Offshore: Catching the en bloc train

Since the start of the year, Grace Ng, deputy managing director of agency and business services at Colliers International, has noticed an increase in the number of investors looking at older condominiums in Singapore. Fuelling interest could also be “the revival of the en bloc sales market”, she adds.

Buyers today are mindful, however, that the en bloc sale is a “mid- to long-term play”, says Ng. “And, these days, when property agents say a property ‘has en bloc potential’, buyers tend to treat it with a measure of scepticism.”

For such investors, the primary motive of buying an investment property would be its rental income, and that will depend on its location, proximity to an MRT station and other amenities, as well as the larger unit sizes of these old condos relative to the new develop­ments. “To them, the en bloc sale is a ‘bonus’ if it happens,” adds Ng.

There are some who also like the old developments because of the large sizes and the greenery. A Singaporean veteran property investor, who declined to be named, invests exclusively in old apartments, which he refurbishes and then leases out. “It’s my passion, and I’ve found that if you do up the apartment tastefully, tenants will be willing to pay a premium,” he says.

Buying in
As more developments are rolled out for en bloc, or collective, sale, some investors who are looking for an investment property are tempted to jump in. For instance, at Colliers’ monthly property auction on March 24, a 2,701 sq ft freehold apartment on the 16th floor of D’Grove Villas on Orange Grove Road saw active bidding. The opening price for the five-bedroom unit started at S$4.6 million (RM10.69 million) , and it was sold for S$5.42 million, or S$2,006 psf. It was a mortgagee sale (or bank’s sale). Prior to the auction sale, the most recent transaction at D’Grove was for a similar-sized apartment on the 14th level that was sold for S$4.58 million, or S$1,695 psf, in November.

“The auction coincided with news reports that D’Grove Villas was in the process of collecting signatures for a possible en bloc sale, hence the strong interest,” says Ng. The 45-unit development was completed in 1992, and the smallest units area three-bedroom apartments of 1,690 sq ft.

Another old development that has also seen strong investor interest is The Sovereign on Meyer Road, which used to be considered “The Ardmore Park of the east”. The owner of a third-floor unit had put it up for sale by auction earlier in the year, and the property was sold in March via a private treaty brokered by Colliers for S$4.2 million, or S$1,271 psf. Most recently, a 2,637 sq ft unit on the 29th floor of the 30-storey tower was sold for more than S$4.2 million, or S$1,600 psf.

The 30-storey tower was completed in 1993 and is said to have redevelopment potential, as the freehold site is large at 143,918 sq ft. What’s more, the existing development’s plot ratio is 1.8, which is below the site’s master plan plot ratio of 2.8 (the maximum potential gross floor area that can be built relative to land area). Given the size of the land, either an additional tower can be built or the existing building torn down and redeveloped into a condo.

Meanwhile, last month, a 1,688 sq ft freehold apartment with private enclosed space at The Windsor on Ontario Avenue, off Upper Thomson Road, was put up for auction sale by the owner. The opening price was S$1.19 million, but the owner accepted a counter offer of S$1.14 million from a buyer. The 159-unit development was completed in 1987 and has large grounds.

Up for auction sale on May 19 is a 2,715 sq ft unit at Grange Heights, with an indicative price of S$4.4 million, or S$1,621 psf. Two similar-sized units were last sold in February: one at S$3.65 million, or S$1,346 psf, and the other at S$3.7 million, or S$1,364 psf.

Grange Heights had attempted an en bloc sale in late 2007, when it was put up for sale by tender, with an indicative price of S$845 million, or S$2,200 psf per plot ratio (ppr). The site area is large at 136,678 sq ft and, with a plot ratio of 2.8, it can be redeveloped into a 36-storey condo. The 120-unit development was completed in 1976.

In the Leonie Hill Road neighbourhood near Grange Heights is Horizon Towers. Two units — one on the 17th floor and the other directly above — measuring 2,583 sq ft each will be put on the block at the upcoming May 19 auction by Colliers. Both units, which share one title and belong to the same owner, have a total indicative price of S$5.8 million. According to caveats lodged with URA, the most recent transaction was that of a 2,422 sq ft unit on the 17th floor of one of the two towers. It was sold for S$3.03 million, or S$1,251 psf, the highest psf price achieved since January 2007, according to caveats lodged.

