Love thy neighbor: apartment owners team up to cash in
The Wall Street Journal (abridged)
Dominique Fong
03 January 2013

As 2018 gets under way, developers are coming up with new ways to feed what seems to be an insatiable appetite among the world’s emerging middle class for apartments both as places to live and investments to store their wealth.

Consider what has been happening in Singapore.

In 2017, the volume of apartments sales in Singapore hit at least $5.2 billion, the most in one single year since 2007, according to preliminary data compiled by research firm Real Capital Analytics that included residential sales $10 million and greater.

The lion’s share of the Singapore sales were by a new breed of investor who were cashing out in a process that has become known as a “collective sale.”

Here is out it works: Dozens of neighbors living in the same apartment complex band together to package all their units and sell the whole property to a developer in one big go. Selling this way produces a bigger payout than selling on their own.

Developers in the land-starved region are willing to pay up because they want to redevelop the property, often by knocking it down and building new. Most of the time they want to build more apartments and start the cycle all over again.

The land shortage “makes developers more aggressive,” said Yong Choon Fah, national director of investment sales at brokerage firm JLL Singapore.

Singapore’s apartment market typifies one of the engines that powered the global real-estate industry in 2017 and is expected to keep chugging along this year. In a major cultural and economic shift, units are becoming traded almost like a commodity.

The trend is particularly strong in Asia. China’s housing boom over the last two years has been fueled by speculative activity and the belief that property is the best investment for families to build wealth. Condominium prices in metro Manila have been rising at an average rate of 10% annually, according to Knight Frank.

In Singapore, a collective sale closes nearly every week, said Tricia Song, head of research for Singapore at Colliers International. Sales move forward if 80% of the homeowners agree to sell their complex that is a decade or older. Those who object can sue if they claim the process wasn’t carried out in good faith or if they stand to lose money from the sale.

Sometimes the asking price is too high. “In fact, failure is quite common,” says Christine Li, a research director at Cushman & Wakefield, a real estate brokerage firm. “Many of the projects sold [in 2017] were their second or third attempt.”

Still, most are willing to go along. The final payout from the developer is usually at least 30% higher than the market price, according to Ms. Li.

In the Royalville project, the homeowners received an average 2,785 Singapore dollars for each square foot, or a 122% premium above the last apartment in the project that was sold on the open market, Ms. Li said.

“The people who get the most payout have been holding a really long time,” said Chew Chang Hui, head of consumer marketing for Singapore at PropertyGuru, an online platform for real estate listings in Asia.

After the sale, the idea then is to tear down the old apartments with the hope of squeezing more new units on the same piece of land.

In September, Singapore developer Sim Lian Group bought the Tampines Court project for 970 million Singapore dollars ($725 million)—the biggest deal of the year—and plans to turn 560 units into 2,000 units.

Likewise, local developers City Developments Ltd. and Hong Realty (Private) Ltd. plan to transform the 200-unit Amber Park project into one with 800 units.

The trend shows no sign of slowing in 2018. In Singapore, about 70 to 80 property developments are in the middle of a collective sale, according to brokerage firm JLL.

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