colliers report - aug2014
TRANSCRIPT
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 17
Singapore | Investment
AUGUST 2014
Te Collective Sales
Market - Boom or Bust
LEONARD TAY Associate Director Research amp Advisory
CARISSA CHIN Assistant Manager Research amp Advisory
During the 1990s whenever a strata-titled development
resolved to go the ldquocollective sales1rdquo market or en-bloc route
it was like hitting the proverbial jackpot Having a home or
a place of business go en-bloc was almost always associated
with overnight riches of the exponential kind where luck or
fate or destiny suddenly seemed to smile upon ordinary folk
through no effort on their part And the windfall (or super-
normal profits or fortuitous gains) was indeed substantial in
those days Naturally so as each revision of the Master Plan (in
five-year intervals) designated increases of plot ratios2 across
the board in Singapore and rezoned the land use of various sites
islandwide With the intensification of development potential
and change in land use zoning for many sites some 20 yearsago it was no wonder that developers were willing to pump in
what seemed like astronomical sums many times the value of
what property owners would get if they were to sell individually
on the open market Tis was the case for many private
residential developments in the Central Region of Singapore
such as those in the Newton and Novena areas
However much has changed since those heady days of
striking the en-bloc lottery Fast forward some 20 years and
the collective sales market appears to have come to a standstill
in 2014 Te Master Plan from 2003 onwards has not had
the same magnitude of plot ratio increases as before andtherefore the type of premium developers were prepared
to pay in the past has shrunk with time to more moderate
levels Many rounds of Government policy measures to
curtail speculative real estate activity and to foster financial
prudence have also taken much of the froth out of the property
markets and consequently the steam out of collective salesactivities Tese reasons combined with perceived challenges
by owners in replacing sold en-bloc units with the proceeds
from the collective sale a pervasive tentative wait-and-see herd
mentality and lacklustre interest from developers who have
otherwise turned towards the Government Land Sales (GLS)
Programme for their source of development land have made
for an anaemic collective sales market in 2014 Tus far from
January to July 2014 not one single real estate investment sale
has succeeded in the collective sales route
Tis has raised questions of whether the way of collective sales
has had its day and is now no longer relevant in Singaporersquos
real estate landscape Is the collective sale still a useful and
meaningful method of transaction in the mature and developed
Singapore of today
8112019 Colliers Report - Aug2014
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2 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
BackgroundIt has been slightly over five years since the real estate market in
Singapore recovered from the onset of the global financial crisis
in 2008 Over the five-year period from 2009 to 2013 developers
have snapped up some 121 land parcels worth a total of $750
billion via the collective sales route During the period sales
momentum in the collective sales market peaked in 2011 when
41 land parcels totalling $304 billion were acquired before
transaction activity started to wind down in the following years
of 2012 and 2013
Total Collective Sales by Sector
YEAR COMMERCIAL RESIDENTIAL INDUSTRIAL HOTEL MIXED TOTAL
983090983088983088983097VALUE (983076 MIL) 983088 983089983090983090983094983094 983088 983088 983088 983089983090983090983094983094
NUMBER OF SITES 983088 983091 983088 983088 983088 983091
983090983088983089983088VALUE (983076 MIL) 983088 983089983093983096983096983091983093 983088 983088 983093983092983091983088 983089983094983092983090983094983093
NUMBER OF SITES 983088 983092983088 983088 983088 983089 983092983089
983090983088983089983089VALUE (983076 MIL) 983088 983090983093983094983094983089983092 983088 983089983090983094983096983088 983091983092983095983088983091 983091983088983091983097983097983095
NUMBER OF SITES 983088 983091983096 983088 983089 983090 983092983089
983090983088983089983090
VALUE (983076 MIL) 983089983089983094983092983089 983097983088983091983094983095 983092983091983089983096 983088 983092983093983091983097983095 983089983093983089983095983090983091
NUMBER OF SITES 983090 983089983092 983089 983088 983093 983090983090
983090983088983089983091VALUE (983076 MIL) 983092983092983093983088983088 983093983088983088983088983089 983089983089983095983092983088 983088 983089983089983091983088983088 983089983089983095983093983092983089
NUMBER OF SITES 983090 983096 983091 983088 983089 983089983092
TOTALVALUE (983076 MIL) 983093983094983089983092983089 983093983094983096983088983096983091 983089983094983088983093983096 983089983090983094983096983088 983097983094983096983091983088 983095983092983097983095983097983090
NUMBER OF SITES 983092 983089983088983091 983092 983089 983097 983089983090983089
In the last five years low interest rates and massive liquidity
inflows that supported investment demand and led property
prices to hit record highs on the back of buoyant investor
demand had prompted the Government to implement a seriesof cooling measures particularly in the private residential
property market
One of the measures deemed to have a significant bearing on
the residential collective sales market was the implementation
of Additional Buyerrsquos Stamp Duty 3 (ABSD) of 10 on the
acquisition of residential development land from 8 December
2011 onwards Although developers are able to apply for
remission of the ABSD if they develop and sell all of the new
units within five years such a time constraint reduced the
flexibility to hold the collective sale sites for longer-term land-
banking purposes As a result total collective sales concluded
in 2012 moderated to $152 billion from the sales of 22 landparcels about half of the total value and number of transactions
registered in 2011
And then in June 2013 the otal Debt Servicing Ratio4 (DSR)
framework was implemented adding to the growing list of
obstacles that have been impeding the successful conclusion of
collective sales
Existing owners of developments that are going on the en-bloc
path have already come to expect a substantial premium due
to the fact that they are selling their units collectively instead of
individually Added to that the advent of the DSR might have
exacerbated the call for even higher prices as affected ownersmight have to use a significant proportion of the proceeds from
the sale to clear the potential credit hurdles placed upon them
by the DSR when sourcing for a replacement property At the
same time developers are concerned about the longer project
sales period arising from the sluggish home sales in the mid-and high-end residential markets Tis has led to the widening
gap in price expectations between developers and sellers and
thus longer gestation period for collective sales to go through if
at all
Based on Colliers International Singaporersquos research it is
estimated that the chances of a property being successful in a
collective sale attempt averaged at 376 in the last three years
from 2011 to 2013 In other words six out of 10 properties would
be met with failure after successfully obtaining the consensus
to launch via the collective sales route In 2013 alone only three
in 10 collective sales launches were successfully sold with an
overall estimated failure rate of 67 Sometimes the reasonsfor the failure were due to developers requiring more time or
in some cases no bids were received in the tender exercise
However the most common recurring reason in recent times is
that the reserve price5 was not met by interested parties
Source Colliers International Research
Failure Rate of Collective Sales Launches
Source Colliers International Research
Year
2011
Year
2012
Year
2013
61 59 67
8112019 Colliers Report - Aug2014
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3 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
In the first seven months of 2014 the same factors that have
kept the collective sales market in the doldrums continued to
play out Not a single development was sold via the collective
sale route
In the residential scenehellip
Te existing impasse in the residential collective sales market isdue to the combination of the following factors
the market cooling measures that have resulted in a subdued
