With its land scarcity in the fast-growing economy, private properties in Singapore are well-sought after. However, as the lease drops lower for older properties, owners choose to sell their properties collectively instead of selling their units individually. Hence, en bloc property in Singapore this 2018 is set to hit at its peak.
En Bloc sales take place when there are two or more property units sold to one buyer which can be a developer or the government. The proceeds of this sale will be divided among the unit owners.
While collective properties are usually priced higher than the resale market value, the sale transaction may make property owners millionaires. But as a buyer, before jumping into the hype, here are 3 things you need to consider when you buy an En Bloc property:
Appraisal Value of En Bloc Property
For properties that are more than 10 years old, at least 80% of its owners must agree to the sale of their units. This is the tough part of the sales process as most owners may not want to give up their properties for just a little amount. For this reason, you may be obliged to pay more than the property’s appraised value to entice these owners to sell their units.
The Number of Housing Units
As a potential developer bidding for land or collective property that will be redeveloped to new homes, you should take into account the significant growth in the number of housing units available for sale in the next years. As the redevelopment of en bloc properties would result in about 20,000 additional new private homes in the real estate market, unsold house units will be more than double within the next two years.
When there is no sufficient occupation demand for the completed housing projects, the high availability of houses could cause a decrease in prices and rentals in the medium term.
As a buyer, you should also factor in any possible increases in your financial liabilities. Interest rates are set to rise annually. With the potential rising vacancy rates which would cause rental income to fidget, the purchase might cause risks to sustainable conditions in the real estate market.
Unlike a normal sale where only one owner is involved, it will take at least 2 years to finalize a sale of an en bloc property. A committee has to be formed to convince the majority of the owners to sell their properties and must sign a Collective Sale Agreement. The Collective Sale Agreement must be must be obtained within a year, otherwise, the sale attempt will become invalid. And if the first sales attempt failed, a 2-year hiatus period is imposed to protect those property owners who have refused to sell their properties from being harassed.
While these 4 factors can potentially cause risks to the sustainable property market, a successful collective sale is still financially beneficial not only to homeowners but also to you. Although the sales process can take more than a year before completion, it may be worth the wait.