Singapore | Investment

AUGUST 2014
Te Collective Sales
Market - Boom or Bust?
LEONARD TAY Associate Director, Research & Advisory
CARISSA CHIN Assistant Manager, Research & Advisory
During the 1990s, whenever a strata-titled development
resolved to go the collective sales
1
market or en-bloc route,
it was like hitting the proverbial jackpot. Having a home or
a place of business go en-bloc was almost always associated
with overnight riches of the exponential kind, where luck or
fate or destiny suddenly seemed to smile upon ordinary folk
through no efort on their part. And the windfall (or super-
normal profts, or fortuitous gains), was indeed substantial in
those days. Naturally so, as each revision of the Master Plan (in
fve-year intervals) designated increases of plot ratios
2
across
the board in Singapore and rezoned the land use of various sites
islandwide. With the intensifcation of development potential
and change in land use zoning for many sites, some 20 years
ago, it was no wonder that developers were willing to pump in
what seemed like astronomical sums, many times the value of
what property owners would get if they were to sell individually
on the open market. Tis was the case for many private
residential developments in the Central Region of Singapore,
such as those in the Newton and Novena areas.
However, much has changed since those heady days of
striking the en-bloc lottery. Fast forward some 20 years and
the collective sales market appears to have come to a standstill
in 2014. Te Master Plan, from 2003 onwards, has not had
the same magnitude of plot ratio increases as before, and
therefore the type of premium developers were prepared
to pay in the past has shrunk with time to more moderate
levels. Many rounds of Government policy measures to
curtail speculative real estate activity and to foster fnancial
prudence have also taken much of the froth out of the property
markets and consequently the steam out of collective sales
activities. Tese reasons combined with perceived challenges
by owners in replacing sold en-bloc units with the proceeds
from the collective sale, a pervasive tentative wait-and-see herd
mentality, and lacklustre interest from developers who have
otherwise turned towards the Government Land Sales (GLS)
Programme for their source of development land, have made
for an anaemic collective sales market in 2014. Tus far, from
January to July 2014, not one single real estate investment sale
has succeeded in the collective sales route.
Tis has raised questions of whether the way of collective sales
has had its day, and is now no longer relevant in Singapores
real estate landscape. Is the collective sale still a useful and
meaningful method of transaction in the mature and developed
Singapore of today?
2 Te Collective Sales Market Boom or Bust? | August 2014 | Investment | Colliers International
Background
It has been slightly over fve years since the real estate market in
Singapore recovered from the onset of the global fnancial crisis
in 2008. Over the fve-year period from 2009 to 2013, developers
have snapped up some 121 land parcels worth a total of $7.50
billion via the collective sales route. During the period, sales
momentum in the collective sales market peaked in 2011 when
41 land parcels totalling $3.04 billion were acquired, before
transaction activity started to wind down in the following years
of 2012 and 2013.
Total Collective Sales by Sector
YEAR COMMERCIAL RESIDENTIAL INDUSTRIAL HOTEL MIXED TOTAL
2009
VALUE ($ MIL) 0 122.66 0 0 0 122.66
NUMBER OF SITES 0 3 0 0 0 3
2010
VALUE ($ MIL) 0 1,588.35 0 0 54.30 1,642.65
NUMBER OF SITES 0 40 0 0 1 41
2011
VALUE ($ MIL) 0 2,566.14 0 126.80 347.03 3,039.97
NUMBER OF SITES 0 38 0 1 2 41
2012
VALUE ($ MIL) 116.41 903.67 43.18 0 453.97 1,517.23
NUMBER OF SITES 2 14 1 0 5 22
2013
VALUE ($ MIL) 445.00 500.01 117.40 0 113.00 1,175.41
NUMBER OF SITES 2 8 3 0 1 14
TOTAL
VALUE ($ MIL) 561.41 5,680.83 160.58 126.80 968.30 7,497.92
NUMBER OF SITES 4 103 4 1 9 121
In the last fve years, low interest rates and massive liquidity
infows that supported investment demand and led property
prices to hit record highs on the back of buoyant investor
demand, had prompted the Government to implement a series
of cooling measures, particularly in the private residential
property market.
One of the measures deemed to have a signifcant bearing on
the residential collective sales market was the implementation
of Additional Buyers Stamp Duty
3
(ABSD) of 10% on the
acquisition of residential development land from 8 December
2011 onwards. Although developers are able to apply for
remission of the ABSD if they develop and sell all of the new
units within fve years, such a time constraint reduced the
fexibility to hold the collective sale sites for longer-term land-
banking purposes. As a result, total collective sales concluded
in 2012 moderated to $1.52 billion from the sales of 22 land
parcels, about half of the total value and number of transactions
registered in 2011.