private residential market
the measures that have placed constraints on developersrsquo
project completion and project sales periods
developersrsquo reticence in paying top dollar for en-bloc sites
due to falling residential sales and prices
the impending surge of new private residential property
supply in the coming years
collective sellersrsquo profit expectations
bull
bull
bull
bull
bull
It has also become a norm that the gestation for collective
sales is lengthy and in some instances hopeful collective
sellers may need to go through the collective sales process
for a development more than once each time lowering their
expectations While this can be arduous the chances of a
successful sale increase if sellers are prepared to take a more
rational view of prevailing market conditions
A case in point was Whitley Heights off Tomson Road Te
site was first put up for collective sale in January 2011 with a
guide price of between $18500 million and $21000 million
translating to $1421-$1613 per sq ft per plot ratio Eventually it
was successfully sold for $15900 million or $1222 per sq ft per
plot ratio in September 2011 after it was launched for sale again
in June 2011 Te price at this second attempt represents a 14
to 24 decrease from the previous guide price
In addition some developments which maintained their asking
prices throughout multiple en-bloc attempts continued to be
unsuccessful For instance Villa Des Flores located on Whitley
Road was launched for collective sales separately in June
2012 and October 2012 but failed to find buyers as bids were
under the indicative asking price of between $16000 millionto $16500 million Te en-bloc attempt was unsuccessful yet
again after it was launched for a third time in January 2013 at
the same indicative asking price
Te chances of large residential sites being successful in a
collective sales attempt are also slim as the enforcement of
the ABSD has channelled developersrsquo attention to bite-sized
residential land parcels that offer quick turnaround time
and GLS sites where the tender process is comparatively less
labourious One of the most prominent cases was the 330-unit
Eunosville located on Sims Avenue which was launched for
collective sale in June 2013 with a minimum price of $68800
million While the site attracted interest from three developers when the tender closed in August 2013 developers were quoted
saying more time was needed to assess the market given the
relatively larger scale of the project Te property was launched
for collective sale again in December 2013 with a similar asking
price but failed to find buyers
As a result the number of sites sold for at least $10000 million
apiece shrank significantly from nine sites in 2011 to only three
and two sites in 2012 and 2013 respectively
Number of Residential Collective Sales Transactions(by Price Band)
Source Colliers International Research
Spring Grove Potentially Largest En-bloc in Singapore
And perhaps part of the gulf emanating from sellersrsquo
expectations is the replacement of their current home should
a collective sale be successful For a large part of the last five
years when prices of private residential properties were moving
up upon recovery from the global financial crisis unit owners
in developments that went the en-bloc route could have been
under pressure to sell at the maximum reach of their price
expectations as the cost of their likely replacement unit was also
trending upwards Between the time taken to successfully sell
collectively and to use the proceeds from the sale to purchase a
new home prices of targeted private replacement homes might
have risen significantly
Tese trends have since changed and are in the process of
changing still Te Private Residential Property Price Index
tracked by the Urban Redevelopment Authority (URA) roseby 623 from the trough of the market in 2Q 2009 to the most
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4 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Tis means that those who bought residences three to four
years ago are soon approaching a point where they can sell
their property without attracting SSD Some might even feel
that a 4 SSD (in their fourth year from acquisition) might
be worthwhile paying the taxman in order to cash out before
private residential prices fall even further so long as they still
enjoy capital appreciation at todayrsquos prices Te attraction of
cashing out now without SSD or with minimal SSD is further
enhanced with an increasingly challenging leasing market For
this wave of potential home sellers cutting and running with
profits in hand might become common in the next 12 months
again providing affected en-bloc sellers with a wide variety
of reasonably new ready-to-move in choices in a variety of
locations all with likely discounts thrown in for good measure to
facilitate the sale
A unit holder in an ageing residential development that has
the potential to go down the collective sale route could and
should consider all these factors and if the mathematics make
financial sense it might very well be the practical decision to
dispose of an ageing functionally obsolete asset that requires
a burgeoning maintenance bill Sweetening a collective sale by
lowering the reserve price and hence drawing developers backinto the en-bloc arena might just be the most balanced and
sensible course as an exit strategy for home owners of aged
properties in such times
Commercial buildings get old toohellip
And why should this principle of using the collective sales
method as an exit strategy not also be applicable for
commercial properties After all commercial properties also
get old sometimes at a seemingly faster rate with modern shiny
new shopping malls and grade A office buildings taking shape
all over Singapore
recent peak in 3Q 2013 before the market cooling measures
had an impactful restraining influence on price With the
price index correcting by 32 between 3Q 2013 and 2Q
2014 residential prices are expected to moderate downwards
throughout the rest of 2014 with this trend continuing into
2015 and 2016 in light of the projected record number of new
home completions during these two years Some 21948 new
homes are expected to be completed in 2015 while another23876 units are expected to be completed in 2016 Sellers of
residential developments in the midst of the collective sales
process might well adopt a siege mentality and abandon any
notion of going the en-bloc route until times are better
Notwithstanding the impending supply of new private homes
increasing vacancy and easing rentals might be further
exacerbated by another inevitability In February 2010 the
Government imposed a sellerrsquos stamp duty (SSD) on sellers
who had purchased residential properties from 20 February
2010 and disposed of them within one year of acquisition Te
SSD time frame for disposal was later extended to within three
years of acquisition by August 2010 and again extended oncemore to four years by January 2011
Presently the SSD rates over four years are
Percentage of price or market value whicheveris higher
Holding period
However this very instinctive knee-jerk pull back just because
market prices are lower might not be the best course of action
Sure sellers have to market their projects at lower reserve
prices But with the general residential market weakening and
prices expected to fall further replacement units are likely to
become more affordable in the coming months If the need to
sell collectively at high prices was meant to mitigate the soaring
prices of replacement units in the last five years then by the
same token if sellers are willing to factor in a discount in their
price expectations in order to attract developers back into the
collective sales market so that they are able to dispose of their
older properties they might just be able to find more than
affordable replacement opportunities in a softening market
Depending on the mathematics of each individual householdrsquos
decisions a family might possibly gain as much profit (if not
more) by selling low and then buying an even more affordable
replacement unit in a downtrend market than one who is
attempting to collectively sell high in order to keep pace with
rising prices in a buoyant market
Could such a situation be mere fantasy and wishful thinking
Not likely After all with more new homes being completed
and the Government keeping stricter control on the size of the
foreign worker population and immigration private residential
property vacancy rates have started to creep up From 51 in
1Q 2013 private residential property vacancy rates have been
