En bloc: importance of being earnest

New rules can’t prevent fights led by greed but tussles should be less explosive, writes KARAMJIT SINGH

THE year 2007 will go down as the most spectacular in the 13-year history of Singapore’s en bloc market. It was a story of massive fortunes made and lost. A record number of deals changed hands at a frenetic pace. Prices shot through the roof as it was a period when the perception of Singapore’s prospects had changed dramatically and local property prices appeared cheap relative to the major global cities that Singapore started being associated with. Funds and investors from overseas poured in, and developers and local speculators bought feverishly.

To be precise, it was the first half of 2007 that was truly phenomenal for the en bloc market. In just those six months, 58 en bloc deals involving 5,500 owners took place at a staggering value of $10.8 billion. That amount was close to the value of deals in the previous four years put together!

In 2007, several other records were broken too. Farrer Court created history by being the biggest en bloc deal ever sold. It was the first and only transaction to cross $1 billion. The 618 units at Farrer Court also made the largest pool of en bloc sellers to be successful. Fittingly, Singapore’s largest listed developer, CapitaLand, led the consortium that purchased it. They are proposing to build possibly Singapore’s largest condominium project comprising 1,500 units. (The current record stands at just over 1,200 units at Melville Park in Simei.)

The Westwood Apartments deal set the benchmark for being the most expensive residential site traded. It was sold in November 2007 at a land rate of $2,525 psf per plot ratio (ppr) to Malaysian developer YTL Corporation. As an indication of the extent to which prime land rates have surged, just 18 months before Westwood was sold, the nearby Beverly Mai was bought for less than half its rate - at $1,184 psf ppr. If Westwood had been sold 36 months earlier, chances are that it would have fetched only a quarter of the price it secured.

Amid all the exuberance were negative voices raised against en bloc sales, as well as legal tussles between owners and purchasers involved in collective sale developments. There were calls to restrict or ban such sales, especially for projects with heritage or architectural value.

There were also numerous complaints about how the process was handled, claims of bad faith and the railroading of minority interests. Above all, there were several high-profile legal tussles involving the purchasers, consenting sellers, non-consenting owners, and some owners who had consented but sought ways to rescind their sales agreement.

The vigour with which legal tussles were fought in some cases seemed to be correlated with how quickly property prices shot up after their sales took place. Many relied on technicalities as potential loopholes, while others were simply a case of minority owners being dead set against the sale.

The dissenting voices of the minorities in many en bloc projects - sold or not, irrespective of their motives - created the impression that the en bloc laws that had worked well for eight years needed an overhaul. On one hand, there are certainly areas where the rules could have more clarity. On the other hand, the voices were not totally representative, as the vast majority tend not to be vocal.

Recognising this and balancing various views, the government introduced a new set of laws in October last year that raised the standards on governance and disclosure. At the same time, some redundancies in the application process to the Strata Titles Board (STB) were removed and STB’s powers were enhanced to disregard non-prejudicial technicalities.

The market largely welcomed the new laws. Some, however, wondered if certain new provisions were really needed, like allowing owners who sign a collective sale agreement to withdraw their consent within five days. It also increases costs for en bloc sellers and makes the exercise more long drawn out.

By this time last year, 25 deals had taken place. So far this year, only one small deal has been reported. Such is the extent to which the en bloc market has slowed with the onset of the US sub-prime crisis in August last year. This points to the cyclical nature of such deals.

En bloc sales take place when developers are confident of the market, and the prospects of profits are high. When the outlook is cautious or uncertain as it is now - or worse, bearish - developers refrain from buying land or en bloc sites. Moreover, with tidy gains made in the bull market of the past two years, developers here can afford to sit on their land stock for a while longer until market sentiment improves.

This market lull will remain as long as the mood is cautious or there is no confidence in the health of the market. However, the expected growth in population due to immigration and the withdrawal of housing stock through last year’s en bloc sales mean demand and supply are still out of sync and it could take a while before they find equilibrium again.

Then there is the slew of exciting projects taking shape like the integrated resorts and hosting of the Youth Olympics. This points to latent activity in the Singapore property market.

When the sub-prime cloud clears, demand for land from developers should pick up and en bloc sales will be back on track. Activity in this round is unlikely to mirror 2007, as it would be taking off from a higher price base.

En bloc sales are the main source of prime freehold land. They will continue to play an important role in urban renewal in Singapore as they help revitalise the property market by stimulating demand.

Disputes in such sales are not likely to go away, even with the introduction of the new laws, as no amount of legislation can prevent disagreements or actions led by greed or dishonesty. However, the market is unlikely to see a repeat of the spectacular price rise of 2007 anytime soon. As such, tussles should be less explosive.

Karamjit Singh is the managing director of Credo Real Estate.