Does my property have en bloc potential?

During the en bloc craze some 18-24 months ago, many of the beneficiaries became overnight millionaires. A millionaire, overnight. I doubt there is any other phrase as sexy. As such, many of the rest of us will be wondering if we too can join their esteemed ranks. How would we know if our condominiums, or even HDBs, have en bloc (Selective En bloc Redevelopment Scheme (SERS) in HDB context) potential?

  1. Rising land value

If the land value overtakes the property value of your home, then this is an incentive for the government to conduct SERS for your area or for developers to purchase your condominium. That is why it is common to see very old developments go en bloc, where the developer is essentially more interested in the land rather than the physical building.

For SERS, a good indication would be if the government has announced that they plan to “transform” or “rejuvenate” your area. An example would be when it was announced that $31.1 million will be used to “transform” Woodlands from a “sleepy suburb” to a “high traffic hub” in 2014. Six HDB blocks in that area enjoyed SERS.

Since the land component is of more interest to developers, it is no surprise that properties with higher land values probably have a greater chance of going en bloc. Centrally-located and well-connected properties are more likely to attract a developer’s interest.

  1. Plot Ratio and space efficiency

A plot ratio increase is very likely to turn some developers’ heads in your direction. This is because it means that the land-use can be intensified, allowing the developer to build more on the land (which will, in turn, mean more profits for them). Plot ratio increases are reflected in the Urban Redevelopment Authority’s (URA) Master Plan, which is updated every 5 years. To check the plot ratio of your property, simply head to URA Space that is available on URA’s website.

Large open-air carparks in condominiums are also an indicator that the land can be used more efficiently, meaning that there is en bloc potential. Developers who purchase the condominium would likely build another residential block in place of the carpark, which will be more profitable for them.

  1. Size of development

In the past wave of en bloc transactions, a sizeable number were smaller condominiums with fewer units. Large developments are more difficult to en bloc because of the sheer quantum of funds developers need to cough out, effectively reducing the pool of potential buyers. Additionally, it is more difficult to obtain the 80% or 90% approval needed for the collective sale to proceed compared to a small development.

Having said that, it does not mean that large developments do not get to go en bloc. Pacific Mansion, Amber Park and Tampines Court are examples of larger developments that have successfully gone on collective sale, and at very mind-boggling prices in fact.

  1. Number of projects

How many other condominium projects there are in your area is definitely one consideration for developers. If your area has an abundance of newly-launched condominiums, then developers will be less interested, because this means stiff competition. However, if your area has not had a condominium launch in quite a while, astute developers looking to have a first-mover advantage may be interested in your development. Case in point would be Serangoon Ville, which Oxley Holdings was attracted to partly because there had not been any new condominium launch in the area for the past 8 years.

  1. Property market

The 2 most important factors in determining whether there will be en blocs or not are developers’ sentiments and the property market cycle. No en bloc will happen if the property market is down, and developers are of the view that the market will not be on the uptrend anytime soon. For HDBs, the government will only do SERS if they think it is economically viable, so you will most likely not witness SERS during a troubled economy.

The en bloc fever was fueled by developers’ sentiments of a bottomed-out property market, and an expectation of a soon-to-come property market boom. However, with additional cooling measures in place, uncertainty has been injected into the property market. Developers and homebuyers alike are wary of the potential impacts of the cooling measures, and this has definitely put a damper on the en bloc market.

Conclusion

As much as we all want the path to riches to be as short as possible, perhaps praying every night for your condominium to go en bloc or your HDB flat to be selected for SERS is a fool’s errand. Ultimately, the potential and possibility for en bloc is out of your control, and dependent on a myriad of factors.

This is especially so in relation to HDBs. Purchasing old resale HDBs in the hope of it being selected for SERS is not the best move, and is more akin to gambling than sound investment strategy.

If your development does go en bloc, congratulations, and enjoy your newly-found riches. If your development does not, do not dwell on it or make decisions based on the hope that it does go en bloc, least you end up chasing a pipe dream.

Clive Chng

Clive graduated on the Dean’s list from Nanyang Technological University with an Engineering degree. Prior to joining Redbrick, he not only served as a Project Manager for Keppel Shipyard where he oversaw multi-million dollar marine projects, but was also the Vice President for Keppel Young Leaders, focused on the development of future leaders. Being a fan of low-cost Index Funds, his passion in Investing and strong interest in understanding how financial markets shape economies ultimately fuelled his move from the field of engineering into the financial industry where his personality trait as a servant leader further allows him to service his clients effectively.
Clive Chng

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