflected in the amendments to the Master Plan.
3. Redevelopment of the district
New MRT station! Glitzy shopping centre! Bigger parks!
All of these redevelopment works raise the value of properties in the surrounding areas.
And developers would all want a slice of the profits by building new properties in these districts to sell.
Tip: Stay updated on the URA Master Plan to be in the know the moment these redevelopment plans are announced.
To cite another example, the government’s plans to relocate the existing Paya Lebar Air Base by 2030 will likely affect en bloc sentiments in the area – including Geylang.
Here’s how: Height restrictions on buildings near the air base will be laxed, and with the ability to build higher, developers are more likely propose en blocs of condos in the area, and build even higher-rise condos in their place.
4. The property market is strong
Well… How’s a developer going to sell a whole tower of homes if nobody’s buying?
5. The residents are willing to move
For an en bloc to go through successfully, it requires the collective vote of the residents, after all.
For one, it might be difficult for residents to find a new home that’ll match their current one.
The median size of new condo units is estimated to have fallen from 1195 sqft (111 sqm) in 2009 to 743 sqft (69 sqm) in 2016; and even so, prices are rising.
This means it’ll be a challenge to find a similar-sized home with the same value-for-money in today’s property market.
Plus, most residents wouldn’t want to move too far away from their existing home, especially since they probably had no active plans to move in the first place. If there’s plenty of ideal housing options in the vicinity, developers will be more likely to get a majority positive vote.
Things get trickier, though, if there’s been a significant number of resale transactions in recent years. Residents who bought their unit in the past 3 years are still liable to pay a hefty Seller’s Stamp Duty of up to 12% even in an en bloc sale. This makes any price that the developer offers much less attractive, reducing the probability of the en bloc deal going through.
That said, the Strata Title Board will ensure that, factoring in costs such as any payable Seller’s Stamp Duty, nobody sells at a loss.
The en bloc process in Singapore
In a nutshell…
1. An en bloc sale can be initiated by either residents or an interested developer.
2. At the beginning, a pro-tempore (pro-tem or pro-temp for short) committee comprising certain owners of the development is set up to rally for the en bloc.
Tip: If you really want the sale to go through, you might want to nominate yourself as a committee member to empower yourself to rally your fellow residents likewise.
3. Once there are enough owners who agree to sell, a Collective Sale Agreement is negotiated and signed.
This is also when the Strata Title Board has to give its approval (the only time their approval isn’t needed is when there’s a completely unanimous, 100 per cent vote in favour of the en bloc sale).
4. If there’s already an interested developer, the sale can be set in motion immediately. Otherwise, the committee will attempt to find a buyer through a public tender exercise.
5. The entire en bloc sale transaction takes at least a year to complete. Following which, proceeds from the sale are distributed to the owners about 6 months later.
This is also the time owners vacate their units and move into their new homes.
If the proceeds come in only after these owners have to buy a new house, they can use a bank bridging loan to pay for a percentage of their new property’s value.
How en bloc affects you
(Yes, even if it’s not your house that’s about to be torn down.)
When there’s a frenzy of en bloc sales happening at the same time, this means there’ll be a lot of homeowners thrown into the buyer’s market all at once. And when demand increases, price follows suit.
Which means if you happen to be in the market for a new property as well, you might be slapped with higher, less ideal prices.
Conversely, as a seller, you’ll probably be able to peg a higher asking price to your home.
HDB en bloc sales
Meanwhile, HDB flats go through the Selective En Bloc Redevelopment Scheme (SERS), where the flats are repurchased by the government in a bid to renew the estate.
But like its name suggests, this scheme is selective – and the government selects, not you.
And if your HDB flat is chosen for en bloc, participation is compulsory (unlike private condo en bloc sales, which require a majority vote).
Should you wish, HDB flat owners will be guaranteed a new 99-year lease flat at a designated replacement site.
At some point in the SERS process, HDB officers-in-charge will perform a Collector’s Inquiry, a meeting to help these HDB flat owners with the financial planning of the replacement flat and rehousing options.
Unlike private en bloc sales, SERS compensation will be based on the market value of the HDB flat, although rehousing benefits such as grants and concessions will also be available.
En bloc in Singapore
Recent years have seen a multitude of en bloc sales, including that of iconic Singaporean landmarks, such as Chinatown’s Pearl Bank Apartments, that’ll be making away for the swanky new One Pearl Bank.
Perhaps your new knowledge of why and how an en bloc sale happens will shed new light on these activities in the property market!