Riding the en bloc fever wave

The big “E” (read: en bloc) has been making waves in the property market for a good part of the year. Everyone is talking about it but what does en bloc fever really entail?

En bloc fever is a property phenomenon that brings optimism to the real estate market. Thus far in 2017, there have already been six residential developments and an industrial complex sold en bloc. This figure far exceeds the three deals done in 2016. Looking at the numbers, we have hit S$2.5 billion in collective sale transactions, more than doubling the S$1 billion achieved in 2016. With a handful of deals in the pipeline and a few more awaiting bids; we can fully expect more en bloc deals to come into the market as we approach the last quarter of 2017. So where do we go from here? I will delve deeper and analyse the en bloc market in this article.

As the en bloc market is so large, I have decided to break it down into different groups and this article will turn the spotlight solely on ex-HUDC estates and their collective sales potential.

The main driving forces behind the en bloc fever

The demand for land parcels far outweigh the supply of land parcels. This is because the real estate market is starting to form a floor in terms of pricing as more and more buyers are starting to look for property.

The winds of change started blowing in the property sector when the government started easing some cooling measures in the form of a reduction in Seller Stamp Duty (SSD) and increased flexibility with regards to the Total Debt Servicing Ratio (TDSR) in March 2017. With all these positive factors forming the base, the real estate cycle is starting to turn bullish as it is fueled by rising optimism all over the market.

In order to not miss out of the next real estate bull run, real estate developers who lack a solid land bank to develop on are afraid to miss out. Developers who already have land want more land because… who doesn’t want more money? With so much demand for land parcels and the lack of land parcels available, it is hard to imagine a scenario where property prices do not continue their upward trajectory in Singapore.

It is inevitable that developers will become increasingly aggressive with their land bids and we will see galvanised activity for en bloc sales in the days to come. This will be most prominent in former HUDC estates as they are widely considered hidden pots of gold for real estate developers.

Why are privatised HUDC estates a hotbed for en bloc fever?

Privatised HUDC estates are a unique class of property in Singapore. They were originally created for the sandwiched class of Singaporeans who can afford more than HDB flats, but cannot quite afford private condos. These estates are generally located in established mature estates, situated in good locations and have a decent land size. From the perspective of real estate developers looking to increase their land bank, privatised HUDC estates are exactly what real estate developers look out for when looking for en bloc candidates.

Development	Land Area (sqft)	District	Enbloc year	Sold for	Buyer
Amberville	218,435	15	2006	$183 million	Far East Organization
Waterfront View	809,037	16	2006	$385 million	FCL Peak
Minton Rise	472,379	19	2007	$209 million	Kheng Leong
Gilman Heights	836,432	4	2007	$548 million	CapitaLand led consortium
Farrer Court	838,488	11	2007	$1.34 billion	CapitaLand led consortium
Shunfu Ville	427,265	20	2016	$638 million	Qingjian Realty
Raintree Gardens	201,405	13	2016	$334.2 million	UVD (Projects)
Rio Casa	410,654	19	2017	$575 million	Oxley-Lian Beng Venture
Eunosville	376,713	20	2017	$765 million	MCL Land
Serangoon Ville	296,911	19	2017	$499 million	Oxley Serangoon
Tampines Court	702,458	18	-	asking $960 million	Tender Closing Aug 15, 2017
Florence Regency	389,235	19	-		En bloc process started
Laguna Park	677,493	15	-		En bloc process started
Ivory Heights	825,500	22	-		En bloc process started
Pine Grove	893,129	21	-		Enbloc process started
Chancery Court	123,139	11	-		En bloc process started
Braddell View	618,222	20	-		En bloc process not started
Lakeview Estate	242,734	20	-		En bloc process not started

Looking at this group, all 18 estates have since been privatised and a whooping 10 of them have been sold en bloc; five of which in recent years. Out of the remaining eight, six have started the en bloc process and I believe the other two will soon follow suit.

That being said, let’s take a look at the last five recent privatised HUDC en bloc sales and then figure out the en bloc potential for the remaining eight. I will not touch on the five collective sales that happened in 2006 and 2007 because those happened in a different environment as regulations, sentiment and market factors have changed since then.

Let’s take a look at the five recent ex-HUDC en bloc sales

There were five ex-HUDC estates that successfully completed their enbloc in the last two years – Shunfu Ville, Raintree Gardens, Rio Casa, Eunosville and Serangoon Ville. From a market standpoint, these were the low hanging fruit. Looking at the number of units in each development, all five developments were not too large nor too small.

