Image credit: CNA
There is an ongoing en bloc revival happening right here in Singapore and this has been on the minds of many private residential property owners. Despite the pandemic, the demand for land has been overwhelming, and many news outlets have been covering this demand on a more frequent basis.
Spanish Village, Thomson View, Laguna Park, and Cashew Heights are among some of the developments that could be considered en bloc sales or are already in the preparation process. And who could’ve missed the news about Watten Estate Condominium, a district 11 collective site that was just sold for $550.8m in October 2021?
However, not everyone will know what an en bloc sale is. That’s where we come in - today’s article will dive deep into the topic of en bloc to prepare you for the en bloc revival that’s happening as we speak.
What is En Bloc?
To provide some context, the term “en bloc” has French origins and means “as a whole” or “collectively”. En bloc sales typically refer to property sales, where 80% of residential property owners collectively decide to sell their homes at the same time to one potential buyer. Such sales can also happen when a buyer gives an offer to the owners. In Singapore, these buyers are usually the government or property developers.
Why Do En Bloc Sales Happen?
En bloc sales are a popular way for land acquisition especially in a land-scarce island such as Singapore. It also happens when the real estate market is doing well. The high demand in recent launches showed a positive shift in the residential real estate market, a phenomenon that has continued to happen since 2017. Developers will then look towards en bloc sales to increase their dramatically low land inventory to keep up with the demand for real estate. In other words, when the Government Land Sales (GLS) supply isn’t enough to keep up with the housing demand, developers have to turn to en bloc.
In this context, residential properties are more favoured compared to GLS due to its flexibility of location as well as long tenure periods. Smaller sites are a favourite when it comes to bidding for en bloc sales, as they are considered investments with lesser risks. Due to the cooling measures put in place by the government, developers prefer to look into residential properties with less than 500 units. This also lessens the possibility of a failed sale, since there are lesser people to convince. If there is full consensus for the sale, the en bloc process can even be shortened. However, a problem that many developers will face will be convincing most of the owners to sell their flats to them. This is usually because many families correlate the value of their apartment to the memories they have in it along with many other reasons, making them reluctant to sell their houses.
How Does En Bloc Sales Benefit Everyone?
As for the apartment owners, there are many reasons why one would decide to agree to sell their apartments to a potential buyer. For those living in older residential properties, the difficulty in maintaining the unit may be a deciding factor. However, the main benefit sellers can get out of an en bloc sale will be the attractive premium prices that are paid by the buyer.
These payouts are typically higher than the market rate of the individual apartments, and this means that each owner will be earning a large profit margin. This profit can be as much as two times its original price! Some people who are well into their years may decide to downsize their home and the premium handed out can help to foot the bill for their next apartment.
Once the sale is successful, their investment that was initially locked in the form of an apartment is turned into cash almost overnight, and the large sum can be redirected to other parts of their lives. Some may use it to retire overseas, while some will set it aside for medical emergencies.
As for developers, a successful en bloc sale gives them access to a new plot of land. New buildings or residential apartments with attractive facilities will be built in their place, and the profit that these developers earn from the new flats is expected to be higher than the premiums paid to the original owners.
How To Decide When To Go En Bloc?
If your residential property has been selected for an en bloc sale, there are bound to be thoughts on whether this period is a good time to sell. With many developers hungrily hunting for new land to buy, selling your property to these buyers now is highly recommended.
Why is this so? The real estate market has been in a lull period of almost four years due to the government’s implementation of a 5% stamp duty for all en bloc sales in 2018. With the market coming back stronger than ever, this en bloc cycle has been long-awaited. Many developers are expressing interest in en bloc sales, and this is the perfect time for you to sell your properties and fetch a nice premium from them. Do not miss the opportunity of a lifetime, as who knows when the en bloc fever of the real estate market will die out?
The En Bloc Process
Image credit: Pexels
The process of an en bloc sale process is a long and tedious one, but the benefits reaped by both parties will definitely be worth it. If you are considering selling your property as an en bloc sale, here is the process you will have to go through in detail.
Step 1: Form A Collective Sales Committee
For the process to start, there needs to be at least 20% of the housing block’s share value. In essence, the properties that are willing to be sold have to account for 20% of the total share.
You can also go by the subsidiary proprietorship, where 25% of the owners have agreed to the sale. If the property has gone through an en bloc sale once and failed, the percentage of approval goes up from its respective numbers to 50%. Now, do note that this 50% of approval is only for the consideration of opening an en bloc sales bid. Other formalities cannot be done until the minimum consent percentage is achieved.
This initial group of owners who approve the sale will form the Collective Sales Committee (CSC) and they will initiate an Extraordinary General Meeting (EOGM) to convince the rest of the owners to sell their units collectively with theirs. For a smooth process, those owners who have agreed to the sale must adhere to the Strata Titles Act, Section 84A. The CSC will also start to speak to marketing consultants and lawyers for their proposals and presentations.