The aborted en bloc sale of Horizon Towers in 2007 and its subsequent lawsuits by minority owners who had opposed the sale has made most sales committees, marketing agents and lawyers more wary of some of the pitfalls of such sales.

‘En bloc vultures not back yet’
“En bloc vultures” are not back in the numbers seen during the en bloc fever a few years ago, notes Norman Ho, partner of Rodyk & Davidson’s Real Estate Group. Ho is a veteran legal adviser in many of the en bloc sales and was also involved in the successful sale of the 618-unit Farrer Court, which was purchased by a consortium led by CapitaLand.

However, Shaun Poh, senior director of investment advisory services and auction, says: “With collective sales back in the limelight and the pricing of new launches surpassing the last peak, some investors are once again casting their eyes on old condos with en bloc potential.”

Karamjit Singh, managing director of Credo Real Estate, cautions that investors who want to buy into a development because of a possible en bloc sale will have to do their math, and see what price levels they are entering at and the en bloc premium they could eventually get.

“So far, from what we know, there have been only four successful en bloc sales,” he adds. “While it may appear low, it’s not because of the lack of demand, but the lack of supply. A lot of the [en bloc sales] that we’re working on were initiated only at the end of last year and early this year, and the new set of laws requires a much longer gestation period for the roll-out of such sites, which is why there are a lot of projects being worked on behind the scenes but not ready for launch yet.” (See table.)

In fact, he gets an average of five to eight inquiries about and requests for proposals on en bloc sales each week, which is as high as it was during the collective-sale fever of 2005 to 2007. “More than half [of those who expressed an interest] would have attempted an en bloc sale in the past,” he adds.

Rising market — a double-edged sword
The challenge for most marketing agents of en bloc sale sites today is the arduous task of securing a consensus of at least 80% among the owners. The new en bloc rules introduced in October 2007, which require a lawyer to be present to witness the signing by the owner, has also been “a hindrance”, says Jeremy Lake, executive director of investment properties at CB Richard Ellis (CBRE). “Lawyers tend to be more desk-bound than marketing agents.”

From a lawyer’s perspective, says Rodyk’s Ho, the new laws requiring a lawyer to witness the signing is also a logistical challenge. “I can’t send our lawyers [especially the women] in the late evening to witness the signing but, sometimes, that’s the only time the owners say they will be home,” he says. “Last weekend, I was at the airport just to witness the signing by an owner who was going overseas.” In addition to this procedural requirement, the owners are given a cooling-off period of five working days to rescind the signature signed before a lawyer, if they so wish.

Given the logistics involved, the trend seems to be for en bloc sales of developments with up to 150 units, as they are more manageable, notes Ho.

Adding to the challenge is the positive market sentiment and prices of new launches hitting new highs, especially in mass-market and mid-tier projects. “People want to wait because they think prices will go up further, and so they are in no great hurry,” adds Lake. “That’s why there’s been just a trickle of en bloc sales.”

The en bloc sales that have been successful so far have been relatively small — in the S$50 million to S$100 million range — unlike the collective sale fever of 2007, which saw several sizeable sales go through, the largest of which was that of the privatised HUDC estate, Farrer Court, which has a land area of close to 840,000 sq ft. It sold for a record of more than S$1.3388 billion in June that year.

An example of a relatively small en bloc sale this year is that of a three-storey strata-titled industry factory sitting on a 27,838 sq ft freehold plot. Located on Jalan Ampas, off Balestier Road, it could be rezoned for residential development and was sold for S$27.5 million in January. There is also an estimated development charge of S$18.7 million for the rezoning of the site for residential use.

In March, Chip Eng Seng reportedly bought 16 terraced houses in a development called Fort Terrace, on Fort Road in the East Coast, for about S$86 million. In April, developer Fragrance Group purchased Culford Gardens, a 24-unit condo en bloc for S$39 million; and boutique developer EL Development purchased Diamond Tower, on Jalan Rajah in Balestier, for S$49.6 million. The en bloc sales of Jalan Ampas and Culford Gardens were brokered by Credo.