The sweet spot for developers and marketing agencies handling en blocs takes a general rule of 300 – 500 units as ideal en bloc targets. This is because if there are too few units, the development might be too small for the developer to even be interested. In the developer’s eyes, it’s always better to acquire a site with more land.

On the other hand, too many units pose another problem for the marketing agency because there are too many owners to convince to sell. There needs to be a consensus of at least 80% of owners for the en bloc exercise to be successful. If there are more owners, it makes it harder for the marketing agency to handle the exercise. As the saying goes, too many cooks spoil the broth.

The market tends to avoid developments over 500 units but this is not to say deals over 500 units do not get transacted, they are just not as ideal for the parties involved. In this case, ABSD penalties looming large over developers also slightly deters them from going into projects that are too large as the penalties for not selling all units within a certain time period can be hefty.

Development	No. of units	Land Area (sqft)	Gross Floor Area (sqft)	Land Area per unit (sqft)	Gross Floor Area per unit (sqft)
Shunfu Ville	358	427,265	1,196,342	1193	3342
Raintree Gardens	175	201,405	563,934	1151	3222
Rio Casa	286	410,654	1,149,831	1436	4020
Eunosville	330	376,713	1,054,796	1142	3196
Serangoon Ville	244	296,911	831,351	1217	3407

Looking at Gross Floor Area (GFA) per unit, you can tell how much each owner being bought out can yield for the developer. Units in those five projects had an average size of 1,200 sq ft. Comparing the 1,200 sq ft to the Gross Floor Area per unit, we can tell that for every unit being bought out through a collective sale, the developer that buys it would be able to build three units. This is based on the assumption that the developer builds 1,000 sq ft units on average.

Development	Sold for ($)	DC/DP ($)	Construction Cost ($)	Breakeven Cost ($)	Breakeven Psf ($)	Projected Launch Psf	Estimated Gross Profit ($)	Operating Cost ($)	Net Profit ($)
Shunfu Ville	638,000,000	217,000,000	478,536,800	1,333,536,800	1115	1449	400,061,040	60,009,156	340,051,884
Raintree Gardens	334,200,000	Included in Land Cost	225,573,600	559,773,600	993	1290	167,932,080	25,189,812	142,742,268
Rio Casa	575,000,000	208,000,000	459,932,480	1,242,932,480	1081	1405	372,879,744	55,931,962	316,947,782
Eunosville	765,000,000	194,000,000	421,918,560	1,380,918,560	1309	1702	414,275,568	62,141,335	352,134,233
Serangoon Ville	499,000,000	195,000,000	332,540,320	1,026,540,320	1235	1605	307,962,096	46,194,314	261,767,782

Delving deeper into the past five en blocs transactions, we can look at how much each developer stands to make. With a profit of around 20 – 25% for each of the above en bloc sales, you would be hard pressed to find a reason not to join the game. There is so much money to be made with a limited number of land parcels available. There will be more and more developers waking up from winter and joining the fray. As more players join the game, land bids will start increasing as everyone is gunning to be the top bidder for land parcels. The previous en blocs have already set a baseline and the upcoming en bloc bids are likely to follow the bullish nature of the real estate market now.

So what’s next for the remaining eight?

Of the remaining eight privatised HUDC estates – Tampines Court, Florence Regency, Laguna Park, Ivory Heights, Pine Grove, Chancery Court, Braddell View and Lakeview Estate – six have started the en bloc process.

evelopment	Location	Land Area (sq ft)	District	Plot Ratio	No. of units	Completion Year	Privatised	Buyer
Tampines Court	Tampines Street 11	702,458	18	2.8	560	1985	2002	Tender Closing Aug 15, 2017 - Asking for 960m
Florence Regency	Hougang Avenue 2	389,235	19	2.8	336	1986	2014	En bloc process started
Laguna Park	Marine Parade Road	677,493	15	2.8	528	1978	2007	En bloc process started
Ivory Heights	Jurong East Street 13	825,500	22	1.6	654	1986	1998	En bloc process started
Pine Grove	Pine Grove	893,129	21	2.1	660	1984	1996	En bloc process started
Chancery Court	Dunearn Road	123,139	11	1.4	136	1981	2004	En bloc process started
Braddell View	Braddell Hill	618,222	20	2.1	918	1981	2017	En bloc process not started
Lakeview Estate	Upper Thomson Road	242,734	20	2.1	240	1977	2003	En bloc process not started

Tampines Court

Tampines Court is expected to be the next development to be off the market with its tender closing by August 15, 2017. Attached to an ask price of $960 million that looks rather reasonable in view of its impressive land area of 702,458 sq ft, This deal is very close to being done. The Tampines area has been supported by a recent GLS parcel and brisk sales at neighbouring new projects – Alps and Santorini. The market is definitely picking up in Tampines with strong demand coming from HDB upgraders.