inching upwards to 71 by 2Q 2014 the first time the 70 level
has been breached since 1Q 2006 more than eight years ago As
vacancy rates increase private residential property rents have
gone the opposite direction with the URA Private Residential
Property Rental Index falling by 18 from 3Q 2013 to 2Q 2014
1 year
16
2 years
12
3 years
8
4 years
4
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5 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Owners of offices retail stores medical suites or a combination
of these types of properties in either a strata-titled single-use
or mixed-use development might also wish to consider the en-
bloc route for similar reasons of practical disposal and renewal
Commercial users of strata-titled buildings sometimes are
reluctant to agree to a collective sale citing reasons of legacy
where their clients and customers will still extend their
patronage due to the familiarity of the location and the building
no matter how old or decrepit the property becomes However
locational goodwill is more pertinent for strata-titled property
owners of retail shops which are more location sensitive
than office and medical suite owners Businesses and clinics
relocate regularly with comparatively less impact compared
to retail shops as the brand or reputation of these businesses
and medical practitioners play a more important role than
an existing goodwill associated with a building or location
in supporting their business so long they do not relocate to
inaccessible remote areas
Terefore strata-titled property owners of commercialbuildings would need to also consider that a buildingrsquos lifespan
is finite and everything falls apart with time and neglect A
point will eventually be reached when the building services
mechanical electrical other utilities and finishes will one day
become obsolete with the resolute passing of time Despite any
ownerrsquos sentimental attachment to a place of business practical
functionality will one day overwhelm whatever locational
goodwill a building enjoys in the form of a loyal customer
base Such sentiment can also be dislodged by the often
capricious vagaries of fate as circumstances change and former
fundamentals are rendered moot with countrywide progress
and societal evolution Again the collective sales route offers a
practical way out
Te office and retail owners of the former Midlink Plaza
successfully disposed of the ageing commercial building
in 2011 with the new owner redeveloping the site into a
hotel Te strategic sale consolidation under a single owner
and redevelopment with a modern and updated use that is
complementary to the locality has benefited not only the sellers
but also the buyerdeveloper and the neighbourhood
In the same vein other strata-titled buildings especially in the
central areas can also harness the collective sale route Strata-
titled retail buildings have a tendency to be characterised by a
lack of tenant-mix control Individual owners will let or sell to
the highest paying lessee or buyerinvestor with little regard
as to how the incoming entityrsquos business is going to impact the
other tenants in the building Te increase in incompatible
trades sometimes side by side can potentially increase the
level of conflict among neighbours and create a disjointed
disharmony of unlikely trades within the shopping complex
Tis dissonance could eventually affect public perception of
the mall as a whole where deferential customer goodwill in the
past might turn to a grudging negative avoidance in the future
Sometimes the different and conflicting agendas can also prove
detrimental to the physical building itself especially in the use
of funds for building improvements Te range of problems
include prompt payment of service charges and maintenance
fees by individual shop owners the appropriate usage of funds
and the need for majority consensus Tis not only involves
funds that can be used for advertisements and promotional
campaigns to increase the profile of the entire shopping
complex but also for more basic building maintenance and
improvement issues Te collective sale avenue presents a
practical exit for owners of such ageing buildings in the mannerof Midlink Plaza and Serangoon Plaza Owners of Te Arcade at
Collyer Quay also made a positive attempt to blaze the en-bloc
trail even though it was unsuccessful
Individual owners to
exit an ageing buildingas well as find and fundalternative premises thatbetter suit the needs of
their businesses
The neighbourhood togenerate more tourist
activity
The buyer
developer tocreate economic
value throughredevelopment
The neighbourhoodto progressively
rejuvenate
Peace Centre amp Peace Mansion Another attempt on the way after two failed collectivesale attempts Out of place ageing building in an area undergoing renewal
Tis Midlink Plaza collective sale provided opportunities for
Te Arcade Failed collective sale at high asking price
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6 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
For example in Orchard Road there is little land from the
Government for fresh development Terefore it will be the
ageing strata-titled malls that have the best potential for
redevelopment in order to contribute to the continued renewal
of Singaporersquos premier shopping belt Instead of waiting for
the proverbial ldquopot of goldrdquo that may or may not materialise
before the building reaches a stage of terminal disrepair strata-
titled shop owners could at least give some consideration tocollective sales as a way to move on and upgrade their business
environment
recurring income as well as other non-tangible benefits Tis
could include personal enjoyment of a property that does not
require the hassle of repeated repairs and peace of mind in a
newer upgraded environment
It is inconceivable that buyers (developers and landlords)
are going to pay anywhere close to outrageous sums for
development land unless it makes economic sense As real
estate development becomes more competitive and intense
with Singaporersquos urban progress developersrsquo appetite for risk
will moderate to become more conservative Sellers need to
attempt to understand and appreciate that developersbuyers
ndash both now and in the foreseeable future ndash require a higher risk
discount to mitigate the magnitude of property development
in modern Singapore Because if the price is fair and in a range
that the developer stands an even chance at a decent profit
activity will return to the collective sales market
And in the end while nobody really wins in a big dramatic
fashion everyone does benefit in a fashion Individuals
obtain proceeds that are generally better than if they were tosell individually and thereby are able to fund a replacement
property that still has a reasonable length of economic and
functional life Buyersdevelopers continue to be able to obtain
the raw material needed for their development business
Communities are routinely renewed as old buildings make way
for functional up-to-date modern ones And on an islandwide
basis even the privately owned areas of Singapore would be in
a continual state of revitalisation without any neighbourhood
becoming jaded with obsolete properties
Te collective sales route is still relevant and can still be
meaningful for owners and developers despite the changes in
the real estate market in the last 20 years What is most needfulin order to harness the usefulness of the collective sales method
with present circumstances is a paradigm shift of perception
and mindsets Sellers must accept within their collective (no
pun intended) mindsets that making a sudden windfall from
chance is a thing best filed in the annals of history Te way
forward for collective sales should be that of a practical method
of disposal for an ageing asset that is past its functional prime
While not everyone can win big allthe time everyone benefits fromrenewalhellip
Sometimes owners do not wish to sell for sentimental reasons
having formed an indelible bond with their property over a longperiod of time And while this attachment is understandable
the other general perceptions motives and mindsets about
the collective sales market will have to change as Singaporersquos
real estate market evolves and matures If the herd mentality
towards collective sales remains one where sellers expect to
strike it rich in one lucky twist of fate the current impasse
between buyers and sellers will continue with no one
benefiting Eventually this will result in a growing number of
buildings developments neighbourhoods and communities