Laguna Park, which had attempted an en bloc sale last year, is planning another attempt. In terms of size, it is almost as large as Farrer Court, with a land area of 677,493 sq ft and a gross plot ratio of 2.8. The indicative price last year was S$1.2 billion.
A 2,701 sq ft apartment on the 16th floor of D'Grove Villas on Orange Grove Road saw active bidding recently
Suburban and mid-prime locations
The sites that are coming up for en bloc sale tend to be in suburban and mid-prime locations, with a couple in the CBD area. This is unlike in 2005 to 2007, when most of these sales were largely in the prime districts of 9, 10, 11 and 15 (Katong area, East Coast).

In March, Pender Court, located at the foot of Mount Faber and just off Telok Blangah Road, was put up for collective sale by tender with an indicative price of S$100 million. The closing of the tender has been postponed as the URA has yet to state whether a development charge will be levied on the site. This is the second en bloc attempt since the first one failed in April 2008, when the initial buyer, Bravo Building Construction, pulled out of the sale.

Last month, Toh Tuck Apartment, located off Upper Bukit Timah Road, was also put up for en bloc sale with an indicative price of S$35.5 million. The freehold site of 40,449 sq ft,with a plot ratio of 1.4, has an existing development of 13 apartments. The building is owned by a single owner, Aik Hwa Trading Co, formerly a developer and now in the building materials business. The tender for the project closed on April 23.

Jeffrey Goh, head of investment sales at HSR, the marketing agent for Toh Tuck Apartment, says “several parties had submitted bids” and negotiations are underway.

Goh says some investors had bought into old developments and positioned themselves for a potential en bloc windfall since the middle of last year. This move is not surprising, given the strong buying momentum followed by a sharp price recovery. CBRE says the residential price index has recovered 30.7% since it bottomed out in 2Q2009.

“Investors come in and out in waves,” says Goh. “Some of them have driven prices up so aggressively that the en bloc premium is no longer as attractive.” In the past, the premium could be 80% to well over 100% in some cases. Now, it is 40% to 60%, he reckons.

In a rising market, as prices of new launches go up, the asking prices of en bloc sellers go up in tandem, “so it’s difficult to match what developers are willing to pay”, says Rodyk’s Ho. “Developers generally prefer the Government Land Sales because, even though they are of 99-year leasehold tenure, at least there’s less uncertainty compared with collective sales, particularly in terms of time line.”

The proposed amendments in Parliament to the Land Titles (Strata) Act on April 26 help fast-track the en bloc sale process by reducing the number of EGMs required, speeding up the procedures undertaken by the Strata Titles Board and having the matter heard before the High Court. The role of STB under the proposed amendments will be “more mediatory”, failing which, once STB issues the stop order, the matter will be transferred to the High Court, says Ho. “In the process, legal and court fees will definitely go up,” he adds.

Ho says the two-year moratorium after a failed en bloc attempt is also “very fair as it prevents en bloc vultures from repeatedly pushing for an en bloc sale even after the attempt has failed”. For the first re-try within the two-year period, a quorum of at least 50% has to be secured to convene an EGM. For the second or subsequent re-tries, 80% will be needed if it is done within the two-year period.

But en bloc sales are going to happen and “frankly, right now, it’s almost anywhere”, says Credo’s Karamjit. Still, it is primarily in the mid-prime and suburban areas. “Upper East Coast, Kovan, Yio Chu Kang, Pasir Panjang — areas where there are MRT stations coming up and where there is a huge potential for HDB upgraders in the vicinity,” he elaborates. There could even be a few in the CBD area, he adds.

Most of the collective sales done this year are likely to be less than S$300 million, says Karamjit. “But, there is bound to be a handful of large deals, and success will depend on the rate at which their prices reflect the outlook for the property market at that time.” Given the pipeline of potential en bloc sales and the rising prices of new launches, it is no wonder some investors are tempted to jump in.

Cecilia Chow is City and Country editor at The Edge Singapore

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 806, May 17-23, 2010.


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