Guide
How To Identify Condominium With Potential for Enbloc?
What is En Bloc?
An en bloc sale refers to the collective sale of an entire property development, such as a condominium or a housing estate, to a developer for future development.. This process typically involves multiple property owners coming together to sell their units as a single entity, rather than selling individually.
How Collective Sale Works in Singapore
- Initiation: The process usually begins when property owners in a development express interest in selling their units collectively. A consensus among a certain percentage of owners is required to initiate an en bloc sale.
- Formation of a Collective Sale Committee: Owners form a committee to represent their interests, negotiate with potential buyers, and manage the sale process.
- Appointment of Professionals: The committee often engages real estate agents and legal advisors to assist in evaluating the property’s value, preparing necessary documentation, and marketing the collective sale.
- Obtaining Approval: In Singapore, the sale must meet certain criteria. For private residential developments, at least 80% of the owners (by share value or number of owners) must agree to the sale for developments built on land with a leasehold of 10 years or more. For older developments (more than 10 years), the threshold is 90%.
- Marketing the Property: Once approved, the property is marketed to developers. Interested buyers will submit bids.
- Sale Agreement: Upon receiving an acceptable offer, the committee negotiates terms with the developer and finalises a sale and purchase agreement.
- Distribution of Proceeds: After the sale is completed, proceeds are distributed among the owners according to their share values or ownership percentages.
- Redevelopment: The developer then takes over the property, and plans for redevelopment commence, which may involve constructing new residential units or other facilities.
Why is Enbloc attractive?
Generally an owner gets between 30% to 85% selling price premium from prevailing market price in the neighbourhood.
What is the ruling for putting up a property up for Enbloc sale?
80% of residents must approve the sales if property is more than 10 years in age
90% of residents must approve if property is less than 19 years in age.
A 2 year wait out period applies for each failed Enbloc sales.
Is Enbloc potential investment worth the effort?
Each individual differs.
As a real estate agent who helps individual grows wealth through property investment, I advise investing in new developments rather than Enbloc for the following reasons:
- Selling price tends to rise from pre-launch to completion. You are buying something with more certainty of selling at a premium
- Low investment outlay. Developers call for payments based percentage of completion so the investors had a lower financial outlay compared to buying a completed or resale unit
- Lower maintenance fee. Enbloc potential units tend to be much older which usually needs high maintenance.
- The return tends to be higher for new launch relative to old developments.
What are the benefits of a collective sale for condo owners?
Collective sales offer numerous benefits to condo owners in Singapore. Primarily, they provide an opportunity to sell properties at a premium, often significantly above the market value of individual units. This is particularly advantageous for owners of older condos or those in locations with high en bloc potential. The financial windfall from an en bloc sale can be substantial, allowing owners to upgrade to newer properties or invest in other real estate opportunities.
Moreover, en bloc sales can be a solution for aging properties facing increasing maintenance costs. By participating in a collective sale, owners can avoid the burden of major renovations or the diminishing value of leasehold properties nearing the end of their tenure. Additionally, successful en bloc sales contribute to urban renewal, potentially improving the overall property landscape of Singapore. However, it’s important for owners to consider the emotional aspect of leaving their homes and the potential challenges in finding new accommodations in a competitive property market.
However, let’s look at what to look out for if you choose to invest in Enbloc potential development.
What to look out for if you want to invest in an Enbloc potential development?
Various factors need to be considered
- Land size and plot ratio
- Age of property
- Proximity to popular schools and amenities
- Future redevelopment
- Residents’ composition
Land size and plot ratio
A developer buys to earn monies since the developer is paying a premium to buy an old estate that requires high maintenance and outdated technology and facilities.
Generally, a developer need be able to build so many units that the revenue covered the premium buying price, cost of lease top up (for leasehold property), cost of development, cost of marketing the new development and make a decent profit (5-15%). Developers used to earn 20% to 30% but with high cost of land and development today, many developers are earning single digit margin.
The targeted development usually tend to have inefficient use of space to a developer, that is there tend to be spacious ground between blocks and where the building height is below that allowed by the authority.
With the same block of land, the developers could build more blocks and more floors leading to more units for sale.
Age of property
Based on last 20 years of property that undergone Enbloc sales, they tend to be between 20 years in age (during property boom) and 35-45 years in age (during normal property cycle).
Proximity to popular schools and amenities
The new age residents and tenants focus on location that are near popular schools, convenient transport and nearby malls.
A new development needs to meet these to increase its appeal to buyers and to command a premium price.
Developers would be looking to build their new developments along these demanded features.
Future development
Buying a property is buying the future.
If you believe in economic theory, what is present and could be seen or enjoyed, would have been priced into the current purchase price.
If a developer were to buy the present, then according to economic theory, there would be minimum margin that a developer could earn.
Smart developers would be looking out for future amenities and developments near its targeted site.
Singapore is very open on its future development plans and the general public could have a glean of the future by looking out Singapore Master Plan. The Singapore Master Plan provides details on what the government intend to use the scarce land of Singapore in the next 10-15 years time.
Residents’ composition
Who are the residents?
The younger residents would be more open to move if a significant profits were earned through Enbloc sales.
Since at least 80% residents approval is required, this would be difficult to obtain from old residents who want to live in leisure lifestyle where there were ample space between blocks and where there were less crowded common space.
Presence of Corporation
One thing that was often overlooked was the presence of corporation. Corporations generally are not keen to sell Enbloc since these corporations did not buy the property for Enbloc in the first space. If a development has only 50 units and corporations own 12 units, it would be challenging to secure the 80% Enbloc approval requirements.
What Should You Consider for Your Next Property Investment After the Sale?
After a successful en bloc sale in Singapore, owners face important decisions regarding their next property investment. The first consideration is whether to reinvest in another property or explore alternative investment options. For those choosing to reinvest in real estate, it’s crucial to assess the current property market conditions. Factors such as location, property type (HDB, private condo, or landed property), and budget should be carefully evaluated. Consider the potential for capital appreciation and rental yield if you’re investing for the long term.
Be mindful of the Additional Buyer’s Stamp Duty (ABSD) implications, especially if you’re purchasing a second or third property. The timing of your purchase is also critical; you may need to consider temporary accommodation if there’s a gap between vacating your current property and moving into a new one. Explore different property options, including new launches, resale condos, or even properties overseas. Consider engaging a property agent or financial advisor to help navigate the market and find suitable options. Additionally, think about your long-term housing needs, including factors like proximity to amenities, schools, and workplaces. Remember that the property market may have changed since your last purchase, so thorough research and careful consideration are essential to make an informed decision for your next property investment.
Feel free to engage me for a meet up if you are exploring your property needs.
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