Sunday, 7 January 2007

Guerilla Tactics or All's Fair in Love, War and Money

I've been approached by a friend who has just started going through enbloc hell. His family stays in District 10, in a property that while more than 20 years old, has just been upgraded - spanking new corridors, stairs, lifts, updated the exteriors (not just paint but a subtle redesign that I thought made the blockish original design really nice). And now it appears the pro-tem Sales Committee have already gone ahead and hired the marketing agent. So here are some tips on what to do, what to say at the various presentations or owners' meetings.

Let's start with the principles first.

Target Groups: There are two large groups that you need to consider. (1) The 'Owners' who stay in the property for a significant number of years such that they have social attachments and interests in the area (eg conveniences, network of friends, community). (2) The 'Investors' who don't stay in the property, do not have social attachments, typically rent the unit out, and nowadays hoping for the enbloc windfall.

Overall Tactics: (a) To question the legality of the enbloc process (b) To systematically question, criticise, probe the enbloc process so that there are doubts in owners' and investors' minds (c) To appeal to the greediness of investors

NOTE: These 'tactics' are non-violent, non-intrusive, and in fact, works purely on the psychological and legal front of the target groups. In fact, a professional marketing agency will know most of these tactics and be prepared for them. That does not stop you from questioning them or extending these ideas here.

Tools: (a) Reserve Price (b) The Future (c) Social Attachment (d) Legal Conditions to Stop an Enbloc Sale (financial loss, fairplay, good faith).

In general, the idea is this. For owners, the tactic is to appeal to their social attachment to the place and to question the reserve price (is it high enough, does it reflect the true value, ie the best value your property can gain for you). For investors, the tactic is to appeal to their greediness (can you get a better value if you wait), and to draw attention to the bullish future (which fortunately for Singapore, is very good for the property market, with no sign of bubble bursting).

So here are the things you need to do, to raise, or get into the mindset of your 'subsidiary proprietors' ('SP') (ie those who own units in your property):-