Step 2: Call For Second And Third EOGM
It is during the second EOGM where technicalities will be handed over to professionals like property consultants and valuers. This process can even be done in the first EOGM should 100% of the owners agree to the sale. From there, there will be a discussion on how the sales proceeds will be divided to every owner. Everyone owner can contribute to the discussion, but the sales committee from the CSC who are more knowledgeable about the sales and appropriation aspects will chair the discussion.
The most common yield division methods are based on share value, the property’s strata area, or valuation. Everyone must work together and decide the yield distribution method before they can set a reserve price to be approved. This reserve price is decided based on all the cost factors of the plot of land, from the remaining tenure period to the site’s potential for development.
Freehold property owners have the luxury of fetching a high reserve price as there is no expiring leasehold. There are many considerations, so owners usually let the CSC set the reserve price with the help of experts and discussions will continue from there. The terms and conditions of the collective sales agreement (CSA) will be explained by the hired solicitor and the agreement will be signed by the owners upon approval. The third EOGM will only be initiated if the Apportionment methods and CSA has not been approved.
Step 3: Gaining Minimum Consent
Once all of the technicalities are resolved, the CSC will now have to work towards getting the 80% to 90% minimum consent for the en bloc sale. For properties more than 10 years old, the minimum consent percentage is 80%. Buildings that are less than 10 years old must achieve 90% minimum consent. In order to determine a property’s age, the issued date of Temporary Occupancy Permit (TOP) is used. If a TOP was not issued, the Certificate of Statutory Completion will be used instead. Do note that the minimum consent has to be achieved within 12 months of the first signature.
Step 4: En Bloc Tender Launch And Buyer Search
When the minimum consent has been acquired for the sale, the hired marketing and property consultants will put the property up for sale through a public tender. The assigned lawyers will also start drafting the tender documents required and collaborate with the CSC to ensure the terms and conditions meet the expectations of the owners. The sale will be done as per the requirements of the Strata Title Board, and the highest bidder will win the bid for the property. If there are no bids during this one-month tender stage, the owners can decide to enter a private treaty with developers, whereby the owners and developers privately discuss the deal. This process takes at least another 10 weeks, as by law the prospective buyer must be found within 12 months of obtaining the minimum consent of owners, and an application has been filed with the Strata Title Board.
Step 5: Apply For A Sales Order From Strata Title Board En Bloc (STB)
STB is the authority that will do the vetting when it comes to en bloc sales that aren’t 100% consensual. That said, an STB approval is not needed if there is 100% approval from owners. This application will take about three to nine months, and if there are any objections to the sales process, the process will be delayed by another four to five months.
Owners who object to the sale can apply to the High Court, and the CSC has to prepare all the relevant documents such as the agreement showing the attainment of minimum consent, the property valuation, formula of proceeds distribution, and so on. Should there be no objections, the sales order will be approved unless there are certain parts of the application that is vague.
If there are still no buyers and the tender does not attract any bidders, the CSC can choose to enter a private treaty or relaunch the property for sale again within the stipulated 12-month window. Should the 12-month period expire, the whole en bloc process will have to be repeated if the owners still wish to go for collective sale.
Step 6: Legal Completion Of Sale
The owners can now legally complete the sale once the relevant applications from STB or the High Court have been approved. The proceeds of the sales will also be received from the developers, minus a small retention fee. Some developers will offer to have owners stay rent-free at the property for three to six months as a grace period to find a new house. Should they agree to this, the owners will receive 95% of the total sales proceeds. The remaining 5% will be given upon handing over the vacant property. However, if everyone chooses to move out immediately, they will receive the full proceeds. This process will take approximately three months.
Step 7: Handing Over The Property
This is where properties will be handed over to developers. If you have tenants living with you, the tenancy date will have to end on a date no later than the date of possession discussed with the developer. While there are no guidelines stating a tenant’s rights to any compensation from the owners, owners who did not give their consent can apply for compensation with the STB. The 5% of the proceeds initially withheld by the developer will be released no later than 10 to 15 days. This will mark the end of your en bloc journey, and the start of a brand-new journey!
Image credit: Propertyhunter
En bloc sales are a profitable scheme that happens ever so often in today’s market. Developers are willing to match or exceed the reserve price stated by property owners to increase their inventory and create a larger land bank. With this demand from developers and the government, now is the perfect opportunity for property owners to get the most out of their assets and their values.
However, it is important to understand that the process cannot be completed overnight. Each stage will require a substantial amount of time, making this a long and tedious process. The rewards you reap at the end will be more than worth it though! If you and your neighbours are considering upgrading your lifestyle and liquidating your existing properties, get started on the en bloc process now! This opportunity does not come by very often, so grab the opportunity when it is here!