With deals already slowing down, developers are likely to hit the pause button on en bloc purchases. What does this mean for the property market?

Veteran litigator Adrian Tan, partner at Singapore boutique law firm TSMP Law Corp, has become a Robin Hood of sorts in representing minority owners in collective sale disputes. Tan has taken up the case of the seven minority owners at Goodluck Garden who said they were told that there would be a development charge when there was none.

The 210-unit condominium on Toh Tuck Road was sold en bloc in March for $610 million to a joint venture between Qingjian Group and Perennial Real Estate.

Tan and his colleague Ong Pei Ching are also representing the sole objector — the owner of a penthouse — at Cairnhill Mansions, over the method of apportionment used. Cairnhill Mansions was sold to Low Keng Huat for $362 million in February.

Cairnhill Mansions was sold to Low Keng Huat for $362 million ($2,311 psf ppr) (Credit: CBRE)

Tan himself has been on both sides of a collective sale: as a majority owner and a minority owner. He is currently the owner of a unit at Horizon Towers in prime District 9. The first collective sale attempt by the 210-unit private condo on Leonie Hill Road was 11 years ago, and it was one of the most contentious in Singapore’s history.

After the collective sale committee secured Hotel Properties Ltd as a buyer at $500 million in 2007, the en bloc purchase was overturned by the Court of Appeal in 2009, as there were grounds that the CSC had not acted in good faith to seek the best price. Legal disputes between minority owners and members of the CSC dragged on until 2013 when the case was dismissed by a High Court judge.

‘Timing couldn’t be worse’

Tan and his wife, however, both liked the unit they saw at Horizon Towers and went ahead with buying it last year. Less than a year later, contrary to their expectations, the new CSC at Horizon Towers succeeded in garnering the requisite 80% consensus to proceed with a collective sale. The development was launched for sale by tender on July 4. The reserve price was set at $1.1 billion — more than double the $500 million price tag it was nearly sold at in 2007.

The collective sale of Horizon Towers was launched on July 4, just a day before the government announced its property cooling measures.
(Picture: Samuel Isaac Chua/ The Edge Singapore)

The launch came just a day before the government rolled out its latest round of property cooling measures. “The timing couldn’t be worse,” says Tan. He was sharing his experiences at the EdgeProp 360+ “En bloc vs En block” seminar. On the evening of July 5, as he was speaking at the EdgeProp event, the government announced its ninth round of property cooling measures that would take effect the following day.

The measures include a five percentage point (ppt) hike in additional buyer’s stamp duty for all save first-time homebuyers. Borrowing limits were tightened across the board, with the loan-to-value (LTV) ratio cut by 5ppt. Bearing the brunt of the cooling measures are corporate entities buying residential property, as the ABSD has been increased from 15% to 25%. For developers, there is an additional 5ppt non-remittable ABSD to be paid upfront.

Tables: MOF, MND, MAS

On the eve of the announcement, Monetary Authority of Singapore managing director Ravi Menon had warned developers to be cautious when making their land bids, bearing in mind the supply that is coming onstream. He was speaking at the MAS annual report media briefing.

Many sites, fewer buyers

However, even before the government took these pre-emptive measures, Colliers International’s data already showed a slowdown in collective sales: 21 collective sale tenders valued at $5.6 billion closed in May and June without a sale.

“Today, there are many sites up for collective sale chasing a limited number of developers who might have already bought land but have yet to launch their projects,” says Tang Wei Leng, managing director of Colliers International, who was also a speaker at the Edge- Prop 360+ event.

“These measures [ABSD and LTV changes] will make developers pause because an en bloc sale is an exercise in optimism,” says TSMP’s Tan. “En bloc deals happen during a property cycle’s upswing. If developers think the property market is now at a plateau, they won’t be in a hurry to buy sites. And for anyone who hasn’t reached 80% consent or launched their collective sale site for tender yet, I think they will have to wait a few more years.”

Even before the government took the pre-emptive measures, Colliers International’s data already showed a slowdown in collective sales
(Picture: Samuel Isaac Chua/ The Edge Singapore)

It is not just a big blow to developers but also en bloc beneficiaries shopping for a replacement property and investors, notes Ian Loh, Knight Frank executive director and head of capital markets. “For owners, the cost of a replacement home has gone up, but the en bloc premium is likely to be reduced.”

What premium?

TSMP’s Tan himself had voted for a collective sale during the last collective sale wave from 2005 to 2007. It was for the sale of Westpeak Condo on West Coast Walk.

The payout he received for the unit he owned at Westpeak Condo was $1.4 million when the estate was sold for $206.1 million to Chip Eng Seng Corp in 2006. It has since been redeveloped into the 659-unit The Parc Condo, which was completed in 2011.

The lawyer representing the owners at WestPeak Condo had advised them not to buy a replacement property until they received their payout. “I rank that as one of the worst pieces of advice that a lawyer can give regarding a property property purchase,” says Tan.

Tan: If the market is cooling, developers are unlikely to buy an en bloc site (Picture: Samuel Isaac Chua/ The Edge Singapore)

Some of the other owners at Westpeak Condo, like Tan, felt that they should not wait, but look for a replacement home immediately. “The time lag between those of us who went ahead to look for a home versus those who went later — after they received their money — was six to eight months,” he says. “During that [time frame], the market shot up.” Those who waited were priced out of the market and had problems finding a similar-sized unit in the same area.