Homework - This is important. Knowledge is power as they say:
  • Learn what you can about en-bloc or collective sales. Read the Strata Title Board information on the requirements of an en-bloc sale here. The Institute of Estate Agents has a good FAQ on it as well here. Take note in particular the conditions that can deter an enbloc sale from becoming a reality.
  • Learn about your area. Use the URA's Land Sales and Property Market website to find information about recent sales for your property, your surrounding properties, and your district in general. You can also use Redas's eProperty website to find historical sale values for your development, surrounding properties etc (they have information from 2000 to 2004). You can compile the information from these website to find highest values, average per square foot prices, rate of increase for your property value etc. The Singapore Expat's Property website has information on the age of the property and the no. of units which is useful too.
  • Learn from your 'opponent'. Visit your marketing agent's website, find out what enblocs they might be involved in or were successful in the past. Some consultancies and marketing agencies have quarterly property market reports (eg Knight Frank has reports here, Cushman & Wakefield here, Colliers International here, Coldwell Banker here). These give good insights into the future of the property market, and is useful to agents who argue that it's better to sell now than later (when their own firm's reports indicate otherwise!).
  • Read the papers. There's plenty of information on the property market, on collective sales in the Money section of the Straits Times. The Skyscraper forum thread on enbloc sales (link to the right or here) is likewise useful although you may have to wade through some banter between investors. The CondoSingapore Forum lists all the en blocs that have been sold, and is ongoing here.
  • And for the experts, you can check out the Master Plan 2003 here, information about Development Charge here, the Statutes that govern the collective sale process here (click on L for "Land Titles (Strata) Act" and go to Part VA).
Tactics/Queries towards Sales Committee:
  • Is the committee legitimate? Has it been ratified in an Extra-Ordinary General Meeting? Otherwise, as in another enbloc, two sales committee emerged and contested against one another.
  • Is the Sales Committee the same as the Management Committee (See Myth #2 post)? You do not want the people in charge of looking after your property to be the same people who is trying their damnest best to get rid of it.
  • Did they poll the SPs prior to any public meeting, to determine the level of interest in the enbloc? If they did, what percentage showed an interest? Insist on an exact figure and that this can be audited if necessary. The figure should be at least 80% to make it comparable to the enbloc requirement for sale. Make sure to distinguish between people who said Yes they'd like to sell, Maybe depending on price, and No they will never sell no matter what the price.
  • Query the legal fees for the hired solicitors. Some law firms insist on an initial downpayment, some don't. Some require that each SP pays a sum towards disbursements, which means even if you disagree with the enbloc, you must pay the lawyers. Most of such conditions are vetted by the Sales Committee so you'll need to make sure these are thoroughly verified, that you as the SP are not taken for a ride by an eager Sales Committee.
  • If your development was recently renovated, query the Sales Committee (which indirectly will query the Management Committee) on why sell now when things are fairly updated? In fact, why waste that money spent on upgrading the property if it could've meant lower maintenance funds? Inversely, if your place is getting rundown, query when did the management/sales committee first find out about the potential for enbloc. This may have bearing on unethical behaviour in not managing the property and letting it deteriorate. Management committees can be brought to court over the mismanagement of funds and property, after all.
Tactics/Queries towards Marketing Agents
  • What is the selected method of distribution for the sale proceeds? Most common is the 50/50 method: 50% share value and 50% strata floor area. But this neglects other factors such as floor level and facing side, which at the original time of purchase, may have made a difference (eg it is not uncommon to have a higher sale price for those units at higher floors). Query why this is not taken into consideration and it is unfair to those at higher floors who'd then receive less of the total proceeds if based on 50/50.
  • Alternatively, ask why other methods of distribution are not utilised, eg including general valuation.
  • Query about financial loss. Most agents will have on hand the purchase price of every SP in the property, so that they can ascertain what should be the minimum reserve price (RP) to set to prevent financial loss. Some agents will structure the RP such that all owners need to take a portion of their proceeds towards a common fund to subsidise the financial loss SPs (esp if the RP is valued such that it will include financial loss cases). You need to find out how many people will suffer from financial loss from the RP offered, how many SPs are close to the financial loss margin. The latter is useful in judging how many people are on the borderline in terms of deciding to sell the units (because they will have little to nothing to gain for the enbloc sale).
  • Query about recent and potential enblocs in your area. Most agents will base the RP on the latest enbloc value in your area, and will match that. Ask them what are the potential enblocs in the area. You want this information for later on (see below). Of course, if your value is lower than the latest enbloc value, insist on knowing why this is the case. After all, developers are after your LAND and not property; you can be the oldest kid in the block (look at Eng Lok Mansion) but if the land is prime or super-prime, that's all that matters.
