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Developers should offer units, pay rental to owners who do not agree to en bloc sales

Letter from Paul Armstrong

It is evident from the articles and letters in Today regarding en bloc sales that this phenomenon has already become a serious bone of contention. I fear that unless some strong urgent action is taken, it will soon get out of hand.

A great many of the majority owners agree to sign the Collective Sales Agreement purely on the basis that they stand to receive a large sum of money — much more than some have ever dreamed of.

They have given little thought to what they can buy with that money, or what it will mean with regards to where they might have to move to.

All of a sudden, they will find themselves having to move to another district with which they are not familiar, perhaps far from their children’s schools and other facilities like markets, shops, MRT and access to public transport. But that will be their problem. They have agreed to the sale and must face the consequences.

But what about the minority owners who didn’t want to move?

Bearing in mind that Singapore’s population is rapidly ageing, there are many such owners who are now old, for whom such a move is going to create problems.

The reply from Ms Radha S Khoo of the Ministry of Law, to the letter from Ms Lucy Huang (”No time to dilly-dally”, May 4) makes it very clear that in effect, minority owners have absolutely no legal recourse.

While this may be in accordance with the law, it seems to be a very unfair law, and I wonder if sufficient consideration was given to the plight of the minority owners when this law was passed.

It has been suggested that developers provide for an exchange deal — a new unit in the redeveloped estate in exchange for the one being demolished.

This may sound like a fair deal, but as the en bloc sale comes about because the developer wants to build a great many more units than were there originally, the new units are almost certain to be smaller than the original ones.

Where one originally had a nice relatively unobstructed view, the new one will probably be cheek by jowl with its neighbours and the view gone.

My wife and I were subjected to an en bloc sale a few years ago, and were offered an exchange unit that would be the same size as the original one. We declined, but one of our neighbours accepted.

After the new development was completed, she invited us to view her new apartment. Yes, it was the same size, but not by any means the same shape.

Where the original had virtually no wasted space, the new one had many little nooks and crannies that were not usable, and the rooms were all much smaller.

And the neighbouring unit was so close that you could open the window and shake hands with the occupant.

I would like to make a suggestion. If developers would agree to offer exchange units to those who did not sign, it would probably be an acceptable solution.

However, since there would be no monetary benefit to the owners, the developers, who stand to make a lot of money out of the new development, particularly with the ever increasing prices of property, should be prepared to offer them alternative temporary accommodation or a rental allowance until the new units are ready.

Making this a part of the law may well be the answer to providing minority owners with a more equitable and legally binding solution.

Source : Today - 8 May 2007

Property frenzy may be caused by baseless sentiment

Letter from Steve Ngo

I refer to the letter, “A lesson worth remembering” (May 7) by Mr Lim Boon Hee, and I absolutely agree with his views. In particular, I fully support his belief that “with the kind of salaries that average Singaporeans earn, such prices are not sustainable”.

The economy may be doing well, but that is not filtered down to all sectors, and does not translate to every Singaporean being prosperous.

All the bullishness is just sentiment. If we are shopping according to our sentiments, then why are people risking hundreds of thousands — beyond what they can afford — to “invest” in properties? It’s somewhat of a dream if anyone thinks that they can depend on rental yield to pay for their mortgage.

It appears that the property market’s bull run is artificial but this is not surprising.

A few years ago, I viewed a suburban condominium and the sales person told me that there were only few units left. Recently, it was advertised that they still have quite a number of choice units left.

I don’t know exactly how the property business works but I certainly would not be surprised if the developers themselves “buy” the properties — hence creating the impression that there are no more units left — and put the units up for sale again later.

We cannot expect the Government to extend its control over everything, which is why I would like to reiterate Mr Lim’s view asking Singaporeans to practice self-restraint and not be ruled by greed.

Each of us has a role to play in preventing the property market from spiralling out of control, to the extent that prices become unaffordable.

Source : Today - 8 May 2007

Reason: Finding a comparable property to replace the one sold will now cost a whole lot more

SCORING a collective sale is usually seen as the real estate equivalent of hitting the jackpot, but try telling that to Mr Sulistiowati Kusumo.

The businessman should be overjoyed - after all, he’s going to pocket $2.3 million for his Horizon Towers flat - but he feels shortchanged.

The Leonie Hill condo was sold en bloc last year for $500 million but that now looks cheap as values since then have sky-rocketed.

But what really gets Mr Sulistiowati, 51, steamed is that he did not agree to the sale in the first place.

‘I’m at the losing end and I did not want to sign from the beginning,’ said Mr Sulistiowati, one of 34 minority owners of the 210-unit 99-year leasehold property.