not being able to renew themselves Te standoff will lead to
sellers on one side wanting their windfall and developers on the
other wanting land for their business
Te way ahead will be more practical considered and
reasonable albeit not nearly as exciting nor as intoxicating as it
was in the past
For sellers the collective sales market must come to represent
a method where they can exit their ageing real estate with
a reasonable sum and perhaps some profits on the side
(reasonable profits are no longer defined as earth shattering
bonanzas) Te premium can no longer be as dramatic as that
of the past as plot ratios have not increased in any substantial
fashion in more than 10 years Te collective disposal of an
obsolete and ageing building allows individual sellers to moveon and right size to another property that is more modern
physically functional and that is better yielding in terms of
anglin Shopping Centre Another attempt on the way after previous failed collectivesale exercises at high asking prices
1 According to Strata itles Boards a collective sale is a combined sale by the owners oftwo or more property units to a common purchaser Te most common collective sale isthe sale of all the units in a strata-titled or flatted development to a purchaser Te sale
proceeds are then divided amongst all the unit owners
2 Te ratio of the gross floor area of a development to its site area
3 Te ABSD was introduced by the Government on 8 December 2011 An ABSD ofbetween 3 and 10 is to be paid by certain groups of buyers of residential properties(including land) Te ABSD rates for the purchase of residential properties were laterraised by between five and seven percentage points in January 2013 Besides Singapor-eans buying their first residential property all other groups of residential property buyersare affected by this increase
4 Effective from 29 June 2013 individuals (including sole proprietorships and vehiclesset up by an individual solely to purchase property) will be subject to a otal DebtServicing Ratio (DSR) framework for all property loans granted by financial institu-tions In addition to the 60 cap on a borrowerrsquos total monthly debt payment certainrules relating to the application of the existing Loan-to-Value (LV) limits on housingloans granted by financial institutions were also refined In particular ldquoguarantorsrdquo arenow to be included as co-borrowers and one of the purchasers on the option to purchase
Additionally the income-weighted average (based on gross monthly income) age of allco-borrowers is to be adopted when applying the rules on loan tenure
5 Te pre-agreed minimum price sellers are prepared to sell their properties for
8112019 Colliers Report - Aug2014
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Copyright copy 2014 Colliers International
The information contained herein has been obtained from sources deemed reliable While every reasonable effort has been made to
ensure its accuracy we cannot guarantee it No responsibility is assumed for any inaccuracies Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report
About Colliers International
Colliers International is a global leader in commercial real estate services with over 15800professionals operating out of more than 485 offices in 63 countries A subsidiary of FirstServiceCorporation Colliers International delivers a full range of services to real estate users ownersand investors worldwide including global corporate solutions brokerage property and assetmanagement hotel investment sales and consulting valuation consulting and appraisal servicesmortgage banking and insightful research Te latest annual survey by the Lipsey Company rankedColliers International as the second-most recognized commercial real estate firm in the world
collierscom
485 offices in
63 countries on
6 continentsUnited States 146
Canada 44
Latin America 25
Asia 38
ANZ 148
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US$21billion inannual revenue
146billion square feetunder management
15800professionalsand staff
Contact
Chia Siew Chuin
Director
singaporeresearchcollierscom
Colliers International | Singapore
1 Raffles Place45-00 One Raffles Place
Singapore 046818
TEL +65 6223 2323
FAX +65 6222 4901
RCB No 198105965E
8112019 Colliers Report - Aug2014
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2 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
BackgroundIt has been slightly over five years since the real estate market in
Singapore recovered from the onset of the global financial crisis
in 2008 Over the five-year period from 2009 to 2013 developers
have snapped up some 121 land parcels worth a total of $750
billion via the collective sales route During the period sales
momentum in the collective sales market peaked in 2011 when
41 land parcels totalling $304 billion were acquired before
transaction activity started to wind down in the following years
of 2012 and 2013
Total Collective Sales by Sector
YEAR COMMERCIAL RESIDENTIAL INDUSTRIAL HOTEL MIXED TOTAL
983090983088983088983097VALUE (983076 MIL) 983088 983089983090983090983094983094 983088 983088 983088 983089983090983090983094983094
NUMBER OF SITES 983088 983091 983088 983088 983088 983091
983090983088983089983088VALUE (983076 MIL) 983088 983089983093983096983096983091983093 983088 983088 983093983092983091983088 983089983094983092983090983094983093
NUMBER OF SITES 983088 983092983088 983088 983088 983089 983092983089
983090983088983089983089VALUE (983076 MIL) 983088 983090983093983094983094983089983092 983088 983089983090983094983096983088 983091983092983095983088983091 983091983088983091983097983097983095
NUMBER OF SITES 983088 983091983096 983088 983089 983090 983092983089
983090983088983089983090
VALUE (983076 MIL) 983089983089983094983092983089 983097983088983091983094983095 983092983091983089983096 983088 983092983093983091983097983095 983089983093983089983095983090983091
NUMBER OF SITES 983090 983089983092 983089 983088 983093 983090983090
983090983088983089983091VALUE (983076 MIL) 983092983092983093983088983088 983093983088983088983088983089 983089983089983095983092983088 983088 983089983089983091983088983088 983089983089983095983093983092983089
NUMBER OF SITES 983090 983096 983091 983088 983089 983089983092
TOTALVALUE (983076 MIL) 983093983094983089983092983089 983093983094983096983088983096983091 983089983094983088983093983096 983089983090983094983096983088 983097983094983096983091983088 983095983092983097983095983097983090
NUMBER OF SITES 983092 983089983088983091 983092 983089 983097 983089983090983089
In the last five years low interest rates and massive liquidity
inflows that supported investment demand and led property
prices to hit record highs on the back of buoyant investor
demand had prompted the Government to implement a seriesof cooling measures particularly in the private residential
property market
One of the measures deemed to have a significant bearing on
the residential collective sales market was the implementation
of Additional Buyerrsquos Stamp Duty 3 (ABSD) of 10 on the
acquisition of residential development land from 8 December
2011 onwards Although developers are able to apply for
remission of the ABSD if they develop and sell all of the new
units within five years such a time constraint reduced the
flexibility to hold the collective sale sites for longer-term land-
banking purposes As a result total collective sales concluded
in 2012 moderated to $152 billion from the sales of 22 landparcels about half of the total value and number of transactions
registered in 2011
And then in June 2013 the otal Debt Servicing Ratio4 (DSR)
framework was implemented adding to the growing list of
obstacles that have been impeding the successful conclusion of
collective sales
Existing owners of developments that are going on the en-bloc
path have already come to expect a substantial premium due
to the fact that they are selling their units collectively instead of
individually Added to that the advent of the DSR might have
exacerbated the call for even higher prices as affected ownersmight have to use a significant proportion of the proceeds from
the sale to clear the potential credit hurdles placed upon them
by the DSR when sourcing for a replacement property At the
same time developers are concerned about the longer project
sales period arising from the sluggish home sales in the mid-and high-end residential markets Tis has led to the widening
gap in price expectations between developers and sellers and
thus longer gestation period for collective sales to go through if
at all
Based on Colliers International Singaporersquos research it is
