Three signs that your desired en bloc sale might not be happening
MSN MoneySmart
19 August 2017

Ah, the en bloc sale. Everyone wants a slice of this profit cake. We’ve come to associate an en bloc sale with huge windfalls, and the potential sale of Tampines Court at $970 million is set to be the latest and the biggest in the past decade.

I vaguely remember how my dad used to scrimp and save just so we could keep our Faber Garden unit till it enblocs. He believed the condominium estate had huge potential as the land’s plot ratio was under-utilized, and there were rumours that an upcoming MRT stop (since revealed to be the future Springleaf station on the upcoming Thomson-East Coast Line) will be near the back gates.

So six years ago when a committee was set up and the condo was put up for an en bloc offer, my family was so excited. We’d talk about it over dinners and fantasized what we’d do with the profits. This excitement continued until…

Poof! There were no takers and the en bloc ultimately failed (oops)!

Having gone through such an experience for the past decade, I'm going to save you from experiencing the same disappointment. Here’s three signs why your desired en bloc isn’t going to happen:

1. Your estate is just too big
As we've seen with properties like Faber Garden and Amber Park, an estate can be too big for developers to afford buying over at a reasonable price.

Furthermore, since 2011, developers in Singapore have to be Qualifying Certificate (QC) holders. This means they're given 5 years to complete construction and obtain the Temporary Occupation Permit and Certificate of Statutory Completion, better known as TOP and CSC. Then, they have to sell off all the units within two years after completion. This means they only get five to seven years to  do everything.

This includes tearing down the development, building it, marketing and selling it, and completing the construction. If they don’t meet the respective deadline, they’ll have to pay what is commonly called an “extension fee” ranging from 8% to 24% of the land price.

Because of the tight time frame, few developers would want to buy a large estate, and risk paying expensive extension fees. They’d rather buy an equally large plot of undeveloped land, and save time because they don't have to do the extra work of tearing down buildings.

2. There hasn’t been much development or transformation in your area
If there hasn’t been much development or transformation in your area, chances are the land value around your estate won't have risen much. Developers will have less reason to purchase your estate if they don't see any future potential in the surrounding neighbourhood.

On the other hand, it really only takes one major change to your surroundings to push the value of your land far beyond the imagination.

Take Rio Casa’s recent en bloc acquisition for example. A developer was willing to pay 27% more than the land’s asking price. Why? Because Paya Lebar Airbase, which is literally next door, is slated to move to Changi by 2030. Rio Casa would then be next to both a maturing Hougang estate, as well as a new estate bigger than Bishan or Toa Payoh.

Which brings me to my next point...

3. The land space in your estate has been maximised
If you’re living in an estate that has 30 to 40 over levels in each building, and the blocks are closely packed together, there's a high chance the plot ratio of area your estate is in has already been maximised.

At the risk of oversimplifying the definition, the plot ratio determines how many floors (both above and under ground) you can build on a site. In an area with a plot ratio of 1.4, for example, buildings typically won't go beyond five stories, while in an area with a plot ratio of 2.8, buildings typically go up to 36 stories. Developers naturally would want to look for land with a high plot ratio, since that way they can maximise their profits by making their buildings as tall as possible.

In a nutshell, the deciding factor of whether your estate gets an en bloc offer rests upon several factors, both within your control and unfortunately, beyond your control. There's no way to say for sure if your estate is the next Tampines Court or the next Faber Garden, but if your estate meets these three signs, then it might be time to lower your expectations.

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