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Power to award higher payout to valid dissenters, stricter rule on sale committees among other suggestions

The government is proposing an additional requirement on the definition of majority consent for en bloc property sales.

Such sales must be agreed to by those who own at least 80 or 90 per cent of units in a development, on top of the current requirement of consent from owners controlling a minimum 80 or 90 per cent of share values, depending on the age of the development.

The proposed change - revealed by Deputy Prime Minister and Law Minister S Jayakumar in Parliament yesterday - is in response to feedback, and is aimed at addressing unhappiness among residential unit owners in mixed developments.

These owners, despite owning a substantial floor area and number of units, have significantly less share value and little in the way of voting rights on en bloc sales.

Mixed developments are unique in the way share values are allocated. For the same floor area, the share values of residential, office and retail units in a development are generally allocated in the ratios of 1:4:5. So a shop unit will have five times the share value of a residential unit with the same floor area.

Residential units may make up 30 or 40 per cent of the number of units or total floor area in a mixed development, but their share value can be as low as 10 to 15 per cent. As a result, when it comes to deciding on an en bloc sale, voting rights tend to be skewed in favour of the owners of shop and office units.

The additional requirement that consent for an en bloc sale be obtained from owners with 80 or 90 per cent of units - depending on whether a development is more or less than 10 years old - will also apply to pure residential developments. But this is not expected to be an issue for them because share values in pure residential developments are more closely tied to the number of units.

Mixed development en bloc sales so far include Kim Tian Plaza, Eng Cheong Tower and Kim Seng Plaza. But more are expected.

‘I don’t see much impact on collective sales from the proposed change, which is fairer to those deemed to be unreasonably denied rights in voting on en bloc sales,’ said Knight Frank managing director Tan Tiong Cheng.

The Ministry of Law also proposes to empower the Strata Titles Board (STB) to issue guidelines on allowable expenditure when evaluating claims of financial loss. Market watchers welcome this, saying it will provide greater clarity.

The Land Titles (Strata) Act says an owner is deemed to have incurred a financial loss from an en bloc sale if his sale proceeds, after deductions allowed by STB, are less than the price he paid for his property. But the Act does not specify what deductions are allowed.

So far, based on precedents set by STB decisions, stamp duty and legal fees are allowed as deductions but interest and renovation costs are not.

This is an important issue because financial loss provides grounds for STB to throw out an en bloc sale. STB hears all collective sale cases in which unanimous consent from owners has not been obtained.

Another proposed change, aimed at boosting transparency in the en bloc sale process, is that an en bloc sale committee can be formed only at an extraordinary general meeting convened by a management corporation.

At present, if a few owners are interested in selling a development, they can band together to form a pro tem en bloc sale committee. The change is aimed at achieving accountability to all owners - not just those who are keen on an en bloc sale.

The ministry also proposes that STB be given the power to increase sale proceeds to dissenting owners who have filed valid objections and who may not have been treated fairly or equitably in the distribution of sale proceeds, even if there is no bad faith on the part of the majority owners.

However, this will only be in exceptional cases. Prof Jayakumar gave an example. ‘Say, a minority owner does $200,000 worth of renovation when there was no en bloc proposal in the air. Then six months later, there’s an en bloc proposal which becomes successful. In fact, it means that he has ‘enjoyed’ his renovated unit for only about two years before having to move out. So really, he does not suffer a financial loss in the terms of the Act. But the Strata Titles Board may, if they have this discretion, increase his sale proceeds by an amount which it considers fair, if they consider it fair and equitable to do so in the circumstances.’

The additional award that STB can make will be capped at 0.25 per cent of the sale proceeds, to be deducted from every unit and subject to a minimum of $2,000 per unit.

Hence, if every owner in a 100-unit development is to receive $1 million, amounting to $100 million in total, STB can make additional awards totalling up to $250,000, which works out to $2,500 per owner in such a case.

However, the majority owners will continue to decide on the method of distribution of sale proceeds most suitable for their development.

The public will be consulted on the proposed changes, and feedback will be taken into account in finalising the proposed amendments to the en bloc legislation. The changes are expected to take effect by year-end.

The proposed changes

Majority consent to be defined based on ownership of units, in addition to share values.

Strata Titles Board to be given power to increase sale proceeds for minority owners with valid objections in exceptional cases, subject to a cap of 0.25% of sale proceeds to be deducted from every unit, or $2,000 per unit, whichever is higher.

