Craze over collective sales

Winners and losers amid en bloc frenzy

Former HUDC estate Tampines Court is one of the mega sites which may be  redeveloped to more than 1,000 new homes.
Former HUDC estate Tampines Court is one of the mega sites which may be redeveloped to more than 1,000 new homes. PHOTO: ST FILE

Sellers reap windfalls from collective sales, govt coffers get a boost and property market gets a pick-me-up, but some face hefty taxes

The latest collective sale fever has turned several thousand home owners into instant millionaires - but some others have seen their pot of gold disappear because they sold their units too early.

The allure is there for many, as collective sales allow private home owners to exit ageing properties at a premium that is often much higher than what could be gained through the resale market.

Sellers, of course, are not the only ones standing to gain from the collective sale mania: Developers can be rewarded handsomely if new developments from en bloc sales fetch a good price when they come into the market.

As with sellers, timing is all. Developers are taking a gamble, as they have to sell the new units within a fixed period - even if economic conditions and government policies turn against them - or pay punishing taxes.

But it seems that many see a rosy future ahead, going by the fact that developers have been more bullish in their land price bids both in the Government Land Sales (GLS) programme and in collective sales in recent months - many are pricing in a 10 per cent to 20 per cent rise in home prices over the next two to three years.

Other winners, or potential winners, include the Singapore Government, the economy as a whole, other home buyers and sellers, those seeking to rent out their homes, and property agents.

BIG-PICTURE WINNERS

Collective sales are not only a handy alternative land source for developers, given the limited supply from the GLS programme in recent years - they also allow the land to be put to more efficient use and, what's more, money from land sales boosts government coffers.

Domestic demand has been very weak for most of this year, with household consumption growth held back by labour market uncertainty and a moribund property market. But residential investment could start to pick up next year due to the collective sale revival.

Over the past 15 years, the Government received $10 billion to $20 billion annually on average from land sales. These are considered part of past reserves and managed by GIC, which invests the capital largely outside Singapore. Half of the annual net interest income from such investments is used to supplement the Government's operating budget, says Ms Regina Lim, JLL's head of capital markets research, South-east Asia.

Collective sales also enable "capital" - through the proceeds - to be recycled back through the economy through new or resale home purchases. Even sagging sectors such as construction are expected to get a new lease of life next year as new condominium projects start to be built, consultants say.

Domestic demand has been very weak for most of this year, with household consumption growth held back by labour market uncertainty and a moribund property market. But residential investment could start to pick up next year due to the collective sale revival.

Redevelopment of the sites sold en bloc should start from the second half of next year and progress over the next few years, which will result in residential investment making positive contributions to gross domestic product growth from next year, says ANZ head of Asia research Khoon Goh.

In 2006 and 2007, strong collective sale activity led to a spike in residential construction activity, despite a sharp drop in property prices during the 2008 to 2009 global financial crisis, as confirmed projects continued to be built, he notes.

 

INDIVIDUAL WINDFALLS

Likewise, the collective sale revival this year has led to a pickup in the number of housing transactions, as owner-occupiers seek replacement homes. Residential property prices posted their first quarterly increase in nearly four years in the third quarter this year.

Mrs Diana Chong, 50, received a windfall of $1.7 million from the $638 million collective sale of former HUDC estate Shunfu Ville in May last year, and will be using part of the proceeds to buy a Housing Board resale flat near Bishan.

She says: "It's either buying a house or an HDB resale (flat). In the end, we chose HDB because we liked the locale, the unit was spacious and private, and the estate was well maintained. We didn't want to pay over $1 million for a condo that is smaller."

Mrs Chong is among 3,279 apartment owners who received $7.35 billion in proceeds from 21 collective sale deals transacted since last year. That compares with an all-time high of 111 transactions valued at $11.595 billion recorded in 2007 and 79 transactions worth $8.055 billion in 2006.

Nine more sites worth $1.853 billion could close in the next few months, potentially displacing another 529 owners, according to Colliers International.

Consultants say HDB resale activity and prices could pick up in the next four to six months as the public housing option may be palatable to those people, especially retirees, who wish to keep some of the windfall from selling en bloc as retirement funds or savings.

"We think owners of former HUDC developments that were collectively sold - including Rio Casa, Eunosville, Serangoon Ville, Tampines Court and Florence Regency - could dip into the HDB resale market in their search for replacement homes. They may also prefer to purchase units within the vicinity of their homes, owing to the sense of familiarity with the area," says Ms Tricia Song, director and head of research, Singapore, for Colliers.

"Given that many owners have had a windfall from the collective sale of their homes, it is likely that some of them may be willing to pay a premium for HDB resale units in choice locations or with excellent attributes," she adds.

"Some owners who are retirees or semi-retirees could also take the opportunity to downgrade to a smaller apartment, and be less concerned with the issue of depreciating HDB leases."

The immediate demand for replacement homes could boost sales of private homes from developers and the resale market. Assuming 60 per cent to 70 per cent of these owners decide to buy a replacement home in the private residential market, this could boost demand for completed private homes by 1,900 to 2,300 units, with the bulk of purchases taking place next year, Ms Song says.

The rental market could also get a second wind from the collective sale euphoria.

Ms Christine Li of Cushman & Wakefield says: "Although only two segments - the landed and the rest of the central region - showed signs of revival, the displaced tenants and owners of en bloc projects could help to give the market a much-needed shot in the arm in the coming quarters. (This is) as they scout for alternative accommodation and replacement units."

STAMP DUTY, DISPLACEMENT WOES

But all that glitters isn't gold.

A number of recent collective sales involved mega sites - these include Tampines Court, Serangoon Ville and Shunfu Ville - each of which may be redeveloped to more than 1,000 new homes.

If these developers aren't able to finish selling all their units within five years as part of conditions for the remission of 15 per cent additional buyer's stamp duty on the land purchases, they face hefty taxes and may have to cut prices to clear inventory.

Those who purchased properties in the past four years or less and sell them en bloc will still gain - but it will be less of a windfall as they will have to pay the seller's stamp duty (SSD). Some may face cash flow concerns as SSD payments are usually due before they can get the proceeds.

For instance, some owners of Tampines Court, a 560-unit property sold to developer Sim Lian for $970 million in a collective sale, are struggling to come up with cash for the SSD - as much as $277,000 in some cases.

The Inland Revenue Authority of Singapore, in response to The Straits Times' query in September, said that it is "prepared to consider requests to waive the penalty incurred up to the date of the sales order, provided that the said contract is stamped within 14 days from the date of execution".

Sometimes, the windfall of a few million dollars may not be enough.

"Some en bloc sellers are already quite well-off, so it's not about money. Some are reluctant sellers as they are quite comfortable where they are, and aren't sure if they can get a similar home with the proceeds in an area they like," says JLL regional director of investments Tan Hong Boon.

"I've seen some families with autistic children who can turn violent if their surroundings suddenly change. And for the parents, even with the millions they get, they are not happy," he says.

A version of this article appeared in the print edition of The Sunday Times on November 12, 2017, with the headline 'Winners and losers amid the frenzy'. Print Edition | Subscribe