  • Compare the RP they've set for your property against (a) recent purchases in your area (using the URA website data) (b) new properties in your area. Are you getting a RP which will generate a sale price for you individually that is comparable to current property market rates, or are you being shortchanged? Some marketing agents will deliberately set a lower RP to obtain a fast enbloc sale so you will need to do your homework (above) and argue for a higher RP if necessary. Some agents will point out that a clause is included in the Collective Sale Agreement (CSA) which will allow the Sales Committee (SC) to increase the RP if market conditions improve so you need not worry. However, take note that this is to push people to sign the CSA early. Remember - once you've signed it, you cannot retract your signature; it is a binding contract. That means IF the SC or Agents choose NOT to increase the RP even with improved market conditions, there is absolutely nothing you can do about it once you've signed on the dotted line. And this is very possible, depending on how 'panicky' the SC can be, and how fast the agent wants to sell your property. For example, estate X in Dist 10 sold for $850 in a tender; if it had waited a month later, where estate Y in Dist 10 nearby sold for $1100, it might have been able to match and better this. But the SC and agent were worried that the market will burst, so they did not revise their RP. So let this be known publicly - that the clause in the CSA is NO GUARANTEE that a SC will increase the RP accordingly.
  • Ask why is it that you are first in your area for enbloc (if you ARE the first)? Why not wait for other enblocs to be successful and then you can benchmark yourselves against them? Case in point - Holland Hill Mansion was recently successfully sold en-bloc for $750 psf ppr and that has radically jacked up the RP of ongoing enbloc sales in the area (Spanish Village, Farrer Court, Hollandia, Holland Crest, Holland Hill Lodge etc). Ask the marketing agent to check if neighbouring properties plan to go enbloc.
  • Query if they are the best marketing agent for your property. What is their success rate for enblocs, what failures, how many have they done so far etc. Cast doubt on the professionalism of the agency or their effectiveness in pushing a sale through. Ask them publicly what tactics will they use for owners who are hesitant to sign up, how aggressive are they in collecting signatures.
  • If you have a neighbouring condominium that looks like it's in a ready state to go enbloc (older than 10 years, starting to look run down), ask the agents why can't your property combine with theirs. This has happened in successful enblocs in the past.
Tactics/Queries towards Owner SPs:
  • Most owners have a social attachment to their home and neighbouring areas. Some have stayed there all their lives or a substantial length of time, and have developed friendships with neighbours, shops, clinics, and have a strong familiarity with the area etc. More often than not, this group is the lynchpin in whether your sale goes through or not. If you have at least 50% of your property full of owners, people who stay there, these people are less likely to agree to the enbloc unless the RP is really substantial. You want to work on this group the most.
  • Point out during owners' meeting or other public meetings, why should owners sell their property when the amount they'll get (and this will almost be true in most cases) from the enbloc sale will NOT be sufficient for them to buy a new property in the same area. Agents will say that it IS possible to buy a property, albeit not a new one, in the area but counter that by saying that there's no guarantee that the older property will not go enbloc in the near future and then the same frustration will occur to the owner again. Hit the agents (and the SPs in the meeting) with data from your findings on recent sales of new properties to show how the RP will not be sufficient to match the rapidly increasing private property market. Not without a substantial topping up if owners choose to stay in the same area, or they just have to move somewhere else, typically into a lesser district.
  • Ask the agents why can't they arrange with potential developers a unit-for-unit exchange. This is actually called a "collective exchange" and has been done in the past. Paterson Lodge (brokered by Knight Frank) and Pinetree Condo (Balmoral Rd, brokered by Jones Lang LaSalle) have been successful in doing this. The collective exchange is very appealing for SPs because they get a new unit in the same location, so owners do not lose their social attachment to their homes.
Tactics/Queries towards Investor SPs:
  • This group really doesn't need your attention as they are already set on selling their units. The crucial issue is when are they willing to sell. You need to appeal to the sense of greed on this.
  • Point to the property market reports (links are above) which indicate a bullish market. Point to CDL's CEO Kwek Leng Beng saying that the high end developments will hit $3000 psf this year, and that the mid level developments ($800-$1300) will move up this year as well. A delay on the enbloc may be more profitable given such conditions.
  • Plus the substantial increase in foreign investment in properties in Singapore will push the local investors, escalating property prices, which will bring a premium to prime land sites. Despite developers having a near full land bank, prime land now has gained in demand substantially.
  • Throw in the Integrated Resorts, excellent forecasts on the Singapore Economy, and Kwek Leng Beng saying that (a) the bubble won't burst in the near future (b) government is fast in reacting to crisis which prevents a major burst, and you're talking rational dollars and sense that now may not be the best time to sign that Collective Sale Agreement.
Hopefully the above will help anyone in need of advice on enbloc dilemmas. The biggest threat are the "serial enbloccers", SPs who own units in your property who have done enblocs in the past or are going through them now. They have the most experience (besides agents) and can be very aggressive in pushing for the sale to go through. I can only give one advice for this small group of people - CAPITAL GAINS TAX. This tax was implemented in 1996 to curb rampant speculation in the real estate market and removed in early 2000s. As serial enbloccers are people who hunt for potential enbloc properties, buy them up, and then either join the Sales Committee to push for the sale, or do so by other means. They typically hope to gain within 1-2 yrs of buying the old property. The capital gains tax, previously implemented, will impose a hefty tax on those who wish to sell their property unless 3 yrs of purchasing it. Write to your GRC, your local MP, tell them how you and many others like you are being systematically evicted by greedy investors and serial enbloccers. Remind them (esp those MPs in prime districts) that soon their district will be filled with foreigners rather than locals, since only the very rich Singaporeans can afford to buy new properties there, and the middle-class Singaporeans have to move elsewhere to stay.

Long post but I hope this is useful to the minority in enbloc sales.

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