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Choices after an en bloc windfall
THE residential en bloc market cycle that we witnessed between May 2016 and August 2018 generated S$20.6 billion worth of deals, making it the second strongest cycle in en bloc history. Due to market interest in how en bloc beneficiaries have moved on with their windfall gains, JLL shares its observations based on its involvement in a significant number of successful en bloc deals and its interaction with the beneficiaries. The choices made by en bloc beneficiaries are indeed varied, so it is important to understand several key factors that shaped their decisions.
En bloc proceeds
The choice of a replacement home depends on the quantum of the en bloc proceeds one receives. The larger the amount, the wider the choices for the beneficiary while a modest en bloc payout would limit his choices. There are around 7,000 private home owners who benefited from the 2016 to 2018 en bloc cycle, but the amounts that they received varied significantly.
According to an analysis by JLL, about 39 per cent received up to S$2 million each, 32 per cent between S$2 million and S$3 million, 20 per cent between S$3 million and S$5 million, and 9 per cent above S$5 million. While those enjoying higher payouts may be less constrained in the usage of their money, others with lower payouts (eg below S$2 million) have much less flexibility if they are looking for an equivalent replacement home in the same location.
Another important factor that affects decisions on replacement homes is the beneficiary's lifestyle objective, which depends on one's stage in life. A retiree or someone at late career will have different priorities from another person in the active career phase or someone with a growing family. Each successful en bloc project would have its proportion of seniors, those at midlife and young families, so their needs would vary significantly.
The 2016 to 2018 en bloc cycle was the first major resurgence after the last en bloc boom in 2007.
During the recent cycle, the private residential market was already laden with cooling measures imposed between 2010 and 2013, including reduced borrowing limits, the Seller's Stamp Duty (SSD), the Additional Buyer's Stamp Duty (ABSD) and the Total Debt Servicing Ratio (TDSR).
In July 2018 the ABSD was increased and the borrowing limits lowered to moderate demand and prices in a rising market. These cooling measures had a significant influence on the behaviour and decisions of en bloc beneficiaries.
Where and what to move to?
This has been the main question on the mind of an en bloc beneficiary who is an owner-occupier. Many estates are characterised by "long-time" residents who have been living there for many years. Accustomed to and familiar with the surroundings, they tend to have an affinity for the same location.
However, buying back a new replacement home in the same location can be challenging. For example, the typical en bloc proceeds for a 1,668 sq ft apartment unit in Shunfu Ville was about S$1.78 million, while a roughly similar floor area unit in Tresalveo, a relatively newer freehold development nearby would cost about S$2.3 million, based on a transaction in August 2017.
JadeScape, the new 99-year leasehold development on the subject site, sold 1,647 sq ft units at around S$2.8 million after its launch in September 2018. The common experience in many successful en blocs is that the proceeds may not be enough to buy back a new unit of similar floor area in the same location or the bulk of the proceeds would be required for such a purchase. This has left en bloc beneficiaries with the options of either buying a new unit which is smaller or a resale unit which is older but more spacious.
For the many en bloc beneficiaries who prefer to spend only part of their sale proceeds for a replacement home and keep the balance for investments or as cash savings, they usually end up looking for a resale property.
Some of them may have found it exacting when the en bloc market became buoyant because sellers were holding back, in anticipation of their condominiums going en bloc, leading to a shortage of supply for sale on the secondary market. This led to optimistic asking prices by sellers in the resale market, especially in more popular locations.
Consequently many en bloc beneficiaries, while looking for a replacement home in the same neighbourhood, had to consider other locations as well in order to widen their choices. Having tasted the sweet success of an en bloc, some beneficiaries look for a replacement home in a development that has potential for a future en bloc in order to have another bite of the cherry.
There are also en bloc beneficiaries who are not in a hurry to find a replacement home as they feel that they have the time to house hunt given current soft market conditions and that, eventually, there is a possibility of picking something up at a more favourable price. This group of beneficiaries are renting in the interim, but they are a minority.
Up or down the housing ladder?
Singapore's ageing population is reflected in the age pyramid of its resident population. In 2008, Singapore residents aged 60 and above constituted 12.9 per cent of the resident population, but 10 years later in 2018, the proportion had climbed to 20.5 per cent.
Seniors, who may make up a fair proportion of residents in many en bloc projects, may no longer need a similar size replacement home and may have a preference to save more of their en bloc proceeds for retirement funding. This trend seems more obvious among en bloc beneficiaries in the former HUDC estates such as Shunfu Ville and Florence Regency. A good number chose HDB resale flats as their replacement homes due to their affordability, leaving them with a fair amount of cash savings.
The windfall gains from an en bloc sale have also helped those still working or with growing families to upgrade to bigger homes in keeping with their lifestyle aspirations. This could be a more spacious unit in a newer condominium or even landed housing, especially for those receiving higher payouts of S$3 million to S$5 million or more. The upgrading could also be in terms of location, for example, from the suburbs to the city fringe or to prime districts.
Besides owner occupiers, many owners in successful en blocs were investors holding their units for rental returns. As owners of second or multiple residential properties, the ABSD has deterred many investors from buying another residential unit. Some decided to explore investment in non-residential properties or other avenues such as the financial market. As the rental market has been challenging in recent years, some owners have also become tired of looking for tenants and would rather derive passive income from other sources such as real estate investment trusts (Reits), which could potentially yield better returns than from rentals.
There was also feedback that some en bloc beneficiaries who own more than one residential property reinvest by purchasing a private home in the name of a child above 21 years of age, in order not to incur ABSD.
Also, there are other beneficiaries who pass part of the en bloc proceeds to their children to enable them to acquire private homes individually. Some spouses who owned their sole unit jointly before the en bloc "decoupled" after the en bloc and bought the replacement unit under one name so as to keep the flexibility of buying another unit under the other spouse's name.
Useful experiences to share
This article has attempted to share the experiences of en bloc beneficiaries which may be useful for real estate sales and leasing agents, investment advisors, developers and last, but not least, those who may have the good fortune of enjoying a successful en bloc in future.
- The writer is a senior director of research and consultancy at JLL Singapore.