And then in June 2013, the Total Debt Servicing Ratio
4
(TDSR)
framework was implemented, adding to the growing list of
obstacles that have been impeding the successful conclusion of
collective sales.
Existing owners of developments that are going on the en-bloc
path have already come to expect a substantial premium due
to the fact that they are selling their units collectively instead of
individually. Added to that, the advent of the TDSR might have
exacerbated the call for even higher prices as afected owners
might have to use a signifcant proportion of the proceeds from
the sale to clear the potential credit hurdles placed upon them
by the TDSR when sourcing for a replacement property. At the
same time, developers are concerned about the longer project
sales period arising from the sluggish home sales in the mid-
and high-end residential markets. Tis has led to the widening
gap in price expectations between developers and sellers and
thus longer gestation period for collective sales to go through, if
at all.
Based on Colliers International Singapores research, it is
estimated that the chances of a property being successful in a
collective sale attempt averaged at 37.6% in the last three years
from 2011 to 2013. In other words, six out of 10 properties would
be met with failure after successfully obtaining the consensus
to launch via the collective sales route. In 2013 alone, only three
in 10 collective sales launches were successfully sold, with an
overall estimated failure rate of 67%. Sometimes, the reasons
for the failure were due to developers requiring more time, or
in some cases, no bids were received in the tender exercise.
However, the most common recurring reason in recent times is
that the reserve price
5
was not met by interested parties.
Source: Colliers International Research
Failure Rate of Collective Sales Launches
Source: Colliers International Research
Year
2011
Year
2012
Year
2013
61% 59% 67%
3 Te Collective Sales Market Boom or Bust? | August 2014 | Investment | Colliers International
In the frst seven months of 2014, the same factors that have
kept the collective sales market in the doldrums continued to
play out. Not a single development was sold via the collective
sale route.
In the residential scene
Te existing impasse in the residential collective sales market is
due to the combination of the following factors:
the market cooling measures that have resulted in a subdued
private residential market;
the measures that have placed constraints on developers
project completion and project sales periods;
developers reticence in paying top dollar for en-bloc sites
due to falling residential sales and prices;
the impending surge of new private residential property
supply in the coming years;
collective sellers proft expectations.

It has also become a norm that the gestation for collective
sales is lengthy and in some instances, hopeful collective
sellers may need to go through the collective sales process
for a development more than once, each time lowering their
expectations. While this can be arduous, the chances of a
successful sale increase if sellers are prepared to take a more
rational view of prevailing market conditions.
A case in point was Whitley Heights of Tomson Road. Te
site was frst put up for collective sale in January 2011 with a
guide price of between $185.00 million and $210.00 million,
translating to $1,421-$1,613 per sq ft per plot ratio. Eventually, it
was successfully sold for $159.00 million or $1,222 per sq ft per
plot ratio in September 2011, after it was launched for sale again
in June 2011. Te price at this second attempt represents a 14%
to 24% decrease from the previous guide price.
In addition, some developments which maintained their asking
prices throughout multiple en-bloc attempts, continued to be
unsuccessful. For instance, Villa Des Flores located on Whitley
Road, was launched for collective sales separately in June
2012 and October 2012 but failed to fnd buyers as bids were
under the indicative asking price of between $160.00 million
to $165.00 million. Te en-bloc attempt was unsuccessful yet
again after it was launched for a third time in January 2013 at
the same indicative asking price.
Te chances of large residential sites being successful in a
collective sales attempt are also slim, as the enforcement of
the ABSD has channelled developers attention to bite-sized
residential land parcels that ofer quick turnaround time
and GLS sites where the tender process is comparatively less
labourious. One of the most prominent cases was the 330-unit
Eunosville located on Sims Avenue, which was launched for
collective sale in June 2013 with a minimum price of $688.00
million. While the site attracted interest from three developers
when the tender closed in August 2013, developers were quoted
saying more time was needed to assess the market, given the
relatively larger scale of the project. Te property was launched
for collective sale again in December 2013 with a similar asking
price but failed to fnd buyers.
As a result, the number of sites sold for at least $100.00 million
apiece shrank signifcantly from nine sites in 2011 to only three
and two sites in 2012 and 2013, respectively.
Number of Residential Collective Sales Transactions
(by Price Band)
Source: Colliers International Research
Spring Grove: Potentially Largest En-bloc in Singapore?
