Private property is a well sought-after commodity in land-scarce Singapore. Yet in some cases, the government and property developers can actually take over the land that your property sits on, compelling you to sell your house. Of course, the reality is often less grim with many owners of old developments suddenly becoming overnight millionaires after an en-bloc sale. But make no mistake about it – a successful en-bloc sale is not easy and can take an awfully long time. This article aims to provide an overview of the en-bloc process in Singapore.
What is En-Bloc?
An en-bloc or collective sale occurs when the there is a sale of two or more property units to a common developer. In the event of a successful en-bloc sale, proceeds are usually divided amongst all the unit owners.
Some of the more well-known and successful en-blocs in Singapore include Leedon Heights (today known as Leedon Residence), which was sold for $835 million, and Gillman Heights (today known as the Interlace), which was sold for $548 million.
A common en-bloc scenario is one where all the units in a strata-titled development are being sold to a developer. Strata-titled developments generally refer to condominiums, private apartments or cluster houses that are jointly developed within a development and share common facilities.
Why En-Bloc?
The obvious reason is the high potential for profits. In land-scarce Singapore, property prices are generally on the uptrend over a long time horizon.
One of the major factors affecting an en-bloc sale is the plot ratio of the land, which is decided by the government through the URA Master Plan. The plan, revised every 5 years, decides how much of the land is allocated to specific needs e.g. industrial, commercial, and residential. This in turn will determine the type of property to be built on the area as well as the maximum number of floors; factors that prospective buyers will consider before developing the land.
Therefore, major developers would eye older developments in prime areas and aim to buy them before building newer apartments or malls in its place that has the potential to earn better capital returns. For the property owner, the negotiation process (where developers have to persuade you to move) will usually result in some sort of capital gains either via cash compensation or the ability to buy a higher-priced property in a prime location at a much cheaper rate. Therefore, for successful en-bloc sales, it is usually a win-win situation for both buyers and sellers.
Additionally, there is another reason for en-bloc. It is legislated by law under the Land Acquisition Act where the government may acquire land in the private sector to be used for providing essential public goods such as schools, hospitals or the more common example, MRT projects. It is generally a good thing as instead of pandering to the wishes of a minority which impedes progress, the government can step in and in most cases, the owners whose properties are being acquired will be paid due compensation.
What Does The Law Say?
In general, if a development is older than 10 years, at least 80% of its owners must agree to sell their homes. The percentage increases to 90% if the development is less than 10 years.
Under the 2007 Land Titles (Strata Act) amendments, other than the agreement by a pre-determined majority (based on either share value, share in land or notional share), they must take into account the total area of all the lots in strata or flatted development.
For example, for developments that are older than 10 years old, besides getting 80% of the owners to agree (based on strata value), this 80% must also form no less than 80% of the total strata area (excluding the area of any accessory lot) or flats.
In the 2010 amendments, stricter restrictions were imposed, such as the enforcement of a 2-year hiatus after a failed first attempt. This is to prevent harassment of homeowners who had refused to sell their properties, as witnessed from the infamous case of the Laguna Park condo.
Therefore, when the majority of the owners agree to sell a collective number of units, the whole development can be sold, much to the displeasure of the remaining owners.
What The En-Bloc Process Involves
Either external buyers or homeowners who can put the entire development on sale can initiate an en-bloc.
The first step is for the homeowners to form a sales committee and appoint no more than three persons to represent the entire group.
The committee would have to seek professional advice from a legal consultant and marketing/property consultant as well as to obtain an independent valuation report from an independent valuer. These professionals will also have to advise on the proposed method of distributing sales proceeds and decide on the sale method e.g. by auction or tender.
Once the committee is formed, they will have to persuade the majority (as defined by law) to sell and indicate their consent by signing a Collective Sale Agreement. This must be obtained within a year. Failure to do so will render the sale attempt invalid.
The 2010 amendments to the law also imposed new general meeting requirements and expanded the definition of what constituents a failed attempt. For instance, when the general meeting is unable to obtain 30% (by shared value of the development) within the hour, it is deemed as a failed attempt.
Once the committee has found a buyer and the sale is agreed upon, an application may be made to the Strata Titles Board who will then evaluate the application before making a decision. Do note that even at this stage, owners who do not agree to the sale can still raise their objections with the Board.
At the end of the day, a successful en-bloc sale is financially rewarding to both the homeowners and buyer(s), resulting in a win-win situation. The process, however, is long drawn and can take years before successful completion. Despite that, it may very well be a blessing and in Singapore, we can be sure that it will continue to be a common sight.
