Selling en bloc? Big gains unlikely

Prices now start from a higher base and attractive prime sites have already been sold

Last Wednesday, a relatively small property, Melrose Court, off Balestier Road, was launched for collective sale.

Owners of the 32 freehold units there are

asking for $48 million, and hoping to reap between $1.23 million and $2.46 million each.

Marketing agent Colliers International said the ‘en bloc’ premium each seller will get is around

40 per cent to 50 per cent more than what he can get if he were to sell his unit on his own.

Compared with those of the collective sale boom of 2006-2007, the premiums are lower these days because existing apartment values are high, said Mr Ho Eng Joo, the firm’s executive director of investment sales.

Property pundits say the market recovery last year has been fast and furious, so prices are now starting from a higher base.

‘We see an erosion of en bloc premiums today. In 2006 and 2007, the premiums can easily be 80 per cent to 100 per cent. Today, they are more like 30 per cent to 50 per cent,’ said Mr Jeffrey Goh, head of investment sales at HSR International.

Some investors may want to cash in fast before the collective sale. This will close the gap between the potential collective sale price and the individual sale price, experts said.

But the higher prices they fetch may not be a true reflection of the market, said Knight Frank executive director Nicholas Wong.

‘A handful of them may be able to sell at higher prices before the collective sale. But if all the owners were to go out and sell their units individually, they wouldn’t get those kinds of prices,’ he said.

The rest of the owners who may now want to pull out of the collective sale after some sell at higher prices, or who then become unhappy with the collective sale prices, should be aware of the risks of a failed sale, as the value of their estate will likely come down if that happens.

Also, today’s new rules mean that a two-year restriction period will kick in, making it harder to restart the collective sale process after a failed attempt, Mr Wong said.

An expert, who declined to be named, said: ‘The en bloc premium is relative. It just has to be a level that can get people excited, with which they think they are able to find a replacement property. This would be around 50 per cent more than what they can sell at individually.’

Besides prices having moved up to a higher base, most of the attractive prime sites have already been sold in previous collective sale booms over the past 15 years, property experts say.

‘Nowadays, sites that have been sold or put up for sale are in the city fringes and are small,’ said Ms Suzie Mok, director of investment sales at Savills Singapore.

‘The en bloc premiums for prime spots tend to be higher than those for suburban estates as they are the more sought-after sites. The prime spots appeal to the bigger developers who are willing to pay more because of their scarcity and the appeal of the posh address.’

While there are still underbuilt sites out there, many of the estates eyeing collective sales today are very old developments and may have low redevelopment potential, experts said.

Some of these estates have already used up their maximum built-up area allowed, and may thus get a lower premium when they want to sell en bloc, the experts pointed out.

Source : Sunday Times – 18 Jul 2010