Saturday, 4 August 2007

Staying Ahead of the Game - Protem 'Inside Trading'

A look at the expat forum's thread on enbloc sales and you'll see it swamped by local Singaporeans trying to jump onto the 'enbloc wagon' by trying to suss out where the next 'enbloc potential' is and getting a unit or two there just before they hit the enbloc sale road. Speculators are jumping around the East Coast, lurking in condos in hope that some poor chaps will unsuspectingly sell their homes to an enbloc investor who can then cash it all in and reap the millions (the going rate nowadays, as they say).

But what happens if certain people within the estate have privileged information that an enbloc is going to occur, and buy up units in said estate before any enbloc announcements?

Yes, the only group of people who are aware of such things are the Protem Sale Committee (PSC) members. In an email, I was told this happened in an estate where members of the PSC who already own units there, decided to buy up other units in the estate, and shortly thereafter announced to everyone that they will be starting the enbloc sale.

Why should this be a problem?

  • From the perspective of a unit owner who wishes to sell their home (for whatever reason) - usually if word goes around of an impending enbloc, the owner would either sell at a premium or hold back on selling, at least until the amount s/he could get is known. In this situation highlighted above, most owners who sold their units to the PSC were not aware of any enbloc and hence sold it 'on the cheap'. To the people who were planning to do the enbloc.
  • From the perspective of a unit owner in general - Most owners will want to wait and see what are the pros and cons of selling their units collectively. They therefore want a PSC/SC that represents them and are fair in their dealings with agents/developers/lawyers. But if owners know that the PSC members have several units in their estate, bought precisely because of an oncoming enbloc, what confidence is there that they do not have ulterior motives of their own? Are they truly representing owners or themselves? Are they selling for the benefit of everyone (which might require taking a higher RP for example), or for their own benefit (which might be a lower RP but faster sale, since they have bulk purchases)?
  • From the perspective of the law - the new amendments will address a key issue of transparency. Any PSC members who utilises privileged information not available to public (including all owners) for their own benefit is not trying to be transparent to everyone. In fact, it is the exact opposite since they are most likely to have their own motivations and drives to push the sale through (eg have to pay off hefty loans taken up from snapping up units). The law needs to protect owners from such 'insider traders' and to have procedures in place that require all owners to declare when they bought their units (and have such information open for scrutiny).
In the meantime, the wild wild west continues.

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