En bloc punts in play, but price gap threatens to spoil the party

“With the shortage of land supply and keener interest from developers, many potential en-bloc sale owners are exploring whether this is the right time to try again,” JLL wrote. 

Updated from : The Business Times, 25 Apr 2021

MORE properties could soon be put up for sale en bloc, as unit owners hope to cash in on resilient real estate prices in Singapore and developers’ growing appetite for land.

But consultants are seeing “a mismatch in price expectations”. That means deals might be slow to close or fall through entirely. Given this, potential buyers flocking to the collective-sale market should take pause.

Residential, commercial and mixed-use projects across Singapore are at varying stages of the pre-launch process. That includes those setting up their collective sale committees (CSCs), interviewing agents and lawyers, or working to obtain the required level of owners’ consent. Developments in the midst of preparation include Spanish Village, Laguna Park, and City Plaza, BT understands.

JLL said this month that its capital markets team has, since the last quarter of 2020, received “significantly more enquiries” from projects that were starting to explore or were already undergoing preparations for en bloc sales.

Most of the projects that are now gearing up for launch had been unsuccessful in the last collective-sale frenzy in 2016-2018, said JLL Singapore executive director of capital markets, Tan Hong Boon, and senior director of research and consultancy, Ong Teck Hui, in a commentary published by BT just this month.

“With the shortage of land supply and keener interest from developers, many potential en-bloc sale owners are exploring whether this is the right time to try again,” they wrote.

Showsuite Consultancy CEO Karamjit Singh told BT his team has received about three to five times more enquiries from en-bloc sellers this year, compared to last year. However, “many” projects were “assessed not to be viable at this stage”, he said.

ERA Realty head of research and consultancy, Nicholas Mak, noted that many of the condominium unit owners eyeing collective sales were encouraged by the strong transaction volumes and prices of private residential properties since last year.

He observed activity among owners starting to pick up in Q4 2020, with extraordinary general meetings being conducted to elect CSCs. But most of the condominiums launched for en-bloc sale in the past six months have been small to medium-sized with an average reserve price of S$150 million, Mr Mak noted.

ERA group division director, investment sales and capital markets, Jeremy Chiu, estimated that more than 40 apartment, condominium and commercial projects in Districts 2 to 7, 9 to 11, 14 to 17, and 21 are preparing to go on the market..

On the demand side, interest has also grown as developers pare down much of their unsold stock and will likely look to the collective-sale market to replenish their land bank, Huttons chief executive Mark Yip said.

Colliers International senior director of investment services, Steven Tan, expects a revival of the en-bloc cycle this year, given that the unsold inventory of private housing stands at about 26,000 units, close to the last en-bloc fever’s “trigger point” of 24,000 units in 2017. “With an annual average absorption rate of 8,000-10,000 units per year, the unsold inventory will be fully absorbed in 2.5 to 3.5 years,” Mr Tan noted.

ERA’s Mr Chiu said more than 15 developers and investment funds have contacted his team since January 2021 seeking information about potential en-bloc launches. They’re mostly interested in bite-sized quantums of around S$30 million to S$100 million.

A few investors from mainland China and Hong Kong with “deep pockets” have also sought information on projects priced between S$200 million and S$500 million, said Mr Chiu.

In the previous collective-sale boom, many tenders did not culminate in deals because the buyers’ offers fell short of the asking prices.

Between 2018 and 2020, more than 90 projects failed to attract bids above their reserve prices, PropNex’s head of investment and collective sales Tracy Goh estimated.

Given this, marketing consultants have been advising some CSCs to lower their price expectations, BT understands. Unsurprisingly, they face resistance from certain owners, especially those who believe the recent uptrend in private home prices should justify higher land bids.

Showsuite’s Mr Singh said that sellers whose earlier collective-sale attempts fell through are seeing the rise in resale condo prices, which erodes the perceived attractiveness and profits of pursuing an en-bloc sale.

And from the en-bloc buyers’ perspective, stamp duties introduced in July 2018 have driven up developers’ costs and risks. Construction costs have also climbed amid manpower shortages, Mr Singh noted.

The 2018 round of cooling measures – which pulled the brakes on the last en-bloc chase – included a 5 per cent non-remissible additional buyer’s stamp duty (ABSD) for residential land purchases. Developers have to factor this into their computations of land prices, which could soften prices offered for en-bloc sites, JLL’s Mr Tan and Mr Ong wrote in their commentary.

Another consultant told BT: “Developers don’t dare to bid too much for land nowadays because of thinning profit margins, and the risk of any potential new cooling measures causing weak demand for private homes in the future. So there’s sort of an impasse now in the en-bloc market between developers and sellers.”

Such a pricing gap could be bridged more easily in the past collective-sale waves, as land prices were increasing. But this time round, fears and risks of policy changes are keeping land rates under tight control, Mr Singh said.

Mr Tan from Colliers highlighted the need to strike “a fine balance” when setting a reserve price.

“It must be able to encourage participation of unit owners, and also encourage interest and bidding participation from developers,” he said.

Huttons’ Mr Yip expects greater chances of success for smaller sites yielding 200 or fewer units. “It may be an uphill task for larger sites, which developers are less likely to stomach due to the uncertainty and higher risks of incurring ABSD,” he added.