I had the opportunity to meet up with a reader a while back who had a somewhat happy problem. A beneficiary of a recent enbloc sale meant that he had to move despite pocketing a mini-windfall. My recommendation to him was simple if you are going to purchase something for your personal use, make sure you wake up every day happy. After all, some of us do spend half a lifetime staying in the same unit. So personal enjoyment is of utmost priority.
However, while personal enjoyment matters, there is a dizzying rush of euphoria when you sell your home for a record price. The feeling is much like winning a lottery or getting jackpot at the slot machines. So, with that in mind, is it possible to recreate this scenario a 2nd time? Getting the proceeds from the enbloc sale and purchasing another home that will enbloc in the future? Sounds like a plan right? So is there a way to understand what has enbloc potential? Well, there is. First of all, let’s take a look at the enbloc process.
An enbloc sale, also known as a collective sale is where a developer buys over the piece of land from all the individual strata title owners at the same time. If you need to understand the specifics, you can read about it here. The main summary is this: the majority of owners must agree at a certain price to sell with the developer having to buy the land at the said price. So technically speaking, the success of an enbloc is just reliant on one single factor.
How much a developer is willing to pay for the piece of land.
Why? Because if the developer can afford to pay more, then it is easier to get a majority to sell. Imagine your home is worth $1mil and someone comes along and offers you $1.5mil. You may or may not sell. However, if the amount is significantly higher at $2mil to $2.5mil that will make you an instant millionaire. Chances are you would, if not, then the majority of your neighbours would.
Is There A Way To Find Out How Much A Developer Is Willing To Pay For A Piece Of Land?
Well, there is. Just think like a developer! A developer’s main objective is pure profit. They have to maintain a certain margin to sell units and be profitable. By simply calculating today’s current prices and minus estimated margins, developmental charges, construction and other various costs, you would know how much to bid for that piece of land. So, generally speaking, a developer tends to pay more for sites that are underbuilt(they can build more units) and older(because the psf is significantly cheaper). Let’s take a look at the recent enbloc sales and compare them with the new projects built over them.
|Then||No. Of Units||Now||No. Of Units|
|Jervois Garden||14||Petit Jervois||55|
|Derby Court||22||Fyve Derbyshire||71|
|Mayfair Gardens||124||Mayfair Gardens & Mayfair Modern||386|
|120 Grange||18||120 Grange||56|
|8 Hullet||18||8 Hullet||44|
|3 Cuscaden||11||3 Cuscaden||96|
|1 Draycott Park||8||One Draycott||64|
|The Albracca||11||One Meyer||66|
|Tampines Court||560||Treasure at Tampines||2203|
|Eunos Ville||330||Parc Esta||1399|
|Florence Regency||336||The Florence Residences||1410|
|Serangoon Ville||244||Affinity at Serangoon||1012|
|Rio Casa||286||Riverfront Residences||1451|
|Sun Rosier||78||The Gazania||250|
|How Sun Park||20||The Lilium||80|
|Raintree Gardens||175||The Tre Ver||729|
It should be obvious by now that sites that are underbuilt have the most potential. So how do you check this? Well, Singapore is very transparent on urban planning with the data readily available on URA’s master planning website. The master plan is a way to understand Singapore’s development in a particular sector over the next 10 to 15 years. In addition to future planning, you can also check the current status on a piece of land.
On a given plot, there is a number called the plot ratio. Take the site area multiply by the plot ratio to derive the total gross floor area which a developer can build. Once you have the total GFA, minus this from the entire current strata area of the existing development. The more significant the difference, the more underbuilt it is. Developers will then be able to pay more with the enbloc getting a higher possibility of success.
Charming Garden. Is there A Possibility of Enbloc?
One of the properties shortlisted by the reader was Charming Garden located at 140 King’s Road. Charming Garden is a 32 unit residential development with a tenure of 999 years and a building height of 4 storeys. Completed in 1984, it is around 35 years old. In terms of land area, it seems very similar in size to the recent successful enbloc at Toho Mansion. Which by the way also had 32 units and at 33 years old. If you were to head over to The Edge Property and use their enbloc calculator, it shows that there is a rather high possibility of enbloc happening. Would this be the next best thing to look at and wait for the next Jackpot?
However, I was somewhat suspicious that this piece of land has been untouched by all the recent enbloc activity and took a closer look. Upon further examination, I found out that Charming Garden was sitting on an urban planning that allows only 2 storey Semi-Detached houses. This finding proved that Charming Garden is likely over-built. Hence, the possibility of a developer paying above market value to acquire the units and redeveloping them into Semi-Detached houses that can sell is unlikely.
On a personal note, I find purchasing condos for the sake of getting it enbloced to be a high-risk investment. Only do this if you know exactly what you are doing. Why? Because success is solely dependent on one summarised single factor.
How much a developer is willing to pay for the piece of land.
If you don’t get the pot of gold at the end of the rainbow, here’s what can happen
- You are likely purchasing the unit at the highest possible market price compared with what your neighbours paid. Your exit strategy is limited.
- You will likely need to do significant renovation works to the unit because enbloc units are old. These extra costs will push your entry price to another level.
- The rental yield on the property will not be as ideal as you can never compete on the rental price with your neighbours. They can afford to drop rental rates with the majority having the property fully paid.
- The government can introduce measures anytime, such as capping shoebox units, higher DC charges or Additional Buyer’s Stamp Duties. All of which can severely affect or even kill the entire enbloc market.
- Or you might think something has potential like Charming Garden, only to find out later that enbloc chances are remote.
So, are you looking for the next enbloc jackpot? Or are you avoiding those with remote possibilities? Whatever the reason, let us help you in your search. Talk to us before you start looking and you might save yourself from potential heartaches and tears.
Article contributed by Jerry Wong
Jerry Wong is a realtor with Huttons Asia Pte Ltd. He loves coffee, cookies and condos. Most importantly, he loves connecting people to properties and gets enormous satisfaction when they acquire their dream home or make that capital upside in just a matter of months. Buy Jerry a coffee, and he will meet up with you on a 1 to 1 session to share the following
- How certain factors affect real estate prices. (Using historical transactions as references)
- Applying lessons from history to determine if a condo has the potential for upside or not. These condos can be those under construction, resale or the very one you are staying in right now.
- Or just prepare the toughest question you have on your mind! If it is interesting enough, the answer will be in a blog post and shared with everyone!
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