STB will issue guidelines on the allowable expenditures to be taken into account in evaluating claims of financial loss.

En bloc sale committees to be formed only at extraordinary general meetings convened by management corporations.

Source : Business Times - 3 Mar 2007

Market watchers yesterday gave mixed views on how much the proposed changes to the rules for en bloc sales are likely to affect collective sales.

Some, like CB Richard Ellis executive director Jeremy Lake, reckon that by having two criteria for defining the 80 per cent majority consent required from owners - based on number of units, as well as share value - it may make the process of en bloc sales more difficult.

Agreeing, SK Phang of Phang & Co said: ‘Imposing an additional threshold will make the requirement for en bloc sales more stringent and difficult to achieve. There may be fewer en bloc sales.’

However, Knight Frank managing director Tan Tiong Cheng and Credo Real Estate managing director Karamjit Singh do not see much impact on en bloc sales as a result of having the additional definition. ‘It’s one more additional step to be adhered to, but will not have any significant impact on the overall rate of collective sales,’ Mr Singh suggests. ‘The change seems to be targeted at mixed development en bloc sales, which are already more difficult to do because of the issue of apportionment of sale proceeds among different classes of owners - apartments and commercial units.’

But the property sector generally welcomed the thrust of the change in defining majority consent. As Dr Phang puts it: ‘It reduces the inequality, the imbalance in voting power, in the case of a pure residential development, between the owners of large apartments with higher share value and of smaller apartments with lower share value, and in the case of mixed developments, between apartment owners who have lower share values, and commercial owners who have more more share values.’

Another change welcomed by industry players is that the Strata Titles Board (STB) will issue guidelines on allowable expenditure to be taken into account in evaluating claims for financial loss. ‘That’s what the industry has wanted all along. The clarity will reduce unnecessary aggravation,’ said Mr Tan of Knight Frank.

He welcomed the move to require any en bloc sales committee to be formed only at an extraordinary general meeting convened by the management corporation as this procedure ‘engages all owners in the whole en bloc process from day one’.

‘In the rush to get en bloc sales out in the past, some owners and agents may have organised themselves in a way that may not be acceptable to some parties. This will be a refinement of the rules,’ he added.

One area of concern among some en bloc players is the proposal to give the STB power to increase sale proceeds for minority owners with valid objections, as this might bring unforeseen results. ‘It will have the effect of increasing the number of people who object, hoping to get their hands on the 0.25 per cent of sale proceeds MinLaw is proposing to set aside for this purpose,’ Dr Phang predicts.

Agreeing, Mr Singh says: ‘I hope MinLaw will detail what they consider to be valid objections, to minimise frivolous attempts by some minority owners who try their luck getting their hands on the extra money arising from the proposed change, and delaying the process for no good reason.’

Source : Business Times - 3 Mar 2007

The Government has proposed tweaking the rules governing collective sales of properties.

Among the changes: The en bloc committee can be formed only at an extraordinary general meeting that is arranged by the estate’s management corporation.

Also, owners’ voting rights in a sale will be decided by the number of units they own, not just the share value of their flat, a move that will affect mainly mixed development properties with homes and shops or offices.

Another change will give the Strata Titles Board the power to increase the amount minority owners can get from sales proceeds if, say, they spent a lot to renovate their home not too long before the en bloc sale.

This proposed increase will be at least $2,000, or at most, 0.25 per cent of the sale proceeds for each unit.

These proposals, made by a study group and agreed to by the Strata Titles Board, will be put to the public for feedback, said Deputy Prime Minister S. Jayakumar when he announced the proposed changes.

This consultation process and evaluation will not go beyond May or June, he added.

Basically, there are three areas of proposed changes.

The current rule allows a sale when owners with 80 per cent of the share value in a property aged 10 years or more agree to it. Now, the study group has suggested an extra requirement: that owners must also own at least 80 per cent of all units in a development aged 10 years or more. For younger buildings, it is 90 per cent.

This extra will help address a problem in buildings with homes as well as units for businesses, said Professor Jayakumar.

There have been complaints from home owners in such mixed developments because typically, the share value they hold is less than that of commercial units, even though their flats are much bigger and they own more units.

For example, these home owners could own 60 per cent of all units but only 20 per cent of the share value.

Property consultants and lawyers interviewed say some of the proposals could slow the collective sale process, especially in mixed developments.

These extra steps, which are designed to protect the interest of minorities, can lengthen the process, said Credo Real Estate (Singapore) managing director Karamjit Singh.

