Enbloc Sales – Huge Property supply coming

En bloc Sales Property Supply set to increase. In the current property buyer market, it was somewhat a surprise to witness the en bloc fever going on from the sidelines.

Why are developers so hungry for land and willing to pay attractive prices to current homeowners when property sales are still relatively weak and vacancy rate still high?

In 3Q2017, private home prices rose 0.7%, a reversal from the downtrend in almost 4 years. But, the vacancy rate for private residential units is over 8%.

Normanton Park. Picture: Knight Frank

Let’s have a look at the impressive list of deals concluded this year to date.

No. Project Name No. of Units Tenure Transacted Price Buyer
1 Tampines Court 560 99-year S$970 million Sim Lian Development
2 Amber Park Condo 200 Freehold S$906 million CDL and Hong Realty
3 Normanton Park Condo 488 99-year S$830 million Kingsford Huray
4 Eunosville 330 99 years S$766 million MCL Land
5 Florence Regency 336 99 years S$629 million Longan Property (Singapore)
6 Rio Casa 286 99-year S$575 million Oxley-Lian Beng JV
7 Serangoon Ville 244 99-year S$499 million Oxley Holdings
8 Citimac Industrial Complex 110 Freehold S$430 million Unknown
9 Mayfair Gardens 124 99-year S$311 million Oxley Holdings
10 Sun Rosier 78 Freehold S$271 million SingHaiyi Properties
11 Changi Garden 60 apartments, 12 penthouses, 12 shops Freehold S$248.8 million Chip Eng Seng
12 Nanak Mansions 36 Freehold S$201 million UOL Group Associate
13 Goh & Goh Building 7 apartments, 7 shops Freehold S$101.5 million BBR Holdings
14 Casa Contendere 11 Freehold S$72 million TEE Land
15 Jervois Gardens 17 Freehold S$72 million Brownstone Pte Ltd (SC Global)
16 The Albracca Condo 11 Freehold S$69 million Sustained Land
17 One Tree Hill Gardens 13 Freehold S$65 million Lum Chang Holdings
18 Elite Building 16 Freehold S$52 million The Tabernacle Church and Missions
19 Dunearn Court 12 Freehold S$36.3 million RH Central

The total value of the deals in 2017 already exceed S$7 billion as compared with S$1.17 billion in 2016 and S$380 million in 2015.

Most of the deals are for residential properties and the buyers are mostly well-known property developers, some of which are listed.

Some older condominiums where the building and maintenance cost is starting to become very high and homeowners are all in unison to Enbloc the building, however, some perfectly good buildings are also being put onto the market. Here are some Enbloc conflicts that homeowners can face.

RelatedWhat will 2018 bring for the land sales market?

Market watchers say developers are driven by depletion of landbank and growing confidence in the property market. Some developers could also be trying to “landbank” as they get 5 years to build and sell the properties before Additional buyer stamp duty (ABSD) is imposed.

The current enbloc fever could also be triggered by the bid from Chinese developer Qingjian Realty, which offered $638 million for 358-unit Shunfu Ville in 2016. At that time, it was the biggest deal in nearly a decade.

The offer prices for some developments were also lifted by competitive bids involving a tender exercise. ‘

Example: Amber Park, the freehold condo in the East Coast area attracted eight bidders. City Developments and Hong Realty won the enbloc tender, offering a higher price than the asking prices of homeowners.

One wonders if developers have been too optimistic. Apart from paying high prices to satisfy homeowners, developers have to pay a differential premium to increase the gross plot ratio for more intensive use of land, lease upgrading premium for leasehold sites and development charges (DC), a tax levied on developers seeking to increase value of land.

The government is watching closely and has raised DC for residential and commercial sites in September.

Some reasons why the government is watching the enbloc market

While the current enbloc deals will lift demand for homes for those cashing out, supply will increase significantly over the next few years as developers launch the new properties into the market.

The launch of more government land sales (GLS) would also mean developers are less likely to take the enbloc option as it involves more paperwork and potential legal issues.

In 2017, supply from GLS was 11,225 units as compared with 8,135 units in 2016.

In his speech at the REDAS event in November, Mr Lawrence Wong, Minister for National Development said the number of private residential units available for sale will more than double over the next one to two years and this is expected to more than cover demand from Singaporeans.

Developers likely to build smaller units

Is this a signal for a property glut? Possible.

Prices for homes redeveloped from the enbloc property are also expected to be marked up to cover the developers’ cost. So, the question is whether there will be buyers willing to pay for these smaller homes at higher prices, and if not, developers may face similar problems in future as those faced now as they think of how to drive sales to avoid paying Additional Buyers’ Stamp Duty if they don’t sell their homes within five years of being awarded the site.

RelatedA peek into the 2018 property market

There will be a lot more smaller units priced at higher per-square-feet prices, hence the demolition of current Enbloc properties will, in turn, be replaced with many more smaller units of properties.

In terms of total amount of square feet of available space, there would be a slight rise, however, in terms of units, there will be a lot more small units.

However, there is nothing to worry, if we reduce or remove the foreigner ABSD or if we reverse the restriction on immigration by letting in more foreign talent, we are sure there will be a lot of people from China, India and perhaps Indonesia buying up the properties.