Does my development have potential for En Bloc?
One of the last en bloc sale for 2021 was Flynn Park at 18–22 Yew Siang Road in District 5 being sold for $371 million, breaking records as the largest collective sale for 2021.
Bought by a joint venture between Hoi Hup Realty Private Limited and Sunway Developments Pte. Ltd, the land rate was $1355 psf per plot ratio (or $1318 psf ppr if factoring in the 7% bonus gross floor area from balconies).
Each owner although reluctant to let go of their spacious apartment, were rewarded handsomely as they also felt that it was time to let the ageing development get a new lease of life. This is their second attempt with the first attempt in 2018 concluding without a buyer.
The tender exercise was keenly contested given the rare hill-side plot Flynn Park is situated on. The potential to develop a luxury project at the fringe of the city centre just 350m from Pasir Panjang Station and right next to Kent Ridge Park — a historical nature reserve, was what piqued the interest of developers.
But wait, that’s not all. If we’re going to jump onto the bandwagon and join in the en bloc speculation, we need to think deeper and understand what any plot of land is in for developers.
Factors Contributing to a Potential En Bloc Sale
1) Status and Age of the Development
For starters, developers will favor freehold over leasehold lands purely for the fact that they don’t have to pay to top-up the lease premium. With that being said, 99-year leasehold developments still undergo a collective sale, just not as probable as a freehold land.
Older developments can tend to look dilapidated from the exterior. Visible cracks, peeling paint, faulty elevators and broken tiles can all contribute to exorbitant maintenance fees that wouldn’t make much sense.
2) Plot Ratio
Older developments (especially those built before 1990s) are usually not built up to the prevailing Master Plan plot ratio. This means that the land is under-utilised and redevelopment of these buildings would mean more efficient usage of space.
In short, if the existing development sitting on the land is not built in accordance to the stipulated plot ratio, developers will sniff out such projects like a truffle hog.
3) Location and Nearby Developments
URA SPACE is actually really underrated. It offers so many nuggets of information as to where the next property hotspot will be. New MRT stations, malls, parks or major rejuvenation sites will definitely increase the value of the surrounding land. More often than not, the existing properties that are decrepit are valued less than the land it is sitting on. That’s when you see developers swooping in to contest for the gold mine beneath that plot of land.
4) Size of the Development
As a general rule of thumb, smaller, boutique condos stand a higher chance of reaching the 80% mandate of owner’s consent to the collective sale. But then again, this could also backfire as even a small percentage of unwilling owners can derail the entire process.
As a developer, smaller, boutique condos are also more enticing to redevelop as there are less risks involved. First, we need to understand that developers are subjected to the Additional Buyers Stamp Duty (ABSD) and Qualifying Certificate (QC). Developers are required to build and sell all units within a 5 year period from the date they acquired the land. Hence, regardless of the size of the development, developers only have 5 years to work with before they are taxed a whopping 35% (up from 25% previously). Naturally, developers will be more cautious when taking up mega sites to en bloc.
5) Demographic of Residents
Have you wondered how some developments fail to achieve the 80% mandate? (Yes, we’re talking about developments like Cashew Heights and Mandarin Gardens.)
Case in point, Cashew Heights residents who banded together to object against the collective sale received hostile treatments from other residents who were for the collective sale. These residents who were against the sale were holding onto sentimental values while some just did not want to relocate. It is inevitable to have residents who will be against the collective sale but it’s good to understand the demographics of the residents and the reason for past en bloc failures (albeit difficult to acquire insider info).
6) Restrictions by Government Bodies
The big boys here are the Civil Aviation Authority of Singapore (CAAS) and Land Transport Authority (LTA).
CAAS imposes height restrictions on buildings for certain areas while LTA conducts Pre-Application Feasibility Study (PAFS) to study any potential congestion on roads and residential areas as a result of intensified redevelopment of older constrictions.
Why does this matter? Well, if you’re buying into a development that will actually be affected by either (or both), chances are developers will turn their attention to other areas instead. For instance, the relocation of Paya Lebar airbase in 2025 coupled with the rejuvenation of the Kallang River will definitely see an uptick of developer interest in District 14 and 15.
7) Surrounding Market Demand and Prices
Another factor that will determine if a developer is or is not eyeing your development for en bloc is the demand for properties in your area. Developers are money-making entities so it’s only natural that they will go anywhere that makes financial sense to them. If there are too many new launches in the area, they might want to stray away for now. However, if the surrounding new developments are exceptionally well-received, it simply means that there is a demand for new homes in the area. Compare that with the resale transactions of older surrounding developments and we can more accurately trace the steps of developers and predict their next move.
Conclusion
There are a myriad of other factors that come into play when we speculate about en bloc potential. After all, it is a high risk, high reward investment opportunity. However, it is worthy to note that it is possible to reduce the risks associated as long as you do your due diligence.
That being said, it is not advisable to just enter an ageing development based on hearsay because the last thing you’d want to hold onto is an ageing development with poor rentability and low resale value.
I hope this article serves purposeful in helping you make a more well-informed decision, regardless of whether you’re purchasing a property for own-stay or investment. As always, feel free to share your opinion in the comment section and I will take time to address them when I can. Till next time!