estimated that the chances of a property being successful in a
collective sale attempt averaged at 376 in the last three years
from 2011 to 2013 In other words six out of 10 properties would
be met with failure after successfully obtaining the consensus
to launch via the collective sales route In 2013 alone only three
in 10 collective sales launches were successfully sold with an
overall estimated failure rate of 67 Sometimes the reasonsfor the failure were due to developers requiring more time or
in some cases no bids were received in the tender exercise
However the most common recurring reason in recent times is
that the reserve price5 was not met by interested parties
Source Colliers International Research
Failure Rate of Collective Sales Launches
Source Colliers International Research
Year
2011
Year
2012
Year
2013
61 59 67
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 37
3 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
In the first seven months of 2014 the same factors that have
kept the collective sales market in the doldrums continued to
play out Not a single development was sold via the collective
sale route
In the residential scenehellip
Te existing impasse in the residential collective sales market isdue to the combination of the following factors
the market cooling measures that have resulted in a subdued
private residential market
the measures that have placed constraints on developersrsquo
project completion and project sales periods
developersrsquo reticence in paying top dollar for en-bloc sites
due to falling residential sales and prices
the impending surge of new private residential property
supply in the coming years
collective sellersrsquo profit expectations
bull
bull
bull
bull
bull
It has also become a norm that the gestation for collective
sales is lengthy and in some instances hopeful collective
sellers may need to go through the collective sales process
for a development more than once each time lowering their
expectations While this can be arduous the chances of a
successful sale increase if sellers are prepared to take a more
rational view of prevailing market conditions
A case in point was Whitley Heights off Tomson Road Te
site was first put up for collective sale in January 2011 with a
guide price of between $18500 million and $21000 million
translating to $1421-$1613 per sq ft per plot ratio Eventually it
was successfully sold for $15900 million or $1222 per sq ft per
plot ratio in September 2011 after it was launched for sale again
in June 2011 Te price at this second attempt represents a 14
to 24 decrease from the previous guide price
In addition some developments which maintained their asking
prices throughout multiple en-bloc attempts continued to be
unsuccessful For instance Villa Des Flores located on Whitley
Road was launched for collective sales separately in June
2012 and October 2012 but failed to find buyers as bids were
under the indicative asking price of between $16000 millionto $16500 million Te en-bloc attempt was unsuccessful yet
again after it was launched for a third time in January 2013 at
the same indicative asking price
Te chances of large residential sites being successful in a
collective sales attempt are also slim as the enforcement of
the ABSD has channelled developersrsquo attention to bite-sized
residential land parcels that offer quick turnaround time
and GLS sites where the tender process is comparatively less
labourious One of the most prominent cases was the 330-unit
Eunosville located on Sims Avenue which was launched for
collective sale in June 2013 with a minimum price of $68800
million While the site attracted interest from three developers when the tender closed in August 2013 developers were quoted
saying more time was needed to assess the market given the
relatively larger scale of the project Te property was launched
for collective sale again in December 2013 with a similar asking
price but failed to find buyers
As a result the number of sites sold for at least $10000 million
apiece shrank significantly from nine sites in 2011 to only three
and two sites in 2012 and 2013 respectively
Number of Residential Collective Sales Transactions(by Price Band)
Source Colliers International Research
Spring Grove Potentially Largest En-bloc in Singapore
And perhaps part of the gulf emanating from sellersrsquo
expectations is the replacement of their current home should
a collective sale be successful For a large part of the last five
years when prices of private residential properties were moving
up upon recovery from the global financial crisis unit owners
in developments that went the en-bloc route could have been
under pressure to sell at the maximum reach of their price
expectations as the cost of their likely replacement unit was also
trending upwards Between the time taken to successfully sell
collectively and to use the proceeds from the sale to purchase a
new home prices of targeted private replacement homes might
have risen significantly
Tese trends have since changed and are in the process of
changing still Te Private Residential Property Price Index
tracked by the Urban Redevelopment Authority (URA) roseby 623 from the trough of the market in 2Q 2009 to the most
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 47
4 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Tis means that those who bought residences three to four
years ago are soon approaching a point where they can sell
their property without attracting SSD Some might even feel
that a 4 SSD (in their fourth year from acquisition) might
be worthwhile paying the taxman in order to cash out before
private residential prices fall even further so long as they still
enjoy capital appreciation at todayrsquos prices Te attraction of
cashing out now without SSD or with minimal SSD is further
enhanced with an increasingly challenging leasing market For
this wave of potential home sellers cutting and running with
profits in hand might become common in the next 12 months
again providing affected en-bloc sellers with a wide variety
of reasonably new ready-to-move in choices in a variety of
locations all with likely discounts thrown in for good measure to
facilitate the sale
A unit holder in an ageing residential development that has
the potential to go down the collective sale route could and
should consider all these factors and if the mathematics make
financial sense it might very well be the practical decision to
dispose of an ageing functionally obsolete asset that requires
a burgeoning maintenance bill Sweetening a collective sale by
lowering the reserve price and hence drawing developers backinto the en-bloc arena might just be the most balanced and
sensible course as an exit strategy for home owners of aged
properties in such times
Commercial buildings get old toohellip
And why should this principle of using the collective sales
method as an exit strategy not also be applicable for
commercial properties After all commercial properties also
get old sometimes at a seemingly faster rate with modern shiny
new shopping malls and grade A office buildings taking shape
all over Singapore
recent peak in 3Q 2013 before the market cooling measures
had an impactful restraining influence on price With the
price index correcting by 32 between 3Q 2013 and 2Q
2014 residential prices are expected to moderate downwards
throughout the rest of 2014 with this trend continuing into
2015 and 2016 in light of the projected record number of new
home completions during these two years Some 21948 new
homes are expected to be completed in 2015 while another23876 units are expected to be completed in 2016 Sellers of
residential developments in the midst of the collective sales
process might well adopt a siege mentality and abandon any
notion of going the en-bloc route until times are better
Notwithstanding the impending supply of new private homes
increasing vacancy and easing rentals might be further
exacerbated by another inevitability In February 2010 the
Government imposed a sellerrsquos stamp duty (SSD) on sellers
who had purchased residential properties from 20 February
2010 and disposed of them within one year of acquisition Te
SSD time frame for disposal was later extended to within three
years of acquisition by August 2010 and again extended oncemore to four years by January 2011
Presently the SSD rates over four years are
Percentage of price or market value whicheveris higher
Holding period
However this very instinctive knee-jerk pull back just because
market prices are lower might not be the best course of action
Sure sellers have to market their projects at lower reserve