And finding a flat comparable to his 2,400 sq ft one at Horizon Towers would now cost the earth.

There are many like Mr Sulistiowati, whose tales of woe are starting to drown out enthusiasm about collective sales.

Take Grangeford Apartments, near Horizon Towers. It is up for a collective sale, asking about $2,000 per sq ft (psf) - more than double the $850 psf achieved at Horizon Towers.

This has prompted some Horizon Towers owners to try to get their own deal scrapped.

‘The agreement was signed last year so the price is capped. Now the price increases every month,’ said Mr Sulistiowati.

Businessman Ajay Kumar Dhar, 40, backed the sale but admits to have lost out and has yet to find a new unit in the area.

‘Naturally I regret it, but it’s fate. I may have to go to other districts,’ he said.

The 99-year leasehold Pine Grove has avoided the problem by recently rejecting an offer that would have paid each owner about $1.2 million.

Many owners refused to back the proposal, fearing they would not find replacement units as spacious as those at Pine Grove.

Gillman Heights owners signed its deal last year and finally sold in February for $548 million - about $890,000 for 1,700 sq ft units and $950,000 for 1,900 sq ft ones.

Retiree Cheng Wai Chuen, 68, who has a smaller flat, said he has been priced out of the market.

‘I’ve looked around and I would have to pay about $1.2 million for a place that’s about 1,200 sq ft,’ he said.

Software businessman Mah Kah Hoe, 54, added: ‘Even if I want another 99-year flat in the area, I have to top up another 30 to 40 per cent of what I’m getting.’ He will also receive about $890,000.

Others like Mr Cheng have no spare cash to buy a new place until the sale goes through. ‘I have no money, how do I buy?’ he asked.

The sale paperwork can mean the cash is not paid out until nine months after a buyer has been found.

A Gillman Heights resident who wanted to be known only as Madam Ong, has already bought another flat but it was a forced purchase in view of the rising prices.

Her new Pasir Panjang unit is smaller, further from town, has worse facilities and she even had to fork out about $200,000 on top of the proceeds from the collective sale.

Said Madam Ong, a housewife in her 50s: ‘We think it’s queer that people are congratulating us about the en bloc because we never wanted to sell in the first place and now we have to bear the brunt of it.’

Source : Sunday Times - 6 May 2007

But speculative buyers may be saddled with a poor investment if the sale is unsuccessful

If you like a gamble, you don’t have to wait for the casinos to open. Just roll the dice for a collective sale instead.

The game plan is simple: Pick a condominium block that looks ripe for a collective sale and buy in before the big payday.

Prices of such blocks are showing rapid price rises as hopeful buyers rush in with an eye on the possible windfall.

Their desire to get a slice of the potential action is driving them to meet inflated asking prices from sellers willing to cash out.

But they are taking a huge bet buying in at inflated levels, if they are merely out to make a quick buck rather than buying a home to live in.

The heightened demand could drive values to an artificial high, said Credo Real Estate’s managing director, Mr Karamjit Singh, with the obvious risk that the anticipated collective sale gets derailed.

‘If the sale does not proceed, the prices could fall from the perceived value.’

Investors should be wary of suburban 99-year leasehold properties selling at prices that include a large premium for a possible sale en bloc, said market watchers.

This is because the chances of a successful sale in such estates are slimmer than the chances of one in estates that are freehold.

Savills Singapore’s director of marketing and business development, Mr Ku Swee Yong, said a freehold site can cost around 20 per cent more than a 99-year leasehold one located next door.

Sale prices have surged at the 280-unit Pearl Bank Apartments near Outram Park MRT Station, thanks to attempts at the 99-year leasehold estate to get a collective sale off the ground.

An agent said that last month he sold two 1,755 sq ft units on high floors: one for $1.01 million and one for $1.09 million. The buyers were a local banker and an Indian permanent resident.

But they might not benefit much if such a sale occurs, as the minimum collective sale price of their units is about $1.19 million, although there is talk this could increase if a higher plot ratio for the site is approved.

The sellers were happy to cash out quickly and buy another property before prices went even higher, the agent said. They also do not have to wait out the collective sale, which might not happen.

Caveats lodged showed that three 1,755 sq ft Pearl Bank apartments were sold last month for $857,000 to $905,000 - compared with just slightly over $600,000 for deals done involving units of the same size last June and July.

At Farrer Court, coming up for an en bloc sale by tender, a 1,453 sq ft unit was sold for $900,000 in March. That beats the $870,000 fetched by one unit in February and the $660,000 fetched for another last September.

