En bloc sales: how much do private property home owners stand to gain?
Many Singaporean property owners think of en bloc sales as 4D or Toto, but with better odds.
But the reality is a little different, if you understand how en bloc sales work. Basically, you are getting paid to vacate your property. That means that, unless you have somewhere else to live, you will have to use that cash to buy another home.
Aside from the fact that you're basically being forced to leave your home, your nest where you've made so many memories over the years, you'll also have to use your precious en bloc proceeds to buy a new place.
So what do you actually stand to gain when your property goes en bloc?
WHAT EXACTLY HAPPENS WHEN YOUR PROPERTY IS ACQUIRED IN AN EN BLOC SALE?
To understand how much you can profit from an en bloc sale, you must first know how the en bloc system works.
An en bloc sale happens when a developer wants to buy up the land on which your property stands. These developers think they can make more money out of the land than what they're paying for it.
So if you're living in an old condo where each block is only five storeys high, you've got a good chance of going en bloc, as developers can demolish existing blocks, build 25-storey towers in their place and make more money.
But to do that, they will need most of the residents (80 per cent of residents to be precise, or 10 per cent if the property is under 10 years old) to agree to sell their homes to them in an en bloc sale.
Obviously, residents aren't going to want to sell their homes for peanuts. So the kinds of sums developers offer in en bloc sales tend to be very attractive.
Now, what if there is no eager developer on the horizon waiting to swoop down and buy your property, but your neighbours are all dying to push through an en bloc sale?
Well, en bloc sales can be initiated by residents if they manage to get the requisite number of signatures. They will then try to find a developer who's willing to pay a price that most of the residents are happy with.
WILL YOU GET A GOOD PRICE?
En bloc sales tend to happen to pretty old buildings, so there's a higher chance that owners have been living there a long time and bought the property when it was worth a lot less.
But that doesn't necessarily mean you'll become an overnight millionaire, especially considering you'll have to buy a new home. While developers usually offer a pretty good price, it is the owners' responsibility to benchmark that price against what they can get for their units on the market.
Also, remember that en bloc sales take time to be completed. A committee has to be formed, and the sales committee then has to try to convince people to sign the Collective Sale Agreement. Most en bloc sales take more than a year to be finalised.
In all that time, the market can change significantly. Right now, private property prices are terribly depressed, but should the market suddenly start to recover, that might make some en bloc offers turn unattractive.
In addition, there are some unlucky situations in which you might enjoy little to no capital gains, such as if you only bought the unit recently.
EFFECTING THE SALE
From the day the en bloc sale is proposed to the day you get your money, you're looking at at least 1.5 years.
Once the wheels are set in motion, a committee has to be set up comprised of owners in the development. If you really, really want the sale to go through and think you have good powers of persuasion, you might want to nominate yourself as a committee member.
The committee will then aim to get the signatures of enough owners to be able to effect the sale.
While you have quite a bit of time before you'll actually have to move house, you should start looking around for a new home as soon as possible.
This applies even if you don't actually want to go through with the en bloc sale-because unfortunately, if you're outnumbered, it's going to happen whether you like it or not.
BUYING A NEW HOME
When HDB flats get sold under the SERS programme, the government rehomes occupants by giving them shiny new flats. There is no such thing for private property owners, however. So get ready to source for and buy your new home on your own.
Take heart-private property prices have been on the decline for a long time now, and the housing market is still in a slump. That means that you could potentially purchase a new home at a very attractive price.
When deciding whether or not you should support an en bloc sale, always compare how much you can earn with how much you would need to spend on a new home.
Property prices can fluctuate quite a bit over the next year or two, and you don't want to find yourself in the position where you're unable to get a new home at a good price.
Have you ever sold your property in an en bloc sale? Tell us about it in the comments!