The additional threshold of majority consent makes collective sales more difficult to achieve, said lawyer S.K. Phang of Phang & Co.

But such sales of mixed developments are few in today’s red-hot en-bloc market.

As for the new majority consent proposal, it is unlikely to have any impact on purely residential developments, said DPM Jayakumar.

As for the proposal to allow the Strata Titles Board to give minority owners more, Mr Phang said: ‘Owners who would otherwise agree to the collective sale may hesitate, since their sale proceeds could potentially be subject to deductions to pay to the objectors.’

Currently, there are no rules guiding the forming of an en bloc sales committee.

The proposed guideline will make for better accountability and provide for more certainty to both majority and minority owners, said DPM Jayakumar.

Source :  Straits Times - 3 Mar 2007

The Government will take another year to come to a decision on estate duty, said Second Finance Minister Tharman Shanmugaratnam yesterday.

He said this after noting that Prime Minister Lee Hsien Loong had said last year that the Finance Ministry would make its call on the matter by this year’s Budget.

Estate duty kicks in when the assets of a dead person exceed certain limits.

MPs who spoke about it during the three-day Budget debate took issue with its lopsided exemption limits.

Mr Tharman took the same view.

He described the limits as ‘off-kilter’, saying: ‘I agree with the views expressed that the current exemption thresholds are not ideal and should be revised.’

But the Government was going beyond reviewing the limits, to examine if asset taxes should be kept or scrapped.

‘Whether to retain estate duties or not is a key issue we have to think through and study, and we’ll take all these issues together,’ said Mr Tharman.

Currently, after a person dies, his assets which are ‘immoveable’, such as property, are not taxed if the value does not exceed $9 million.

For ‘moveable’ assets like cash and shares of other assets, the threshold is $600,000.

So those who have $9 million worth of property will not have to pay the levy. But those who leave behind over $600,000 in moveable assets will be taxed.

Tax experts say this has created an ironic situation, where middle-income earners end up paying the duty while the rich - the intended target for the levy - set up trusts and other legal arrangements that allow them to sidestep the duty.

Source : Straits Times - 2 Mar 2007

A CHANGE in the Housing Board’s rules has caused a steep jump in monthly repayments for some flat-buyers.

The rule, introduced last month, effectively shortens the loan period for some buyers, which means their monthly payments will go up.

It stipulates that the maximum loan period for HDB home loans will now be based on the average age of the flat’s co-owners. Previously, this was based on the age of the youngest co-owner.

Among those affected are ageing parents, who could previously stretch their loan repayment period to the maximum 30 years by roping in their children as co-owners. Under the new ruling, they can no longer do so.

Last month, for example, a 31-year-old single woman and her 62-year-old mother ended up paying about 45 per cent more in monthly housing instalments for their flat.

According to housing agent Florence Soh from Dennis Wee Properties, the two women bought a $300,000 resale five-room flat in Sengkang.

Under the old rule, they could have qualified for a 30-year loan and paid housing instalments of about $900 a month. This sum could have been covered by the monthly contributions to the younger woman’s Central Provident Fund (CPF) account.

But based on the average age of the co-owners, they could take only an 18-year loan, which meant monthly instalments of about $1,300.

The daughter now has to pay cash on top of her CPF contributions to service the monthly instalments.

There is a flip-side to this though: A shorter loan period means paying less in total.

In the case of the two women, they will save about $43,000 over the lifetime of their loan, assuming the interest rate remains constant.

Housing agents estimate that about 5 per cent of resale HDB flats sold today are bought by such people. Last year, about 30,000 HDB flats changed hands on the resale market.

When contacted by The Straits Times, the HDB said the change has ‘no significant impact’ on the maximum loan period allowed for the typical flat-buyer. This is likely to remain at 30 years, it said.

Flat-buyers taking HDB loans have to finish paying their loans within 30 years, or by the age of 65, whichever comes earlier. The new rule is the latest in the HDB’s bid to get people to be more prudent when buying homes.

Four years ago, it introduced credit checks on low-income households buying flats on its special schemes and trimmed the amounts they could borrow.

>From this year, it required buyers wanting HDB loans to get a letter from the board stating the maximum amount they could borrow, loan repayment period and monthly instalments payable, before they committed to a purchase.

The HDB said the guideline was changed ‘to bring it closer to market practice’.

Source : Straits Times - 24 Feb 2007