The price of the land on which a development sits tends to move faster than the price of individual units, said Mr Singh.

‘It would be unwise to buy into a development that is priced close to the collective sale value,’ he noted.

Nevertheless, not all estates are created equal. The well-located properties will attract more demand than those in less favourable areas.

‘If the collective sale of Pearl Bank doesn’t go through, prices will definitely fall, but maybe by just 10 to 20 per cent, because it is a very central development,’ said a property agent.

The story is different for outlying projects, particularly those with poor rental prospects, said a consultant.

A person buying into such developments - and paying a collective sale premium - would find himself with a bad investment if the collective sale failed, she said.

Still, better rental levels could ease the pain.

At the 99-year leasehold Chiltern Park Condominium in Serangoon, whose residents are working towards a collective sale, a three-bedder sells for $421 per sq ft on average.

If a collective sale goes through, the sum fetched could actually fall below that level once the potential charges that developers have to pay are factored in, according to Savills Singapore.

But investors who recently bought units there could at least get relatively good rents, said Savills, noting that asking rents there now average $2,400 for a three-bedder. This level and the average price give a rental yield of about 5.4 per cent - a very good return in the local market.

If a collective sale fails to come through at a condominium, investors must be able to ride out the market and wait for the next round, which could be years away, said a market watcher.

Anyway, that might not turn out to be such a gamble.

‘At the rate things are going, every old development will find its end and give way to new developments,’ said Mr Singh.

Escalating prices

Pearl Bank Apartments

LAST June and July, units of 1,755 sq ft were sold at over $600,000. Last month, three units of that size fetched $857,000 to $905,000; two more, on high floors, went to a local banker and an Indian permanent resident for just over $1 million.

Farrer Court

A 1,453 sq ft unit at this property, which will soon be put up for collective sale, was sold for $900,000 in March. This contrasts with sales done at prices of $870,000 in February and $660,000 last September.

Source : Sunday Times - 6 May 2007

Some flats are selling at $100,000 more than the estate’s valuation

The priciest HDB flats are now in Bukit Merah, with some units selling at $100,000 above valuation.

A four-room flat in Redhill Road was sold for about $470,000 while a five-room one in Jalan Membina fetched $550,000, according to HDB resale figures for February to April.

The prices for these flats have set new national benchmarks for four- and five-room units.

They have even surpassed the 1996 boomtown prices for units in Bishan, which traditionally command the best prices.

Four-room units in Bishan were then going for about $425,400, with buyers paying between $50,000 and $70,000 above the valuation for the then five-year-old flats.

But the appeal of Bishan, which came with good amenities and a park nearby, is waning now that the estate has aged.

‘Buyers now are looking for flats in estates which are convenient and near to town, such as the newer flats in Bukit Merah and Queenstown,’ said Mr Mohamed Ismail, chief executive of property agency PropNex.

‘Orchard Road is within a five-minute drive and downtown within a 10-minute drive.’

Mr Phng Tiong Huat, senior marketing director of ERA, who has just brokered a four-room-unit transaction in Dover Crescent - classified under Queenstown - at a high price of $394,000, said: ‘Although Queenstown and Bukit Merah are mature estates, the newer flats can fetch very high resale prices.

‘They are on the higher floors, and near amenities like markets, MRT stations and good schools. These flats are usually sold out within a week.’

The buyer of the Dover Crescent unit - who wanted to be known only as Mr Koh - said that he did not mind paying a premium as the location is convenient and the unit is new and well maintained.

Another four-room Bukit Merah unit fetched $468,000 in February.

Ms Loh Meilin, who lives next to that unit, is happy about the high resale prices.

‘This is the best place to live in Singapore. It is within walking distance to the MRT, near town and you can get a cab any time,’ said Ms Loh.

High HDB resale prices could finally mean some good news for owners who have seen values stall in recent years while those of high-end condominiums and private homes rocketed with the surging economy.

Private home prices rose 4.6 per cent between January and March and are just 3 per cent shy of the 2000 peak. HDB prices have risen only 1.2 per cent, yet that is the most in 21/2 years.

But it is still all about location.

Flats in estates such as Yishun are not enjoying high prices. Four- and five-room flats there have been selling at prices close to the average market valuation. A four-room flat fetches an average of $220,000 while a five-room unit sells for an average of $300,000.

‘Generally, old HDB estates at the outskirts not within walking distance of the MRT are still transacting at value while those near MRT stations and in good condition are going for about $5,000 to $10,000 above value,’ said PropNex’s Mr Mohamed.

Source : Sunday Times - 6 May 2007