Given the long-drawn-out collective sale process, people become disenchanted along the way, especially when what they thought was a good price may not be so at the end of the entire process as prices have run up. “It takes up to 12 months to get the signatures from 80% of the owners; another six months to go through the tender, and another six months to complete,” says Tan. “When people talk about en bloc premiums, I laugh because it’s not a premium if you factor in the time.”

According to Colliers’ Tang, owners typically receive a premium of 50% to 60% from selling their property collectively compared with selling the individual unit in the resale market. “They may now have to accept a lower premium if they want to get the deal across the line,” she notes.

More deals with strings attached

If anything, the latest cooling measures will raise the acquisition cost for developers, and this will surely have a bearing on prices of collective sale sites going forward, cautions Colliers’ Tang. “It will likely [dampen] the euphoria among would-be en bloc sellers and help to rein in unrealistic price expectations.”

Tang: Owners may now have to accept a lower premium if they want to get the [en bloc] deal across the line
(Picture: Colliers International)

Developers are expected to be more selective in land purchases, given the higher ABSD remission clawback if they fail to develop and sell all the units within five years. But Colliers believes redevelopment sites in mature estates or areas where there have been few new launches could still be appealing.

“Developers know they have the advantage [in a collective sale],” says Tang. “If the location is good — with schools and MRT stations nearby — it might be easier to market. But if the site is overpriced, it eats into developers’ profits, creating more risk and uncertainty for them.”

Collective sale deals increasingly come with a “put-and-call option”, as developers do not agree with the asking price, notes Tang. “They then offer a lower price, forcing the CSC to go back to the owners to get the 80% agreement.”

Some developers are also imposing conditions for purchases, especially for sites that ask for a higher price, notes Tan Hong Boon, JLL regional director of capital markets. “If the conditions are not met, they have the right to walk away from the deal,” he says.

Other developers will stipulate a minimum number of units to be built, especially for large collective sale sites that are subject to traffic impact studies.

Scaling the peak

Although collective sale prices have hit a new high of $2,910 psf per plot ratio (ppr) with the sale of Park House on Orchard Boulevard last month, the total value of deals is still below that of the previous collective sale boom from 2005 to 2007.

Based on en bloc deals done from 2016 to the present, the total value amounts to $19.2 billion (including the purchase of Casa Meyfort), according to Colliers. During the last collective sale frenzy from 2005 to 2007, there were $21.8 billion worth of transactions. In the first collective sale boom from 1994 to 1997, the figure was $3.8 billion.

However, the average deal size of a collective sale has risen, points out Tang. In the 1994-to-1997 period, the average deal size was $41 million; from 2005 to 2007, it was $93 million; and from 2016 to the present, it has been $299 million.

En bloc hopes derailed?

What is interesting is that owners’ proceeds have not risen as fast. In the 1994-to-1997 period, owners’ proceeds averaged $2.2 million. Today, it is $2.7 million, according to Colliers International’s research.

There are more than 150 developments at various stages of the collective sale process. “In every part of Singapore, there are still owners who aspire to unlock the value of their property through collective sales,” notes Tang.

Besides unrealistic pricing by owners and the property cooling measures, another factor that could derail the collective sale market is unsold stock. According to Tang, the 10-year absorption rate for housing demand is about 12,500 units annually. All the collective sales and government land sale sites sold in the current collective sale cycle are expected to yield about 42,000 units. “It could take three to 3½ years to clear the stock,” she points out.

Unsold inventory adds to overall supply and will curtail developers’ appetite for more land. “If supply increases drastically, it might take four to five years to clear the stock,” says Tang. “This might become a worry for developers as the imposed penalties will create the urgency to sell their units within a five-year time frame.”

In the wake of the cooling measures, which have made developers more cautious about bidding for sites, some CSCs are considering extending their estate’s collective sale tender closing period. These include Spanish Village and Gilstead Court.

However, collective sale sites whose tender closed before July 5 will have to enter the 10- week private treaty period, notes Sieow Teak Hwa, managing director of Teakhwa Real Estate. These include AVA Tower, Holland Tower and Gilstead Mansion.

Developers ‘de-risking’

Colliers’ Tang sees developers “de-risking” by buying sites that they are “very confident” of selling.

GuocoLand announced on July 10 that its subsidiary, First Meyer Development, had successfully tendered for the en bloc purchase of Casa Meyfort on Meyer Road, and that it had exercised its option to purchase the site at $319.88 million.

GuocoLand has acquired Casa Meyfort on Meyer Road for $319.88 million, but it will not be subject to the new ABSD (Picture: ET&Co.)

The freehold Casa Meyfort was first launched for collective sale last December at $340 million and the tender closed in January this year without a sale. It was launched for tender again in April and the tender closed on May 21. The asking price was $340 million. Edmund Tie & Co is the marketing agent.

GuocoLand’s en bloc purchase of Casa Meyfort was agreed on at end-May, hence the previous ABSD rates (15% fully remittable) apply.

This latest en bloc purchase shows that smaller-quantum sites or those that yield up to 200 units remain feasible for developers, says Lee Liat Yeang, senior partner at Dentons Rodyk & Davidson. “There are still developers looking to replenish their depleting or depleted landbank.”

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