We often hear of success stories on en bloc.
- “Ahhh, I hit the en bloc jackpot 3 times in my life and I’m worth over $5million now.”
- “I’ve got the Midas touch because I made my first million at 30.”
But is this the truth for the majority of en bloc hunters? Does every en bloc hunter hit the jackpot?
Unfortunately, en bloc investing is not as easy as it sounds. Let me spill the beans on things that you may not be aware of.
1) Old homes, crappy conditions and strange neighbours
To be eligible for collective sale or en bloc, a property should ideally be over 20 years old.
For private residential property that is 10 years and older, owners holding at least 80% of the share value of the property must agree to the sale. If the property is less than 10 years old, 90% must agree. This means that the older the property, the higher the chance.
Personally, I would rather buy an old house that is 20% cheaper and more spacious than something new, spend more money renovating the old house to make it livable.
However, it also means that the place is often not as well maintained. After all, things tend to break down over time, there may be termite infestation and you may need to incur costs on renovation and maintenance. Most of such units may be tenant occupied, hence you see constant changes in people in the neighbourhood.
C*ck blocks – why some projects can never en bloc
Not everybody is motivated by money. And this is a serious issue for you, the en bloc hunter.
Houses are, after all, people’s homes. Home is where memories are forged. Many will not want to move for various reasons, from the strangest reasons such as “spirit of my dead husband still lives here“, to valid reasons like, “it’s near the primary school of my kids, I can’t find a spacious enough house for the same price in future”.
Another common objection is that they like their existing old homes because it is very spacious. Moving to a new apartment in the same location means a higher cost per square foot and a smaller house. If the owner is old, the ability to get a big mortgage to buy a house of the same size is much lower, which means more cash deposit.
Sometimes, a single owner or group of owners may form over 20% of the share value of the project and block the collective sale effort. In this case, as long as the share value and strata area does not exceed the 80% or 90% hurdle, the project will never go en bloc.
2) Decreasing demand, increasing supply
Conditions aside, there’s a looming economic issue that could thwart en bloc investors.
Singapore’s population growth is slowing down
Singapore’s population growth rate was around 1.14% from 2010 to 2020, with the population increasing from 5.08M in 2010 to 5.69M in 2020. It was the slowest decade of growth since independence.
Between 2000 and 2010, it was 2.5%. We can be certain that in the decade of 2020 and 2030, the growth will slow further to below 1%.
This is due to two key reasons:
- We are relying less on unskilled workers. There will be increased automation to increase productivity.
- Fewer jobs are being created as our GDP growth slows down to 4 – 6%. We are no longer a developing nation.
Ample supply of properties
There is also an ample supply of properties, with 20,000 unsold private homes. The government is also building 20k – 30k HDB flats per year to meet the growing population.
With an average household size of 3.5, population growth of 57,000 per year will mean that we have an annual increase of 16,286 new homes per year. Even if the household size drops to 2.5, in line with developed western countries, the increase in demand is 22,800 per year.
80% of new demand will be quenched by HDB (18,240), 20% in private residential (4,560). The increase in demand is easily absorbed by the supply. This is why our rental prices have been falling since 2013.
3) Laws are strengthened to protect the dissenters
The laws are increasingly being strengthened to protect the dissenters against en bloc.
Today, we need 80% or 90% of the majority in terms of share value AND strata area. In the past, we merely needed a majority in share value.
Today, the requisition for a General Meeting to elect a Collective Sale Committee now requires 20% of share value or 25% of a total number of subsidiary proprietors’ votes too.
These are not surprising moves given that our population growth has slowed and we have ample supply planned up to 2030.
4) You might run out of time.
Let’s face it, en bloc come in waves. Developers start to buy land when they run low on inventory. The last wave was from 2017 to 2018 where the market witnessed 31 deals in 2017 for a total of $8.5 billion and 36 deals in 2018 for a total of $10.3 billion.
Since then, the higher additional buyer’s stamp duty (ABSD) rates and lower loan-to-value (LTV) limits meant that buyers faced greater challenges in attaining loans to finance their home purchases. Second and subsequent home buys have become more restrictive with higher costs.
This coming cycle may last between 2021 and 2022, as developers’ unsold inventory for private properties fall below 20,000. It is obvious from the points above that if you buy blindly without being guided, you could end up sitting on a property for 20 to 30 years without a successful collective sale. What you want is to invest in one and hit the “jackpot” within 5 years and move on to others.