prices But with the general residential market weakening and
prices expected to fall further replacement units are likely to
become more affordable in the coming months If the need to
sell collectively at high prices was meant to mitigate the soaring
prices of replacement units in the last five years then by the
same token if sellers are willing to factor in a discount in their
price expectations in order to attract developers back into the
collective sales market so that they are able to dispose of their
older properties they might just be able to find more than
affordable replacement opportunities in a softening market
Depending on the mathematics of each individual householdrsquos
decisions a family might possibly gain as much profit (if not
more) by selling low and then buying an even more affordable
replacement unit in a downtrend market than one who is
attempting to collectively sell high in order to keep pace with
rising prices in a buoyant market
Could such a situation be mere fantasy and wishful thinking
Not likely After all with more new homes being completed
and the Government keeping stricter control on the size of the
foreign worker population and immigration private residential
property vacancy rates have started to creep up From 51 in
1Q 2013 private residential property vacancy rates have been
inching upwards to 71 by 2Q 2014 the first time the 70 level
has been breached since 1Q 2006 more than eight years ago As
vacancy rates increase private residential property rents have
gone the opposite direction with the URA Private Residential
Property Rental Index falling by 18 from 3Q 2013 to 2Q 2014
1 year
16
2 years
12
3 years
8
4 years
4
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 57
5 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Owners of offices retail stores medical suites or a combination
of these types of properties in either a strata-titled single-use
or mixed-use development might also wish to consider the en-
bloc route for similar reasons of practical disposal and renewal
Commercial users of strata-titled buildings sometimes are
reluctant to agree to a collective sale citing reasons of legacy
where their clients and customers will still extend their
patronage due to the familiarity of the location and the building
no matter how old or decrepit the property becomes However
locational goodwill is more pertinent for strata-titled property
owners of retail shops which are more location sensitive
than office and medical suite owners Businesses and clinics
relocate regularly with comparatively less impact compared
to retail shops as the brand or reputation of these businesses
and medical practitioners play a more important role than
an existing goodwill associated with a building or location
in supporting their business so long they do not relocate to
inaccessible remote areas
Terefore strata-titled property owners of commercialbuildings would need to also consider that a buildingrsquos lifespan
is finite and everything falls apart with time and neglect A
point will eventually be reached when the building services
mechanical electrical other utilities and finishes will one day
become obsolete with the resolute passing of time Despite any
ownerrsquos sentimental attachment to a place of business practical
functionality will one day overwhelm whatever locational
goodwill a building enjoys in the form of a loyal customer
base Such sentiment can also be dislodged by the often
capricious vagaries of fate as circumstances change and former
fundamentals are rendered moot with countrywide progress
and societal evolution Again the collective sales route offers a
practical way out
Te office and retail owners of the former Midlink Plaza
successfully disposed of the ageing commercial building
in 2011 with the new owner redeveloping the site into a
hotel Te strategic sale consolidation under a single owner
and redevelopment with a modern and updated use that is
complementary to the locality has benefited not only the sellers
but also the buyerdeveloper and the neighbourhood
In the same vein other strata-titled buildings especially in the
central areas can also harness the collective sale route Strata-
titled retail buildings have a tendency to be characterised by a
lack of tenant-mix control Individual owners will let or sell to
the highest paying lessee or buyerinvestor with little regard
as to how the incoming entityrsquos business is going to impact the
other tenants in the building Te increase in incompatible
trades sometimes side by side can potentially increase the
level of conflict among neighbours and create a disjointed
disharmony of unlikely trades within the shopping complex
Tis dissonance could eventually affect public perception of
the mall as a whole where deferential customer goodwill in the
past might turn to a grudging negative avoidance in the future
Sometimes the different and conflicting agendas can also prove
detrimental to the physical building itself especially in the use
of funds for building improvements Te range of problems
include prompt payment of service charges and maintenance
fees by individual shop owners the appropriate usage of funds
and the need for majority consensus Tis not only involves
funds that can be used for advertisements and promotional
campaigns to increase the profile of the entire shopping
complex but also for more basic building maintenance and
improvement issues Te collective sale avenue presents a
practical exit for owners of such ageing buildings in the mannerof Midlink Plaza and Serangoon Plaza Owners of Te Arcade at
Collyer Quay also made a positive attempt to blaze the en-bloc
trail even though it was unsuccessful
Individual owners to
exit an ageing buildingas well as find and fundalternative premises thatbetter suit the needs of
their businesses
The neighbourhood togenerate more tourist
activity
The buyer
developer tocreate economic
value throughredevelopment
The neighbourhoodto progressively
rejuvenate
Peace Centre amp Peace Mansion Another attempt on the way after two failed collectivesale attempts Out of place ageing building in an area undergoing renewal
Tis Midlink Plaza collective sale provided opportunities for
Te Arcade Failed collective sale at high asking price
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 67
6 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
For example in Orchard Road there is little land from the
Government for fresh development Terefore it will be the
ageing strata-titled malls that have the best potential for
redevelopment in order to contribute to the continued renewal
of Singaporersquos premier shopping belt Instead of waiting for
the proverbial ldquopot of goldrdquo that may or may not materialise
before the building reaches a stage of terminal disrepair strata-
titled shop owners could at least give some consideration tocollective sales as a way to move on and upgrade their business
environment
recurring income as well as other non-tangible benefits Tis
could include personal enjoyment of a property that does not
require the hassle of repeated repairs and peace of mind in a
newer upgraded environment
It is inconceivable that buyers (developers and landlords)
are going to pay anywhere close to outrageous sums for
development land unless it makes economic sense As real
estate development becomes more competitive and intense
with Singaporersquos urban progress developersrsquo appetite for risk
will moderate to become more conservative Sellers need to
attempt to understand and appreciate that developersbuyers
ndash both now and in the foreseeable future ndash require a higher risk
discount to mitigate the magnitude of property development
in modern Singapore Because if the price is fair and in a range
that the developer stands an even chance at a decent profit
activity will return to the collective sales market
And in the end while nobody really wins in a big dramatic
fashion everyone does benefit in a fashion Individuals
obtain proceeds that are generally better than if they were tosell individually and thereby are able to fund a replacement
property that still has a reasonable length of economic and
functional life Buyersdevelopers continue to be able to obtain
the raw material needed for their development business
Communities are routinely renewed as old buildings make way
for functional up-to-date modern ones And on an islandwide
basis even the privately owned areas of Singapore would be in
a continual state of revitalisation without any neighbourhood
becoming jaded with obsolete properties
