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MOST of the owners at the 50-unit Pinetree Condominium at Balmoral Park would end up out of pocket if they did a collective sale today, as they had bought their apartments at the peak of the market.

So their property agent Jones Lang LaSalle is proposing a collective deal in which bidders will have to provide an exchange unit in the new project they build on the site to all owners who would suffer a financial loss.

Those who will not incur a loss would have the option of receiving a cash payment from the developer.

Real estate lawyer SK Phang says current en bloc sale legislation provides that in a collective sale where the majority consenting owners are given exchange units in a new development, the minority who object to the sale must be offered a cash payment option. However, the minority still have grounds to object if they suffer a financial loss.

Under the legislation, an owner is deemed to have incurred a financial loss if the sale proceeds, after any deduction allowed by the Strata Titles Board, are less than the price paid for the property.

Another basis for objection by a minority owner to a collective sale is if the sale proceeds are insufficient to redeem the outstanding mortgage on the property.

JLL estimates that the current-day value of an exchange unit in a new development at the Pinetree Condo site would be roughly 30-40 per cent more than what the units in the present condo would fetch if sold individually today.

Owners who want a cash-out option would probably reap a lower collective sale premium of about 25 to 30 per cent. But as a market watcher points out, this premium may not be big enough to erase the financial loss for some of the owners.

Even if the financial-loss cases agree to the exchange option, other hurdles may await them - such as the expense of renting a property while they wait for the new project to be built on the current site. Likewise, owners who are renting out their apartments will have to forego rental income while the property is being redeveloped.

Owners will also have to make arrangements with their bank to roll over the mortgage to the new property, failing which they will have to redeem their existing mortgage.

Still, JLL says its proposal provides an exit opportunity for owners to move on, and that otherwise they may have no feasible way of exiting their investment under current en bloc legislation.

The original developer of Pinetree Condominium, Land Resources Group, still holds a substantial number of the project’s 50 apartments, BT understands. The majority, however, are held by other individuals.

JLL is inviting bidders to take part in an expression-of-interest exercise closing on April 27. They will have to indicate their bids providing at least two options - an exchange unit, and cash for owners who want out.

Bidders are also welcome to list a third option - offering the owners a unit in a completed project by the developer nearby.

‘This is the first time where competitive bids are being invited for a collective sale involving both cash and exchange options,’ said JLL’s regional director and head of investments Lui Seng Fatt.

Pinetree Condo is on a freehold site of 41,361 sq ft, zoned for residential use with 1.6 plot ratio and a 12-storey height limit. Bidders can also offer to buy four adjoining semi-detached houses, which would result in a bigger site of 50,329 sq ft. This would be big enough to house a new development of about 60-70 apartments averaging 1,100 sq ft, JLL says.

Source : Business Times - 30 Mar 2006