• Joshua Loo

Stop Holding on to Your En-Bloc Property!

Updated: Sep 3

I’ve covered this in an earlier article, and it requires a deeper look into it to help people understand that holding onto their en-bloc property is not practically the best advice.


It sounds good to be able to sell your properties, be it an HDB flat or private property when a collective sale is announced. Yet, this is at times not the best decision to take.


I believe that this term is sensationalized by the press. Furthermore, its often a saying that is used by property agents to market an aging property. This has led to some confusion for investors in Singapore’s housing market, to the point where there is an assumption that an en bloc property can net the owner a tidy sum.


To illustrate my point better, I will argue on both sides of this point.


  • Explanation of the different forms on en bloc sales

  • Why should you not wait for an en bloc situation

  • Why you should wait for an en bloc situation


Types of En Bloc and Why You Should Not Wait For One


Selective En Bloc Redevelopment Scheme (For HDBs)


This is a term used for the en bloc of HDB projects. These processes are for HDB flats owners which will be relocated to newer HDB flats. Most HDB homeowners are often anticipating for SERS to be applicable for them so that they will get a healthy payout.


However, these homeowners will need to be aware that the compensation will be based on the current market value of your HDB flat, which HDB will assign a private market valuer to assess the value for you.


Being part of the SERS, you will not be given the option to stay in your existing flat. This means that objectively, the lessees (you), do not have any final words on the final price of the flat.


The SERS payout is also subjected to property taxes, settlement of outstanding loans, and refund of CPF usage.


Do remember that as HDB flats are a form of affordable public housing, there will only be a slight difference based on the time when you purchase your HDB and the next BTO or resale HDB.



From the sales transaction trend as seen above, HDB properties appreciated at a rate of 3.78% p.a. from the year 2000, whereas the appreciation of private properties is at 6.55% p.a.


With the assumption that most Singaporeans will be using their CPF funds to repay their housing loan, an accrued interest will be accumulated which will be needed to be refunded upon SERS selection.




Regardless of your future plans, be it purchasing an HDB flat or private property, you will be left with fewer funds!


This might be a problem for people who are keen on taking this opportunity to upgrade to private housing.

Private Collective Sales (For Private Properties)


Holding onto your freehold, private property might be part of your initial goal in obtaining long term capital appreciation, but will that truly be the case?


If you will like an in-depth explanation of the en bloc sales process, check it out here.


For those that are already familiar with the process, a quick reminder is that obtaining a collective sale of a property comes down to a majority vote of 80% for share value and total strata area after 10 years.


In my opinion, there are too many interests involved which affects the complete sale of the development, and the end results might not appeal to everyone. Let me breakdown some of these roles, on those that have direct involvement, excluding third parties like bankers and the assigned real estate agency.

The Retiree

People who fall under these camps are no longer interested in the sale of their homes. Instead, they will take a defensive-passive approach to en bloc collective sales. Having to sell their homes means that they will have to go through the tedious search of a new home, and that will place a lot of unnecessary stress which they are trying to avoid.


They are seldom involved in the en bloc process and will go with the flow. In worse scenarios, they might sabotage the sale should they be in the minority.

The Investor

These are the ones that are going for resale properties with “high en bloc potential”. Given that they are newer owners into this development, they have struck jackpot through their careful analysis of the real estate market.


However, as with their investor mindset, they tend to expect maximal profits out of their purchase. This can mean only agreeing to the collective sale amount that is profitable for them.


In worst scenarios, these investors might still be liable for Seller Stamp Duties (SSD) and with taxes paid from Buyer Stamp Duties (BSD) and Additional Buyer Stamp Duties (ABSD) and might expect more than the average asking price to minimize the damage.

The Real Estate Developer

Developers are always looking out for suitable land parcels for their next investment, but they have criteria that they are looking at. If you are an outsider, most likely it is difficult to accurately predict if your property is en bloc ready.


Developers are also required to pay miscellaneous fees on top of the collective asking price of the which means that approximately, they should be expected to pay almost 30-40% more of the asking price.


Being a developer means that you are required to leverage heavily on the bank's financing and if the asking price of the development goes far beyond what they are prepared to pay.