Te collective sales route is still relevant and can still be
meaningful for owners and developers despite the changes in
the real estate market in the last 20 years What is most needfulin order to harness the usefulness of the collective sales method
with present circumstances is a paradigm shift of perception
and mindsets Sellers must accept within their collective (no
pun intended) mindsets that making a sudden windfall from
chance is a thing best filed in the annals of history Te way
forward for collective sales should be that of a practical method
of disposal for an ageing asset that is past its functional prime
While not everyone can win big allthe time everyone benefits fromrenewalhellip
Sometimes owners do not wish to sell for sentimental reasons
having formed an indelible bond with their property over a longperiod of time And while this attachment is understandable
the other general perceptions motives and mindsets about
the collective sales market will have to change as Singaporersquos
real estate market evolves and matures If the herd mentality
towards collective sales remains one where sellers expect to
strike it rich in one lucky twist of fate the current impasse
between buyers and sellers will continue with no one
benefiting Eventually this will result in a growing number of
buildings developments neighbourhoods and communities
not being able to renew themselves Te standoff will lead to
sellers on one side wanting their windfall and developers on the
other wanting land for their business
Te way ahead will be more practical considered and
reasonable albeit not nearly as exciting nor as intoxicating as it
was in the past
For sellers the collective sales market must come to represent
a method where they can exit their ageing real estate with
a reasonable sum and perhaps some profits on the side
(reasonable profits are no longer defined as earth shattering
bonanzas) Te premium can no longer be as dramatic as that
of the past as plot ratios have not increased in any substantial
fashion in more than 10 years Te collective disposal of an
obsolete and ageing building allows individual sellers to moveon and right size to another property that is more modern
physically functional and that is better yielding in terms of
anglin Shopping Centre Another attempt on the way after previous failed collectivesale exercises at high asking prices
1 According to Strata itles Boards a collective sale is a combined sale by the owners oftwo or more property units to a common purchaser Te most common collective sale isthe sale of all the units in a strata-titled or flatted development to a purchaser Te sale
proceeds are then divided amongst all the unit owners
2 Te ratio of the gross floor area of a development to its site area
3 Te ABSD was introduced by the Government on 8 December 2011 An ABSD ofbetween 3 and 10 is to be paid by certain groups of buyers of residential properties(including land) Te ABSD rates for the purchase of residential properties were laterraised by between five and seven percentage points in January 2013 Besides Singapor-eans buying their first residential property all other groups of residential property buyersare affected by this increase
4 Effective from 29 June 2013 individuals (including sole proprietorships and vehiclesset up by an individual solely to purchase property) will be subject to a otal DebtServicing Ratio (DSR) framework for all property loans granted by financial institu-tions In addition to the 60 cap on a borrowerrsquos total monthly debt payment certainrules relating to the application of the existing Loan-to-Value (LV) limits on housingloans granted by financial institutions were also refined In particular ldquoguarantorsrdquo arenow to be included as co-borrowers and one of the purchasers on the option to purchase
Additionally the income-weighted average (based on gross monthly income) age of allco-borrowers is to be adopted when applying the rules on loan tenure
5 Te pre-agreed minimum price sellers are prepared to sell their properties for
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 77
Copyright copy 2014 Colliers International
The information contained herein has been obtained from sources deemed reliable While every reasonable effort has been made to
ensure its accuracy we cannot guarantee it No responsibility is assumed for any inaccuracies Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report
About Colliers International
Colliers International is a global leader in commercial real estate services with over 15800professionals operating out of more than 485 offices in 63 countries A subsidiary of FirstServiceCorporation Colliers International delivers a full range of services to real estate users ownersand investors worldwide including global corporate solutions brokerage property and assetmanagement hotel investment sales and consulting valuation consulting and appraisal servicesmortgage banking and insightful research Te latest annual survey by the Lipsey Company rankedColliers International as the second-most recognized commercial real estate firm in the world
collierscom
485 offices in
63 countries on
6 continentsUnited States 146
Canada 44
Latin America 25
Asia 38
ANZ 148
EMEA 84
US$21billion inannual revenue
146billion square feetunder management
15800professionalsand staff
Contact
Chia Siew Chuin
Director
singaporeresearchcollierscom
Colliers International | Singapore
1 Raffles Place45-00 One Raffles Place
Singapore 046818
TEL +65 6223 2323
FAX +65 6222 4901
RCB No 198105965E
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 37
3 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
In the first seven months of 2014 the same factors that have
kept the collective sales market in the doldrums continued to
play out Not a single development was sold via the collective
sale route
In the residential scenehellip
Te existing impasse in the residential collective sales market isdue to the combination of the following factors
the market cooling measures that have resulted in a subdued
private residential market
the measures that have placed constraints on developersrsquo
project completion and project sales periods
developersrsquo reticence in paying top dollar for en-bloc sites
due to falling residential sales and prices
the impending surge of new private residential property
supply in the coming years
collective sellersrsquo profit expectations
bull
bull
bull
bull
bull
It has also become a norm that the gestation for collective
sales is lengthy and in some instances hopeful collective
sellers may need to go through the collective sales process
for a development more than once each time lowering their
expectations While this can be arduous the chances of a
successful sale increase if sellers are prepared to take a more
rational view of prevailing market conditions
A case in point was Whitley Heights off Tomson Road Te
site was first put up for collective sale in January 2011 with a
guide price of between $18500 million and $21000 million
translating to $1421-$1613 per sq ft per plot ratio Eventually it
was successfully sold for $15900 million or $1222 per sq ft per
plot ratio in September 2011 after it was launched for sale again
in June 2011 Te price at this second attempt represents a 14
to 24 decrease from the previous guide price
In addition some developments which maintained their asking
prices throughout multiple en-bloc attempts continued to be
unsuccessful For instance Villa Des Flores located on Whitley
Road was launched for collective sales separately in June
2012 and October 2012 but failed to find buyers as bids were
under the indicative asking price of between $16000 millionto $16500 million Te en-bloc attempt was unsuccessful yet
again after it was launched for a third time in January 2013 at
the same indicative asking price
Te chances of large residential sites being successful in a
collective sales attempt are also slim as the enforcement of
the ABSD has channelled developersrsquo attention to bite-sized
residential land parcels that offer quick turnaround time
and GLS sites where the tender process is comparatively less
labourious One of the most prominent cases was the 330-unit
Eunosville located on Sims Avenue which was launched for
collective sale in June 2013 with a minimum price of $68800
million While the site attracted interest from three developers when the tender closed in August 2013 developers were quoted
saying more time was needed to assess the market given the
relatively larger scale of the project Te property was launched
for collective sale again in December 2013 with a similar asking
