2017 has been a peak year for en-bloc sales in Singapore – as of November, some 20 residential projects have been sold through collective sales. While this most likely spell good news for those that went through a successful sale, having such record numbers of property transaction in the market will no doubt cause an impact on the local property market.
For those who have little idea of what exactly goes on during an en-bloc sale, why it happens and its impact on the property market in 2018, here’s a little primer for you.
En-Bloc Sales – The Process
Why it happens – An en-bloc sale is usually initiated when a company/developer is interested in a residential project. This usually happens when these companies think that they can make more money by redeveloping the current project.
One major factor affecting an en-bloc sale is the plot ratio of the land. Every 5 years, the government will revise the plot ratio via the URA Master Plan, which allocates land plots for specific usage - industrial, commercial, and residential. This will then determine the type of property to be built in the area as well as the maximum number of floors.
So take for instance, ABC condominium is currently made up of 5 blocks of 10 storeys each. Each storey houses 4 units. With an increase in plot ratio, the same plot of land can now house 8 blocks of 20 floors, with 4 units each. Developer A sees a potential in this residential project and thus offer a buying price that is at a 40% premium to market price. The ball is now in the court of the residents.
For properties that are less than 10 years old, it’d need 90% of the households(by share value) to vote yes for the deal to go through. For properties beyond 10 years old, an 80% vote is required.
With such a high premium offering, you will think that a majority of residents will find it hard to say no. Unfortunately, that’s not always the case. Some may feel that they should be offered a higher price, or perhaps, a new owner who recently moved in had just spent a substantial sum for renovations. This is why the process can sometimes be tedious and long-drawn.
How the En-bloc fever will affect Singapore’s property market
There are many signs pointing to a better outlook for Singapore’s property market in 2018. For one, the en-bloc craze has set about a more optimistic outlook with cash-rich sellers looking to acquire their next property; and even have some extra for a property investment.
A brighter outlook for the market is also seen by the increase in the private property price index in Q32017. This could help release pent-up demand from investors and buyers who have been waiting to see a sign of recovery.
While MAS has recently released warning to caution property buyers and investors against being too optimistic, saying that the market is still subject to demand and supply factors – the newly-developed en-bloc units will likely increase the supply of private housing substantially in the next few years. The bottom is most likely behind us already. Thus, those who are interested in buying a property should probably act fast since we’ve reached a point where the market is just starting to turn up. Concurrently, we are seeing an increase in mortgage rates. With a rise in asking prices and higher interest rates, one must watch out for the additional burden of mortgage repayments. If you are seeking a replacement unit after a successful en-bloc sale, make sure you check out home loan options.
Thus, it makes sense to start your search soon and take advantage of the (still) low property prices before the demand sets in.