The loan quantum is released in different stages throughout the sales of the new development, and this means that developers will carefully exercise caution.

You

Some assumption is required in order for profiling, so forgive any boundaries that I might have crossed.


You might be an unsuspecting homeowner without a long-term plan in regards to your property. This purchase was solely for occupation. Outside of its fantastic location, layout, and supporting amenities, you have no further expectations of what the property can do for you financially. However, once you have purchased the property, news about a potential en bloc situation might have occurred.

Zero-Sum Game?


The expectations of all these parties differ greatly and it is very difficult for all to achieve a favorable objective. Hence, this usually results in a zero-sum game. No collective sale is completed and will be delayed till a later date.

The Carrot and Stick Scenario


The motivations of an en bloc sale therefore can be summed up by the following image.

Without a clear exit strategy into your financial investment, you will be extremely vulnerable to external and internal pressure.


Being overwhelmed by news on the next en-bloc situation does not help too. The goal post is constantly being moved.


Do not forget that your property continues to age accordingly, and as newer developments start to surround your property, your home will be less attractive to interested buyers. This makes it all the more difficult for it to be sold.


In order to get it sold, these properties are then again marketed with en bloc potential. Do you see notice a cycle here?

Why You Should Wait for an En Bloc Sale


There are very rare cases in which you should wait for an en-bloc sale. In my opinion, residential properties usually make a poor choice for en bloc due to the numerous guidelines as stipulated by the government regarding CPF usage.


Waiting for a residential en bloc situation strictly applies to a small group that I feel will largely benefit from waiting.


  • Freehold Property

  • Property in relatively good condition

  • Did not use CPF funds in their investment

  • No further plans in upgrading their owner-occupied property, but flexible to make arrangements if necessary

  • If it is a rental property, no existing mortgage or property still has a healthy rental demand


In my opinion, commercial properties are most suitable for investors who are keen to purchase en bloc properties. This is because most of the criteria that I have mentioned above do not apply strictly to them.


With regards to CPF funds used for payment of their commercial property, as it is simply not possible, this reduces significant accrued interest in the long run for the investor.


Commercial Property taxes are also capped at 10% of the Annual Value (AV) whereas the Residential Properties AV from as low as 4% to as high as 20%, depending on its status of being owner-occupied or not. Although property taxes to be paid are a small amount as compared to the total price of said property, it is still a sum to be attentive to.


Furthermore, commercial properties do not have any ABSD! This prevents the situation that I have mentioned above for Residential properties, where an investor might pay a huge ABSD amount for a property with “high en bloc potential”, and shifting the goalpost of an eventual collective sale even further.


Lastly, commercial property investors tend to not have shiny object syndrome. They tend to pursue older properties with high footfall and proven business instead of the newest commercial developments. This means that your older commercial properties will still benefit from good business even as other newer developments were to start appearing in the surroundings. In a way, this reduces their depreciation due to the overall utility of the business.


Queensway Shopping Center is an example, where strong business in their retail stores enable these commercial owners to hold out for longer periods, even through numerous unsuccessful collective sales agreements. All the while its residential owners bear the brunt of holding onto a slowly depreciating unit.

Summary


Thank you for reading this article! I hope that it was able to provide you some insight on why I feel holding onto your residential property for the chance at an en bloc is bad.


In this article, I covered both SERS (Public Housing) and Private En Bloc (Private Housing) situations, followed by the different parties involved in an en bloc situation. I mentioned how holding onto a residential property for en bloc is detrimental in the long run and why you should only do so if you are holding onto a commercial property.

Additional Point


As GE 2020 is just around the corner, there are also numerous policies promised by the political parties in regards to SERS which might affect your situation either positively or negatively should they be exercised. (To avoid any legal problems, we will not be discussing it here, but feel free to drop me a message if you are keen to learn more)

If you are looking for good investment properties, feel free to contact me at +6596329840 or Joshua.loo@orangetee.com I will provide for you a full breakdown into the property details and provide for you a complete property wealth planning.


The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author’s employer, organization, committee, or other group or individual. The author does not accept any responsibility whatsoever for any harm or loss arising from accessing or relying on information contained in this blog post.

 

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