And perhaps part of the gulf emanating from sellers
expectations is the replacement of their current home should
a collective sale be successful. For a large part of the last fve
years, when prices of private residential properties were moving
up upon recovery from the global fnancial crisis, unit owners
in developments that went the en-bloc route could have been
under pressure to sell at the maximum reach of their price
expectations as the cost of their likely replacement unit was also
trending upwards. Between the time taken to successfully sell
collectively and to use the proceeds from the sale to purchase a
new home, prices of targeted private replacement homes might
have risen signifcantly.
Tese trends have since changed and are in the process of
changing still. Te Private Residential Property Price Index
tracked by the Urban Redevelopment Authority (URA) rose
by 62.3% from the trough of the market in 2Q 2009 to the most
4 Te Collective Sales Market Boom or Bust? | August 2014 | Investment | Colliers International
Tis means that those who bought residences three to four
years ago are soon approaching a point where they can sell
their property without attracting SSD. Some might even feel
that a 4% SSD (in their fourth year from acquisition) might
be worthwhile paying the taxman in order to cash out before
private residential prices fall even further, so long as they still
enjoy capital appreciation at todays prices. Te attraction of
cashing out now without SSD, or with minimal SSD, is further
enhanced with an increasingly challenging leasing market. For
this wave of potential home sellers, cutting and running with
profts in hand, might become common in the next 12 months,
again providing afected en-bloc sellers with a wide variety
of reasonably new ready-to-move in choices in a variety of
locations all with likely discounts thrown in for good measure to
facilitate the sale.
A unit holder in an ageing residential development that has
the potential to go down the collective sale route could and
should consider all these factors, and if the mathematics make
fnancial sense, it might very well be the practical decision to
dispose of an ageing, functionally obsolete asset that requires
a burgeoning maintenance bill. Sweetening a collective sale by
lowering the reserve price and hence drawing developers back
into the en-bloc arena might just be the most balanced and
sensible course, as an exit strategy for home owners of aged
properties in such times.
Commercial buildings get old too
And why should this principle of using the collective sales
method as an exit strategy, not also be applicable for
commercial properties? After all, commercial properties also
get old, sometimes at a seemingly faster rate with modern shiny
new shopping malls and grade A ofce buildings taking shape
all over Singapore.
recent peak in 3Q 2013, before the market cooling measures
had an impactful restraining infuence on price. With the
price index correcting by 3.2% between 3Q 2013 and 2Q
2014, residential prices are expected to moderate downwards
throughout the rest of 2014, with this trend continuing into
2015 and 2016 in light of the projected record number of new
home completions during these two years. Some 21,948 new
homes are expected to be completed in 2015, while another
23,876 units are expected to be completed in 2016. Sellers of
residential developments in the midst of the collective sales
process might well adopt a siege mentality and abandon any
notion of going the en-bloc route until times are better.
Notwithstanding the impending supply of new private homes,
increasing vacancy and easing rentals might be further
exacerbated by another inevitability. In February 2010, the
Government imposed a sellers stamp duty (SSD) on sellers
who had purchased residential properties from 20 February
2010 and disposed of them within one year of acquisition. Te
SSD time frame for disposal was later extended to within three
years of acquisition by August 2010, and again extended once
more to four years by January 2011.
Presently, the SSD rates over four years are:
Percentage of price or market value, whichever
is higher
Holding period
However, this very instinctive knee-jerk pull back just because
market prices are lower might not be the best course of action.
Sure, sellers have to market their projects at lower reserve
prices. But with the general residential market weakening and
prices expected to fall further, replacement units are likely to
become more afordable in the coming months. If the need to
sell collectively at high prices was meant to mitigate the soaring
prices of replacement units in the last fve years, then by the
same token, if sellers are willing to factor in a discount in their
price expectations in order to attract developers back into the
collective sales market, so that they are able to dispose of their
older properties, they might just be able to fnd more than
afordable replacement opportunities in a softening market.
Depending on the mathematics of each individual households
decisions, a family might possibly gain as much proft (if not
more) by selling low and then buying an even more afordable
replacement unit in a downtrend market, than one who is
attempting to collectively sell high in order to keep pace with
rising prices in a buoyant market.
Could such a situation be mere fantasy and wishful thinking?
Not likely. After all, with more new homes being completed,
and the Government keeping stricter control on the size of the
foreign worker population and immigration, private residential
property vacancy rates have started to creep up. From 5.1% in
1Q 2013, private residential property vacancy rates have been
inching upwards to 7.1% by 2Q 2014, the frst time the 7.0% level
has been breached since 1Q 2006 more than eight years ago. As
vacancy rates increase, private residential property rents have
gone the opposite direction, with the URA Private Residential
Property Rental Index falling by 1.8% from 3Q 2013 to 2Q 2014.
