En bloc party

Take stock on the en-bloc party

You know it is not business as usual when you see news on successful en-bloc every other week. Digging into Singapore real estate archives, such active en-bloc “party” was not seen since the 2006 – 2007. The by-product of the last boom are developments like d’Leedon (former Farrer Court) and Interlace (Gillman Heights).

  1. Transaction price

At the last hey days on en-bloc party, the transaction price hit $8 billion and $12 billion for 2006 and 2007 respectively. Lets see how we fare for 2017.

Do note the above chart for leasehold development such as Tampiness Court include other charges to top up lease and enhance GFA. Based on the above en-bloc development, the transaction price works out to be about S$5.9 billion. We are reaching our 2006 level soon looking at the rate we are going and the number of en-bloc development in the pipeline.

  1. What are the attributes for en-bloc properties

Next, I list down the key attributes of the en-bloc properties and analysed the reasons for them being able to successfully en-bloc.

Note: Certain details for Toho Green are not available.

2.1   Type:

The HUDC effect

As you can see from the above residential development which en-bloc, there is a disproportionate number of HUDC that successfully en-bloc. I would attribute that to the lower price psf of the market price of such development. This enable the en-bloc deal to be viable for the developers even after additional charges to top up lease and enhance GFA is considered while giving the owners their fair share of capital gains. Case in point, all the cost psf ppr of HUDC to the developers are $909 and below.

More specifically, if you are looking at the en-bloc potential of similar sites, the windfall to owners on a psf ppr on the basis the plot ratio is maximised is estimated to be as follows:

For the record, based on a Channel News Asia article released on 4 October, all remaining 7 HUDC estates (Florence Regency, Ivory Heights, Pine Grove, Laguna Park, Chancery Court, Bradell View and Lakeview) have started en-bloc process. Before you jump on the en-bloc bandwagon and buy such these properties, you might want to take reference to the above.

Source: http://www.channelnewsasia.com/news/business/all-remaining-7-ex-hudcs-have-started-en-bloc-process-9275154

Mixed Use Property

It is public knowledge that mixed-use property face greater obstacle in obtaining a successful en-bloc given the many stakeholders involved with diverse interest. The relatively small number of stakeholders (7 shops and 7 apartments) at Goh & Goh Building probably play a key role on this en-bloc transaction.

Commercial

This en-bloc fever is not confine to residential units as 2 freehold units at District 14 successfully en-bloc. Market players could be buying into Paya Lebar as the next growth area for Singapore.

2.2   Tenure/ Lease remaining:

If you remove the HUDC from the list of successful en-bloc development, Toho Green is the only leasehold development which en-bloc. For Toho Green, do note that there could be some economies of scale derived for the developer Oxley as the development is near Serangoon Ville which was bidded by an Oxley led consortium.

Interestingly, it seems like Oxley snagged a good deal for Toho Green with a bid of $8.4 million at a site area of 14,136 sq ft and on the assumption the gross plot ratio is 2 works out to be S$297 psf ppr (lower than any HUDC en-bloc). Having said that, the site is small relative to the Serangoon Ville site which spans 296,913 sq ft.

Other than the HUDC effect, the leasehold development that are up for en-bloc are left with 69 to 74 lease remaining (i.e. TOP from mid to late eighties). This could be the time when the properties are in need for renewal and/or first time owners could be looking to downgrade to a smaller apartment as they retire or looking to retire. Do note approvals by owners is essential for a successful en-bloc as more than 80% of the owners have to give their consent.

Per Square Foot Per Plot Ratio (PPS PPR):

The pps ppr reflect the bullishness (or to a certain degree desperateness) in bidding for land. Generally, developers in Singapore are low on landbank following the last 3 to 4 years of the property down cycle.

In a previous analysis which I guest post here: http://foreverfinancialfreedom.blogspot.sg/2017/09/guest-post-cost-of-flour-vs-cost-of.html

I did an analysis on successful government land sales bid in 2015 and 2016 and their median price.

Taking Seaside Residence at Siglap as an example (albeit it is a 99 year site), the median sales price is already close to the land price for Amber Park and The Albaracca. And not forgetting there will be more cost involved in a development of en-bloc as it involves demolition cost. It is clear that developers who got their land in 2017 will have a lesser margin of safety in turning a profit compared to developers who got their land in 2015/2016.

It seems that the “go and buy because there is a long queue” do not apply just to hawker centre psychology.

2.3   District:

Based on deal size, a lot of money is flowing into suburban area (District 18 and 19) as well as the East coast/Paya Lebar (District 14 and 15). District 18 and 19 could be a beneficiary of the upgrading generation such as the BTO upgraders in Punggol/Seng Kang. Meanwhile District 15 has been traditionally a popular residential choice and boosted by the upcoming Thomson-East Coast Linge while District 14 as mentioned earlier will be a key beneficiary of Paya Lebar positioning as the second CBD with successful lauches at Paya Lebar Quarters.

2.4   Number of Units:

In total, there are about 1,900 household/commercial units who strike TOTO arising from en-bloc party 2017. Remember that although in the short term, this would boost the demand as the TOTO winners search for their new home; in the long run there should be a net supply to the real estate market given the GFA enhancement by developers.

Based on the URA 2Q2017 statistics, there are 17,827 units (including EC) which remain unsold. Having said that in Q2 2017 there is a take up rate of 3,077 relative to launches of 2,011 (i.e. net absorption of 1,066 units). Akan Datang on the coming months if the buying sentiments will continue.

  1. Takeaways

Personally, I think the en-bloc party has gone a bit overboard. In particuar, the sentiments in the residential market has turned extremely positive overnight despite the cooling measures still largely intact other than the tweak to the Seller Stamp Duties where there is no SSD after 3 years (previously 4 years). Developers would still be liable to pay ABSD if they fail to sell all units within the development within 5 years.

I would advise man on the street who wants to get the next en-bloc property to tread with care and ensure you have sufficient margin of safety (in terms of your entry price) and also have some reserve to last the winter when it comes. I hope the above article will provide you with some facts to help you make that informed decision.

For those who would like to get some exposure on real estate players who got in at a cheaper price in 2015/2016 can have some exposure in them. However, do note also that most of the stocks like Guocoland, Chip Eng Seng, UOL and Fraser Centrepoint and developers with significant landbanks like CDL and Bukit Sembawang have already increased over the past 1 to 2 years.

For the record, the developer stocks which I have exposure in are Guocoland, Wing Tai, Goodland and Wee Hur. I have over the past 2 years taken profit on CDL and Bukit Sembawang.

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