2017/2018 has been an exciting year for the property market in Singapore. Almost every week, there is an announcement of a new privatized HUDC estate or old condo project being put up for sale.
And quite frequently, we get news of a blockbuster sale, smashing previous records and setting a new high for an En Bloc site!
But what we don't see is the "behind-the-scenes" during an En Bloc process. In fact, there are 6common road blocks which hinder the En Bloc process, resulting in quarrels and sometimes fights between residents.
Let us first understand the En Bloc process.
WHAT IS AN EN BLOC
An En Bloc sale, also known as a Collective Sale, is a sale of two or more property units to a common purchaser. A common en-bloc scenario is one where all the units in a strata-titled development are sold to a developer and proceeds are divided amongst all the unit owners. Other variations of en-bloc sales include the sale of all units in a development together with an adjoining development or landed properties.
The rules and regulations of an En Bloc sale are governed by Strata Titles Board (STB), under the Land Titles (Strata) Act – section 84A. Over the years, there has been additions and amendments by the ministry of law to the en bloc law have made the en bloc rules more stringent.
Below is an easy illustration of the En Bloc process:
But the whole process is easier said than done. There are bound to be objections to an En Bloc sale, and usually from the 6 road blocks mentioned below.
1. SELLERS STAMP DUTY (SSD) PENALTY
For those who bought their properties recently, they may be faced with Seller stamp duty (SSD) as Stamp duty is payable upon your buyer exercising the option to purchase your property.
Yes, even if you did not intent to go for en bloc, and the en bloc sale is successful, you will still be liable to pay SSD ranging from (4%~16%)!
Which is why some owners object to an en bloc sale, as their sales proceeds are being eaten away due to the SSD penalty.
2. HOME OWNERS WHO HAVE REFINANCED RECENTLY SUFFER PENALTIES
Unfortunately, home owners who refinanced their home loans to fixed rate home loans or those with 2 years locked-in or 3 years locked-in period will incur full home loan redemption penalty. This penalty is usually 1.5% of the loan amount. This tend to affect those who have bought their properties in recent years as their loan size tends to be bigger and their corresponding home loan redemption penalty higher.
3. TECHNICAL ROAD BLOCKS
Just because a development site has been awarded to a developer, doesn't mean all is well and done. Recently, the en bloc process at Tampines Court shows that even after a buyer is found, the transaction can still be hindered with technical issues.
The sale process has been delayed as the developer, Sim Lian Group, awaits its Planning Permission (PP) approval from the Urban Redevelopment Authority (URA).
These are mandated works that the developer has been advised by the Land Transport Authority (LTA) to undertake, in order for it to increase the number of units built on the site from the current 560 to 2,000, as the existing road infrastructure has limited carrying capacity.
To do so, Sim Lian will have to sacrifice about 6-7 per cent of the 702,164 sq ft of land to construct the slip road.
Because of this, the government last November mandated that potential buyers, developers and real estate agencies have to submit a Pre-Application Feasibility Study (PAFS) to LTA assessing the traffic impact of any redevelopment on the neighbourhood and proposing measures to manage traffic demand. Developers need to do this before they submit their development application to the URA.
4. SENTIMENTAL VALUE
For older developments especially, some of the residents have been staying there for 20 to 30 years. And they have developed a sense on bonding and comfort with their home. To some, the "windfall" from a successful en bloc sale cannot replace the sentimental value they have for their home.
From an article from Today newspaper, "Then-Nominated MP (NMP) Kalyani Mehta cited “heartbroken” elderly folk forced to leave their homes of many decades, and of people separated from neighbours they counted on for companionship and support. “Is it a case of economic gain but social destruction? Whole communities that have been built over decades are literally destroyed overnight,” she said."
5. RESERVE PRICE DISPUTE
During the en bloc process, there needs to be a majority consensus on the reserve price and an agreement to share the sales proceeds based on the agreed method of apportionment.
Naturally, a high reserve price that entices owners to sign onto a collective sale agreement but may turn away potential buyers.
On the flip side, a lower reserve price attracts more developers, but owners might not want to sign the agreement to sell. However, a lower reserve price may entice more developers to invest time and money to study the profitability of an en bloc sale, can foster competition that drives the sale price up, if owners are sufficiently persuaded to sign on the dotted line.
6. LIFESTYLE DISRUPTION
Imagine if you just bought a unit at the development, you've spent 6 months searching for an ideal home. You happily paid the deposit and exercised the OTP. While waiting 2-3 months for the sale transaction to complete, you've been travelling around searching for the right interior designer and right furniture for your new house!
And possibly, you could've spent $80K~$100K on ID work! But your happiness was cut short when the announcement of an En Bloc sale was in proceedings.
You will need to go through the entire process of moving and shifting houses, sourcing for furniture, engaging an interior designer...etc. The lifestyle disruption would be huge!
Or what if you bought the house because it was within 1km of the primary school you wanted to enroll your child in? An En Bloc would significantly reduce the chances of enrolling your child now.
As you can see, an En Bloc Process is usually a battle between two camps: "Sell" versus "Stay" Owners. The ugliness of an En Bloc is usually hidden from the general public, but the Today newspaper did an exclusive coverage of Cashew Heights.
The sudden boom on the property market in Singapore has lead to a sudden surge of en bloc sales being made in 2017. Therefore, some sales committee members may take advantage of the market situation and try for an en-bloc sale, most of the time overlooking on the issues from the minorities, and other legal problems that may occur.
This usually results in unhappiness among the owners because they are not receiving the right information on the en bloc sale, or they are being pressured to sign the collective sale agreement.
Owners themselves have to be clear about the process and the procedure of en bloc. They should state clearly their own reasons why they should or should not participate in the en bloc sale. They should also take the initiative to keep up with the current updates on the market, at which stage has the en bloc arrived at, and to clarify any doubts with the sale committees. These factors are important and essential to ensure that the en bloc proceed on smoothly.
At TeoDuoProperty, we strive to use global and local market data, as well as our vast knowledge and expertise to advise clients. Every property decision needs to be carefully catered to each individual's needs and situations. If you are still lost or unsure, please contact us today for a free discussion. We have helped many clients to create a clear strategy plan and make the informed decision for their loved ones.
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