1 year
16%
2 years
12%
3 years
8%
4 years
4%
5 Te Collective Sales Market Boom or Bust? | August 2014 | Investment | Colliers International
Owners of ofces, retail stores, medical suites, or a combination
of these types of properties in either a strata-titled single-use
or mixed-use development might also wish to consider the en-
bloc route for similar reasons of practical disposal and renewal.
Commercial users of strata-titled buildings sometimes are
reluctant to agree to a collective sale citing reasons of legacy
where their clients and customers will still extend their
patronage due to the familiarity of the location and the building,
no matter how old or decrepit the property becomes. However,
locational goodwill is more pertinent for strata-titled property
owners of retail shops which are more location sensitive
than ofce and medical suite owners. Businesses and clinics
relocate regularly with comparatively less impact compared
to retail shops, as the brand or reputation of these businesses
and medical practitioners play a more important role than
an existing goodwill associated with a building or location
in supporting their business, so long they do not relocate to
inaccessible remote areas.
Terefore, strata-titled property owners of commercial
buildings would need to also consider that a buildings lifespan
is fnite, and everything falls apart with time and neglect. A
point will eventually be reached when the building services,
mechanical, electrical, other utilities, and fnishes will one day
become obsolete with the resolute passing of time. Despite any
owners sentimental attachment to a place of business, practical
functionality will one day overwhelm whatever locational
goodwill a building enjoys in the form of a loyal customer
base. Such sentiment can also be dislodged by the often
capricious vagaries of fate, as circumstances change and former
fundamentals are rendered moot with countrywide progress
and societal evolution. Again, the collective sales route ofers a
practical way out.
Te ofce and retail owners of the former Midlink Plaza
successfully disposed of the ageing commercial building
in 2011, with the new owner redeveloping the site into a
hotel. Te strategic sale, consolidation under a single owner
and redevelopment with a modern and updated use that is
complementary to the locality, has benefted not only the sellers
but also the buyer/developer and the neighbourhood.
In the same vein, other strata-titled buildings, especially in the
central areas, can also harness the collective sale route. Strata-
titled retail buildings have a tendency to be characterised by a
lack of tenant-mix control. Individual owners will let or sell to
the highest paying lessee or buyer/investor with little regard
as to how the incoming entitys business is going to impact the
other tenants in the building. Te increase in incompatible
trades, sometimes side by side, can potentially increase the
level of confict among neighbours and create a disjointed
disharmony of unlikely trades within the shopping complex.
Tis dissonance could eventually afect public perception of
the mall as a whole, where deferential customer goodwill in the
past might turn to a grudging negative avoidance in the future.
Sometimes, the diferent and conficting agendas can also prove
detrimental to the physical building itself, especially in the use
of funds for building improvements. Te range of problems
include prompt payment of service charges and maintenance
fees by individual shop owners, the appropriate usage of funds
and the need for majority consensus. Tis not only involves
funds that can be used for advertisements and promotional
campaigns to increase the profle of the entire shopping
complex, but also for more basic building maintenance and
improvement issues. Te collective sale avenue presents a
practical exit for owners of such ageing buildings, in the manner
of Midlink Plaza and Serangoon Plaza. Owners of Te Arcade at
Collyer Quay also made a positive attempt to blaze the en-bloc
trail, even though it was unsuccessful.
Individual owners to
exit an ageing building
as well as fnd and fund
alternative premises that
better suit the needs of
their businesses
The neighbourhood to
generate more tourist
activity
The buyer/
developer to
create economic
value through
redevelopment
The neighbourhood
to progressively
rejuvenate
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Peace Centre & Peace Mansion: Another attempt on the way after two failed collective
sale attempts. Out of place ageing building in an area undergoing renewal.
Tis Midlink Plaza collective sale provided opportunities for:
Te Arcade: Failed collective sale at high asking price.
6 Te Collective Sales Market Boom or Bust? | August 2014 | Investment | Colliers International
For example, in Orchard Road, there is little land from the
Government for fresh development. Terefore, it will be the
ageing strata-titled malls that have the best potential for
redevelopment, in order to contribute to the continued renewal
of Singapores premier shopping belt. Instead of waiting for
the proverbial pot of gold that may or may not materialise
before the building reaches a stage of terminal disrepair, strata-
titled shop owners could at least give some consideration to
collective sales as a way to move on and upgrade their business
environment.
recurring income, as well as other non-tangible benefts. Tis
could include personal enjoyment of a property that does not
require the hassle of repeated repairs and peace of mind in a
newer upgraded environment.
