Point 1 of 5: If you're thinking of this now, you have probably missed the boat.
cover image credit: finbarrfallon
I’ve been receiving a common question from various people who has been monitoring the Singapore property market. They are smelling an opportunity is coming up soon.
Is it possible? Well, in this current hot property market of 2021, anything is possible. The optimism from rising property prices has made the public think that supply is becoming limited.
To a certain extent, the supply of property is tight due to construction delays as well as foreigners and PRs who are making the decision to stay and root themselves in Singapore.
But let’s explore whether developers themselves are keen to replenish their landbanks and acquire more housing developments.
Let’s explore the recent history of enbloc.
The last enbloc fever happened back in 2017 – 2018. During that period, close to 70 old condo developments were sold collectively to developers.
During that period, developers were quite bullish about the property market. Some even paid record high prices to acquire these developments.
The Pacific Mansion old condo was sold at $1,987 psf per plot ratio (psf ppr).
Consultants estimate that the land cost for the Pacific Mansion site may translate to a break-even price of $2,530 to $2,800 per sq ft (psf), and a potential selling price of $3,000 to $3,200 psf for the upcoming project.
That was until the government implemented drastic, almost instantaneous cooling measures on 5 July 2018.
Besides the loan curbs which targeted buyers, developers were also impacted.
An additional ABSD of 5 per cent that is non-remittable was also introduced for developers buying residential properties for development.
Post July 2018 – almost all enbloc activities came to a halt with more than 30 enbloc tenders closing without any buyers.
How are developers feeling this year?
I have no idea what goes on in their boardroom meetings. But we can observe their sentiment on the property market by the prices they are setting for their new launch developments from their enbloc deals.
This year, Pacific Mansion has been relaunched as The Avenir – with prices starting at $2930 psf. It is slightly above the break-even price.
Another example is Hyll on Holland being relaunched at around $2200 psf. This was their promo price a few weeks ago. Hyll on Holland sits on 2 former enbloc sites – Estoril and Hollandia.
My thoughts are this – developers are cautiously optimistic. They might set this lower prices as a way to start the sales momentum going. But unless the take-up rate goes up soon, then doing collective en-bloc sales might be far away from their mind.
At the same time, government land sales are also ramping up – providing a competing supply against en-bloc sales.
So are the opportunities for enbloc good this year? I’m not sure.
I have clients who are actively seeking out to buy old condo units for the chance of enbloc because of my past background and experience in similar collective deals.
I shared some of my advice to them and to you below.
Here are 5 things you should take note about purchasing an old condo unit for the purpose of enbloc potential.
#1: If you are thinking about this, you have probably missed the boat
There is this phenomenon of chasing a trend in the market once you are aware of it. However, by the time you start to follow it, the trend reverses.
The problem isn’t that of people being generally unperceptive. It is simply because by the time the signal is received, the message may already have changed.
Usually enbloc trends run silent and deep – only insiders are highly aware of what is going on. If an opportunity comes up, it is usually kept on the down-low for fear of jeopardizing the deal. So most of the time, usually only residents themselves are aware and even then, lips are sealed.
So by the time you are aware and cognizant of the opportunity, it is too late.
Late buyers to a development that is slated for enbloc are also penalized – they have to pay Seller Stamp Duty if they only owned the unit for less than 3 years.
source: The Straits Times
It is is not worth it – your profits are severely limited if you are impacted by SSD. Long-term residents will get all the benefits while you pay out significant 12% duties to the government.
#2: If an enbloc attempt has failed – the property owners are restricted from launching another attempt for the next 2 years.
If at first you don’t succeed, try and try again. But you have to wait for another 2 more years before attempting another collective sale again. This law was passed in 2010.
Have a chat with the original Pearlbank owners. Did you know that they failed 3 times before finally succeeding? The 4th attempt was the one that finally went through.
From the Wikipedia page of Pearlbank Apartments – did you know the first attempt to do a collective sale was way back in 2007? That was almost 11 years BEFORE the actual enbloc sale went through in Feb 2018.
#3: The psychology of waiting for the durian that does not drop
I had various conversations with owners of failed enbloc developments. Yes, there is a possibility of becoming an enbloc millionaire but it is like waiting for the durian that does not drop.
As humans, we are all primed to hope for good results and success. But when failure and disappointment keeps appearing again and again, it can kill the spirit.
With some owners, I have sensed the regret and their repeated musings that their money was stuck in a lost cause and more regrettably, the lost opportunities. Had they sold and pulled out those monies from an an old aging property and parked into a newer and better development, it is very likely they could have reaped better returns.
Money being stuck is velocity and momentum lost – that is the reason why your money remain stagnant and never grows. It is especially painful if you are actually younger in age. Time should be on your side and helping you compound your money to grow but it doesn’t.
If you ever have the chance – talk to owners who hang on to their property for the sole purpose of enbloc? Was it worth it?
#4: Prime candidates for enbloc are usually old developments.
Stuck between a rock and a hard place.
There is a very good article below by Rice Media on the struggles of the original Pearlbank owners which was written back in 2017 – 1 year before the enbloc went through.
You can see the photos of the aging development which was poorly maintained.
Sure they might be enbloc millionaires now…
But imagine the years before the enbloc happened….
Imagine the frustration with poor conditions, leaking pipes, dated designs etc. decrepit state – are you sure you can live there for the next 5 years?
Even if you wanted to sell, who would be willing to take this property off your hands?
#5: Think 3-4 Steps Ahead
Consider after buying it, feeling miserable about the purchase while staying there.
Then trying to sell and offload it. Do you think you can still fetch a good price?
The above scenario is not that bad actually. It means you are willing to not throw away good money after the bad. It means you are willing to try to recover your costs and move on.
What usually kills people is the Sunk Cost Fallacy. For most people, they tend to fall into this trap. They persist to holding on to a bad decision even though the situation and environment has changed.
This happens because usually when we have invested a lot of time, money, energy, or love in something. This investment becomes a reason to carry on, even if we are dealing with a lost cause.
Sunk costs — anchoring decisions to past efforts that can’t be refunded — are a devil in a world where people change over time. They make our future selves prisoners to our past, different, selves. It’s the equivalent of a stranger making major life decisions for you.
The Psychology of Money by Morgan Housel (2020)
The sunk cost fallacy will hold you back and eventually kill your investment.
The sunk cost fallacy: just one of many ways we delude ourselves into behaving irrationally.
Conclusion
Purchasing an old development for the purpose of enbloc is like buying a lottery ticket. Yes, there is a chance that you could walk away a millionaire but it also slim and rare.
Sure, the odds are better than the actual lottery but you are betting a significant sum of money as well as your future well-being and your family into it.
If your goal is to make money, there are actually far easier and better investment strategies. The chances for success is also much higher.
Of course, there are always buyers out there who don’t mind waiting and purchasing an old condo for the chance of becoming an enbloc millionaire in the future.
I cannot deny the opportunities exist. But I hope the reasons I laid across here would be helpful in at least providing you some clarity and helping you understand that purchasing an old development for the purpose of enbloc is a speculative activity – and one in which you have not much control.
Above is a video I created on a guide to enbloc – hope it is helpful in helping you understand the nuances and context of what goes on behind the scenes.
Have questions? Feel free to drop me a whatsapp message or fill up the contact form.
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