Singapore’s private residential market was abuzz with en bloc sales fever prior to the introduction of fresh property cooling measures on 6 July 2018.
Despite the weaker sentiment arising from the new curbs, some housing projects, particularly smaller ones and boutique developments are still undeterred in seeking huge windfalls via collective sale. If you’re one of those hopefuls, kindly read on to a gain detailed understanding of the en bloc sales process.
1. How is the process for collective sales triggered?
Basically, en bloc sales can be initiated through two things. First, an entity such as a property developer, an investment fund or a consortium of home builders can give an unsolicited offer to acquire an entire private development including its land from its owners.
Second, the subsidiary proprietors (owners) jointly agree among themselves to launch their residential, commercial or mixed-use project for sale in its entirety. One of the reasons they do this is to dispose an ageing property that is getting difficult to maintain like the case of the Pearl Bank Apartments. Another is to monetise a private property before its lease ends, during which the government takes back the development and its land without giving any compensation to the owners.
2. Like-minded owners band together for en bloc sale
Thereafter, a group of like-minded property owners can form a ‘pro tempore’ committee in order to stimulate interest for the proposed collective sale.
This body is different from the Collective Sale Committee (CSC), the entity empowered by the owners to officially undertake the en bloc sale and represent them to the Strata Titles Board. To create the CSC, a General Meeting must be held, with at least 20 percent of a project’s share value or 25 percent of total number of unit owners voting in favour.
Important: CSC members need to be voted upon and the candidates for such position need to make full disclosure of any actual or potential conflicts of interest.
In contrast, the members of a pro tempore committee need not be elected. It’s just set-up to persuade other owners to approve the collective sale. Its other objective is to determine whether the required level of consent to successfully launch the property for en bloc sale can be met.
3. Appointing a legal adviser and marketing agent
If a CSC is successfully formed, among its main tasks is to engage a real estate consultancy to help market the entire development, as well as hire an independent valuer to ascertain the entire project’s market price. Among the well-known property consultancies here are JLL, CBRE, Propnex, ERA Realty, Huttons Asia, Knight Frank, OrangeTee & Tie and Colliers International.
Another responsibility of the CSC is to appoint a law firm, which will provide legal advice regarding the en bloc sale as well as handle all essential documents for the transaction. Local companies providing such service include Tan Lee & Partners; Dentons Rodyk & Davidson; along with Consultant, Rajah & Tann Singapore.
With the help of these experts, the committee can draft the Collective Sales Agreement (CSA), which includes the Method of Apportionment, or the provision specifying how the proceeds from the sale will be divided among the unit owners.
Important: if you inked the CSA, it means you not only consented with the en bloc sale, but also to the manner of splitting the profits.
It is also advised that a schedule pertaining to the collective sale is published to guide unit owners (Please see table below). This is important as marketing the development and netting the sales proceeds could take around one year, so you need to prepare to eventually move out from your home if the deal pushes through.
Collective sales sequence
|Some owners set-up a pro tempore committee|
|Establishing a collective sales committee|
|Engaging a law firm, valuer and property consultancy|
|Meeting the required # of signatures for Collective Sales Agreement|
|Conduct a public tender|
|Close tender exercise and announce winning bidder|
|Negotiate via private deal if offer is lower than reserve price|
|Seek ‘order of sale’ from Strata Titles Boards or High Court|
|Collective sale is concluded|
|Vacate unit and turnover to buyer; receive payment|
4. Obtaining 80%, 90% or 100% approval
Under the Land Titles (Strata) Act, a collective sale can only proceed if a certain percentage of owners signed the Collective Sales Agreement.
In particular, at least 80 percent of the subsidiary proprietors by strata area and share value need to give their blessing for developments age 10 years and above. However, newer projects need to secure the approval of at least 90 percent. If all unit owners unanimously consented, there’s no need to get an order of sale from the Strata Titles Boards or High Court.
Important: the age of a development is based on when it obtained its Temporary Occupation Permit (TOP). If this is not applicable, it will depend on the issuance of the Certificate of Statutory Completion (CSC). Moreover, the number of votes is based on strata area and share value, so those with larger and more expensive units have greater voting power.
Typically, those who oppose a collective sale are owners who have acquired their units during the last three years. This is because private properties bought since 11 March 2017 cannot be sold within three years. Otherwise, the owner will need to pay a Seller’s Stamp Duty (SSD) of four percent, eight percent and 12 percent if the unit was respectively disposed within one year, two years or three years. For properties acquired prior to that date, the SSD covers properties sold in four years, with a tax of 16 percent levied against those who have disposed their units in one year.
Another group who are likely to reject the proposed bloc sale are those who have forked out huge amount of cash to spruce up their properties, but have not yet recovered the renovation cost through rentals.
5. Marketing agent launches en bloc tender
If you frequently read local news websites, you’ll notice that real estate consultancies announce the opening of an en bloc tender. This is basically part of their job to carry out the tender exercise on behalf of unit owners, and this process usually takes more than a month.
If there is already a willing buyer that offered an acceptable price to the owners, the subsidiary proprietors can skip this part. Otherwise, dream big that several major developers or at least one comes knocking at your development’s doorstep and quotes an attractive price.
Getting a dizzying bid really depends on the state of Singapore’s private housing market. In fact, two of the most expensive en bloc deals in 2018 occurred before the latest property cooling measures took effect in July. In April, Tulip Garden was sold for $906.9 million, while Pacific Mansion changed hands in March for a sky-high price of $980 million.
6. Obtain a sale order from the Strata Titles Board
If not all property owners inked the Collective Sales Agreement, the Collective Sale Committee is required by law to apply for a sale order from the Strata Titles Boards or High Court.
For fairness sake, the authorities need to hear the side of the unit owners opposing the en bloc sale during the proceedings.
Fundamentally, if the CSC has complied with all requirements for the collective sale, the Strata Titles Boards cannot disapprove the transaction unless it can be proven that any of the objectors will suffer “financial loss” once the en bloc deal is completed.
There is financial loss if the property will be compulsorily sold at a lower price versus what the unit owner had paid for. For instance, a condo will be sold for S$1.3 million and the owner’s net proceeds only amounts to S$1 million even though it was originally acquired for S$1.2 million.
7. Completion of Collective Sale
Once the Strata Title Board grants the sale order for the transaction, the entire development will be eventually turned over to the buyer based on an agreed schedule.
Typically, the buyer provides sufficient time to the previous owners to move out of the premises. But if any of them have rented out their units, they need to prematurely cancel their leasing agreement and remunerate their occupants.
As for the payment, the sellers will receive it not later than the agreed time. It’s strongly recommended that before the launch of the en bloc tender you should have made adequate preparations in the event the collective sale is successful.
This is because the buyer is unlikely to grant an extension for moving out to unit owners, who have yet to secure replacement housing.
Furthermore, unless you have sufficient savings to buy another property before getting the proceeds, you need temporary accommodations. You may also turn to bridging loans, but this needs to be repaid within six months.
Once the new owner gets vacant possession, the property is expected to be torn down and redeveloped.
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