It is inconceivable that buyers (developers and landlords)
are going to pay anywhere close to outrageous sums for
development land, unless it makes economic sense. As real
estate development becomes more competitive and intense
with Singapores urban progress, developers appetite for risk
will moderate to become more conservative. Sellers need to
attempt to understand and appreciate that developers/buyers
both now and in the foreseeable future require a higher risk
discount to mitigate the magnitude of property development
in modern Singapore. Because if the price is fair and in a range
that the developer stands an even chance at a decent proft,
activity will return to the collective sales market.
And in the end, while nobody really wins in a big dramatic
fashion, everyone does beneft in a fashion. Individuals
obtain proceeds that are generally better than if they were to
sell individually, and thereby are able to fund a replacement
property that still has a reasonable length of economic and
functional life. Buyers/developers continue to be able to obtain
the raw material needed for their development business.
Communities are routinely renewed as old buildings make way
for functional up-to-date modern ones. And on an islandwide
basis, even the privately owned areas of Singapore would be in
a continual state of revitalisation, without any neighbourhood
becoming jaded with obsolete properties.
Te collective sales route is still relevant and can still be
meaningful for owners and developers, despite the changes in
the real estate market in the last 20 years. What is most needful
in order to harness the usefulness of the collective sales method
with present circumstances is a paradigm shift of perception
and mindsets. Sellers must accept within their collective (no
pun intended) mindsets that making a sudden windfall from
chance is a thing best fled in the annals of history. Te way
forward for collective sales should be that of a practical method
of disposal for an ageing asset that is past its functional prime.
While not everyone can win big all
the time, everyone benefts from
renewal
Sometimes, owners do not wish to sell for sentimental reasons,
having formed an indelible bond with their property over a long
period of time. And while this attachment is understandable,
the other general perceptions, motives and mindsets about
the collective sales market will have to change as Singapores
real estate market evolves and matures. If the herd mentality
towards collective sales remains one where sellers expect to
strike it rich in one lucky twist of fate, the current impasse
between buyers and sellers will continue, with no one
benefting. Eventually, this will result in a growing number of
buildings, developments, neighbourhoods, and communities
not being able to renew themselves. Te standof will lead to
sellers on one side wanting their windfall and developers on the
other, wanting land for their business.
Te way ahead will be more practical, considered and
reasonable, albeit not nearly as exciting nor as intoxicating as it
was in the past.
For sellers, the collective sales market must come to represent
a method where they can exit their ageing real estate with
a reasonable sum and perhaps some profts on the side
(reasonable profts are no longer defned as earth shattering
bonanzas). Te premium can no longer be as dramatic as that
of the past as plot ratios have not increased in any substantial
fashion in more than 10 years. Te collective disposal of an
obsolete and ageing building allows individual sellers to move
on and right size to another property that is more modern,
physically functional, and that is better yielding in terms of
Tanglin Shopping Centre: Another attempt on the way after previous failed collective
sale exercises at high asking prices.
1
According to Strata Titles Boards, a collective sale is a combined sale by the owners of
two or more property units to a common purchaser. Te most common collective sale is
the sale of all the units in a strata-titled or fatted development to a purchaser. Te sale
proceeds are then divided amongst all the unit owners.
2
Te ratio of the gross foor area of a development to its site area.
3
Te ABSD was introduced by the Government on 8 December 2011. An ABSD of
between 3% and 10% is to be paid by certain groups of buyers of residential properties
(including land). Te ABSD rates for the purchase of residential properties were later
raised by between fve and seven percentage points in January 2013. Besides Singapor-
eans buying their frst residential property, all other groups of residential property buyers
are afected by this increase.
4
Efective from 29 June 2013, individuals (including sole proprietorships and vehicles
set up by an individual solely to purchase property) will be subject to a Total Debt
Servicing Ratio (TDSR) framework for all property loans granted by fnancial institu-
tions. In addition to the 60% cap on a borrowers total monthly debt payment, certain
rules relating to the application of the existing Loan-to-Value (LTV) limits on housing
loans granted by fnancial institutions were also refned. In particular, guarantors are
now to be included as co-borrowers and one of the purchasers on the option to purchase.
Additionally, the income-weighted average (based on gross monthly income) age of all
co-borrowers is to be adopted when applying the rules on loan tenure.
5
Te pre-agreed minimum price sellers are prepared to sell their properties for.
Copyright 2014 Colliers International.
The information contained herein has been obtained from sources deemed reliable. While every reasonable efort has been made to
ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report.
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