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Latest property cooling measures: en bloc sales will bear the brunt

THE surprise latest property cooling measures will likely dampen the collective sales market but it has in fact been clear for a while that en bloc sales bear watching.

A marked improvement in home buying sentiment last year depleted developers' residential land bank and led them to bid aggressively for sites both through collective sales and at state tenders. The higher land prices have contributed to developers launching projects at higher selling prices so far this year.

Compared with selling their homes individually, owners in a development can reap a higher price for their units by selling collectively to a developer that is interested in the land. The sale premium currently is around 60-80 per cent in most cases - indeed some have likened en bloc sales to a national lucky draw with a high probability of landing a windfall. But only owners of private condominiums and apartments get to play this game.

Hence some observers see collective sales widening the wealth gap between the "haves" (those who landed an en bloc sale) and the "have nots" - with implications for social inequality. To be sure, there are some valid grounds for en bloc sales. One popular argument is that they recycle land and spur urban rejuvenation. For ageing buildings, it may be difficult to get some owners to fork out money for a major refurbishment or to replace, say, the lift system or water pumps. It may be financially more viable to sell the site for redevelopment - and the owners each buy a new property.

However some condos have become rundown because their management corporations lack adequate sinking funds for major capital expenditure. The authorities could prescribe some form of minimum contribution - out of the monthly or quarterly maintenance contributions that owners in a strata development make to their management corporation - to be set aside for the sinking fund. By building up a sinking fund, the condo management would have the resources to maintain the development and ensure its economic longevity. It may also be a more environmentally-friendly solution than tearing down 20-, 30- or even 40-year-old buildings that would be considered relatively new in some countries.

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Another key reason why owners in older developments built on 99-year leasehold sites are keen on en bloc sales is that it solves the problem of declining values of their properties as the remaining lease shortens. Although the government policy in general is to let land leases run out, there have been instances of lease top-ups being granted for sites approved for redevelopment into a new residential project, provided that a bigger project is built on the site. But there is no lease renewal for ageing condos if there is no redevelopment. Perhaps a policy review towards lease top-up could help lessen the impetus for collective sales.

Even before this latest round of cooling measures, some analysts had been cautioning that the strong stream of en bloc sales in the past 18 months will cause the pipeline of future project launches to balloon over the next couple of years. This was seen as a potential tamping down - if still quarters away - of a rising market that has seen private home prices rising 9 per cent over four quarters since mid-2017. Following Thursday's cooling measures, and consequent demand pullback, the oversupply scenario envisaged earlier is now much closer to ensuing.

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