Hype Behind Collective Sales Fever
What is behind the hype this time round?
Since May 2017 and for more than a decade of silence, numerous private property developments were put up for en-bloc sales process, with a whole lot of other estates following through in the fad.
2017 will be the third biggest year for collective sales (based on value), churning out thousands of overnight millionaires in the short span of 6 months and more going forward. While many were celebrating their sudden windfall gain unexpectedly, many market watchers have raise worries and concerns over such phenomenon on a broader perspective.
Approximately 2,700 private properties have changed hands via collective sales as of date, compared to only about 600 apartments sold in 2016. It has already exceeded more than S$6 billion in total value from the time of writing, after the S$11.7 billion and S$9.3 billion in 2007 and 2006 respectively.
Prime Minister Lawrence Wong from the National Development has attributed this to a couple of reasons in the Parliament on Monday. Of which is the hunger coming from many developers with low and dwindling land banks to levels seen during 2007. Coupled with the strong increase of sale activities in 2016 and 2017 in the primary market (new project launches), supply levels have been narrowing down to a mere 17,000 units as compared to 40,000 in 2012.
Additionally, land acquired through en-bloc sales provide local developers with more different varieties including freehold land sites than what the states land bank were providing (99-year leasehold) which proves to be long insufficient.
From the 16 developments sold en-bloc to date in 2017, there were only 2 sites going to foreign firms. Chinese builder Kingsford and Hongkong listed builder Logan Property, whom both acquired Normanton Park at S$830 million and Florence Regency at S$629 million respectively. Local players will have a slight advantage over foreign rivals in stocking up their land banks from this option as it is often a lengthy period of negotiation to the clearance of sale.
Besides the need of replenishing their land banks, the other motivated condition comes from the successful sales activities seen in the last few quarters, therefore encouraging current owners of ageing homes to monetize their beloved assets by initiating the process through committees formed. Some homeowners may also have been spooked by the announcement recently, that expiring leasehold properties will have to return to the government upon expiry and probably no chance of lease renewal.
Many of those sold or in the pipeline were HUDC flats (Housing & Urban Development Company) and this year or next could spell the end of the journey for them. Out of 18 HUDC estates built in the 1970s, 12 (five in this year) of them have already been sold while the remaining 6 is in the collective sale process now.
While there are many happy new millionaires basking in joy, blowing their trumpets in triumph, there are also the minority, whom opposed to selling via en-bloc as they are not willing to be disrupted in their everyday lives just for a few dollars more among other personal reasons. However, if the majority stakeholders voted positively and pushed ahead with the collective sale agreement and found a buyer within a year, approval from the Strata Titles Board, then it is going to be a more-or-less sealed deal although homeowners who do not agree can still raise their objections.
While everything remains to be seen but it seems like the end of the HUDCs are coming near.
So what is your view on this? Would you rather have more older estates or are you looking forward to redevelop ageing and underutilized land while driving urban renewal in our city state?