Florence Regency

Florence Regency is an exciting option for developers to consider. The estate is very close to revving into high gear with its en bloc exercise which commenced on July 15. Latest reports from the development show approval levels of over 75%. This is not too far away from the required 80% needed to embark on a collective sale tender. With the rising tide of the real estate market, obtaining an 80% majority is only a matter of time. Bids should be strong for the Florence Regency tender as pent-up demand for the Hougang area has been building for a long time now. This movement is strongly supported by the recent launch of nearby Executive Condominium (EC) Hundred Palms Residences. Even after being priced on the higher end of the EC spectrum at an average price of $836 psf, Hundred Palms Residences was oversubscribed with more than 2700 e-applications competing for only 531 units. All units were sold out in less than 7 hours.

Laguna Park

Laguna Park is an intriguing development in the East to look at. Situated at Marine Parade, the development has also kicked started its en bloc process. Although in its early stage, the land parcel under Laguna Park will be highly sought after. The Marine Parade area is extremely mature while not having many new projects in recent years. Spanning a whooping 677,493 sq ft, there will be many developers who have their eye on this prize. One concern coming out of Laguna Park would be if the current residents would even want to sell as they have voted nay before. However, with en bloc figures rising with the tide, a strong bid from a developer would be hard to say “no” to.

Ivory Heights

Nicely nested along Jurong East Street 13, Ivory Heights is close to the cluster of malls at Jurong East, yet another mature estate. In recent years, the Jurong area has seen a steady ascent out of suburban-hood with psf prices on the rise ever since the announcement of the High Speed Rail and creation of a second Central Business District. Ivory Heights sits in a soon-to-be prime area and developers will be straining to get in on the action when this plot of land comes onto the market. Bids will be high. With many new launch projects selling out and not too many plots of land in the area available currently, Ivory Heights is set to be highly sought after.

Pine Grove

Pin Grove takes the cake as having the largest plot of land at 893,129 sq ft, out of all the eight developments. Pine Grove has a storied history with en bloc exercises. Having gone through two failed en bloc attempts previously, this development is caught between a rock and a hard place. The development’s potential is tremendous with investment in the area slowly bringing up the value of this estate. Not surprisingly, this comes along with a high asking price. Although units in Pine Grove are well deserving of their price tags, the sheer size of this development effectively prices out many smaller developers from the bidding process. Positioned in a prime location, Pine Grove has much to offer but has to wait its turn. With a strong appetite for a collective sale at the recent general meeting, Pine Grove’s residents are definitely attracting attention from the market. The en bloc process will not be soon with this one but watch on as this sleeping giant slowly lumbers towards the finish line.

Chancery Court

Chancery Court can be said to be a gem of a development. Having called an extraordinary general meeting later in August to appoint a sales committee, this estate is throwing its hat into the en bloc ring. It is the smallest plot amongst the other en bloc contenders, spanning a total of 123,139 sq ft with 136 units. Chancery Court will be able to move fast with its prominent location along Dunearn Road. Many developers will have their eye on Chancery Court as the going quantum will allow many smaller players to be in the running. Bids for this project will likely be aggressive as competition will be stiff.

Braddell View

Braddell View is an outlier, having only privatised in 2017. This development is not ready for an en bloc exercise. Being host to 918 units, at only 618,222 sq ft, Braddell View will not be on many developers’ radar.

Lakeview Estate

Lakeview Estate is often overlooked. Although a good en bloc candidate on paper with its relatively small size of 242,734 sq ft and 240 units, Lakeview Estate has not been on the radar of the en bloc market for some reason. This should change soon as the market picks up and more and more collective sales in the HUDC estates go. It’s time in the en bloc sun will come sooner or later.

What does the recent bumper crop of collective sales mean for the property scene?

The next real estate boom is coming. Bullish bids for land do not come out of the blue. No one is in the business to lose money. Collective sales mark the bottom of the market. Every time a collective sale happens, the surrounding developments pick up in price and interest. This is because the bids from recent en bloc sales have been much higher than surrounding developments. This means that when the time comes for the new development to launch, the developer would have to include the build cost and their markup margin in the launch price. As a result, these en bloc projects would launch at a premium over current projects.

Looking at the new launch market currently, prices will continue to rise. The price increases have been supported by bullish en bloc tenders and a shortage of inventory as developers have not been active in maintaining their land supply. This movement will likely continue which would further boost en bloc activity. The cycle is a self-fulfilling prophecy that feeds on itself. This marks the turn of the tide and the real estate market has nowhere to go but up from here.

Source: 99.co

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