price but failed to find buyers
As a result the number of sites sold for at least $10000 million
apiece shrank significantly from nine sites in 2011 to only three
and two sites in 2012 and 2013 respectively
Number of Residential Collective Sales Transactions(by Price Band)
Source Colliers International Research
Spring Grove Potentially Largest En-bloc in Singapore
And perhaps part of the gulf emanating from sellersrsquo
expectations is the replacement of their current home should
a collective sale be successful For a large part of the last five
years when prices of private residential properties were moving
up upon recovery from the global financial crisis unit owners
in developments that went the en-bloc route could have been
under pressure to sell at the maximum reach of their price
expectations as the cost of their likely replacement unit was also
trending upwards Between the time taken to successfully sell
collectively and to use the proceeds from the sale to purchase a
new home prices of targeted private replacement homes might
have risen significantly
Tese trends have since changed and are in the process of
changing still Te Private Residential Property Price Index
tracked by the Urban Redevelopment Authority (URA) roseby 623 from the trough of the market in 2Q 2009 to the most
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 47
4 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Tis means that those who bought residences three to four
years ago are soon approaching a point where they can sell
their property without attracting SSD Some might even feel
that a 4 SSD (in their fourth year from acquisition) might
be worthwhile paying the taxman in order to cash out before
private residential prices fall even further so long as they still
enjoy capital appreciation at todayrsquos prices Te attraction of
cashing out now without SSD or with minimal SSD is further
enhanced with an increasingly challenging leasing market For
this wave of potential home sellers cutting and running with
profits in hand might become common in the next 12 months
again providing affected en-bloc sellers with a wide variety
of reasonably new ready-to-move in choices in a variety of
locations all with likely discounts thrown in for good measure to
facilitate the sale
A unit holder in an ageing residential development that has
the potential to go down the collective sale route could and
should consider all these factors and if the mathematics make
financial sense it might very well be the practical decision to
dispose of an ageing functionally obsolete asset that requires
a burgeoning maintenance bill Sweetening a collective sale by
lowering the reserve price and hence drawing developers backinto the en-bloc arena might just be the most balanced and
sensible course as an exit strategy for home owners of aged
properties in such times
Commercial buildings get old toohellip
And why should this principle of using the collective sales
method as an exit strategy not also be applicable for
commercial properties After all commercial properties also
get old sometimes at a seemingly faster rate with modern shiny
new shopping malls and grade A office buildings taking shape
all over Singapore
recent peak in 3Q 2013 before the market cooling measures
had an impactful restraining influence on price With the
price index correcting by 32 between 3Q 2013 and 2Q
2014 residential prices are expected to moderate downwards
throughout the rest of 2014 with this trend continuing into
2015 and 2016 in light of the projected record number of new
home completions during these two years Some 21948 new
homes are expected to be completed in 2015 while another23876 units are expected to be completed in 2016 Sellers of
residential developments in the midst of the collective sales
process might well adopt a siege mentality and abandon any
notion of going the en-bloc route until times are better
Notwithstanding the impending supply of new private homes
increasing vacancy and easing rentals might be further
exacerbated by another inevitability In February 2010 the
Government imposed a sellerrsquos stamp duty (SSD) on sellers
who had purchased residential properties from 20 February
2010 and disposed of them within one year of acquisition Te
SSD time frame for disposal was later extended to within three
years of acquisition by August 2010 and again extended oncemore to four years by January 2011
Presently the SSD rates over four years are
Percentage of price or market value whicheveris higher
Holding period
However this very instinctive knee-jerk pull back just because
market prices are lower might not be the best course of action
Sure sellers have to market their projects at lower reserve
prices But with the general residential market weakening and
prices expected to fall further replacement units are likely to
become more affordable in the coming months If the need to
sell collectively at high prices was meant to mitigate the soaring
prices of replacement units in the last five years then by the
same token if sellers are willing to factor in a discount in their
price expectations in order to attract developers back into the
collective sales market so that they are able to dispose of their
older properties they might just be able to find more than
affordable replacement opportunities in a softening market
Depending on the mathematics of each individual householdrsquos
decisions a family might possibly gain as much profit (if not
more) by selling low and then buying an even more affordable
replacement unit in a downtrend market than one who is
attempting to collectively sell high in order to keep pace with
rising prices in a buoyant market
Could such a situation be mere fantasy and wishful thinking
Not likely After all with more new homes being completed
and the Government keeping stricter control on the size of the
foreign worker population and immigration private residential
property vacancy rates have started to creep up From 51 in
1Q 2013 private residential property vacancy rates have been
inching upwards to 71 by 2Q 2014 the first time the 70 level
has been breached since 1Q 2006 more than eight years ago As
vacancy rates increase private residential property rents have
gone the opposite direction with the URA Private Residential
Property Rental Index falling by 18 from 3Q 2013 to 2Q 2014
1 year
16
2 years
12
3 years
8
4 years
4
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 57
5 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Owners of offices retail stores medical suites or a combination
of these types of properties in either a strata-titled single-use
or mixed-use development might also wish to consider the en-
bloc route for similar reasons of practical disposal and renewal
Commercial users of strata-titled buildings sometimes are
reluctant to agree to a collective sale citing reasons of legacy
where their clients and customers will still extend their
patronage due to the familiarity of the location and the building
no matter how old or decrepit the property becomes However
locational goodwill is more pertinent for strata-titled property
owners of retail shops which are more location sensitive
than office and medical suite owners Businesses and clinics
relocate regularly with comparatively less impact compared
to retail shops as the brand or reputation of these businesses
and medical practitioners play a more important role than
an existing goodwill associated with a building or location
in supporting their business so long they do not relocate to
inaccessible remote areas
Terefore strata-titled property owners of commercialbuildings would need to also consider that a buildingrsquos lifespan
is finite and everything falls apart with time and neglect A
point will eventually be reached when the building services
mechanical electrical other utilities and finishes will one day
become obsolete with the resolute passing of time Despite any
ownerrsquos sentimental attachment to a place of business practical
functionality will one day overwhelm whatever locational
goodwill a building enjoys in the form of a loyal customer
base Such sentiment can also be dislodged by the often
capricious vagaries of fate as circumstances change and former
fundamentals are rendered moot with countrywide progress
and societal evolution Again the collective sales route offers a
practical way out
Te office and retail owners of the former Midlink Plaza
successfully disposed of the ageing commercial building
in 2011 with the new owner redeveloping the site into a
hotel Te strategic sale consolidation under a single owner
and redevelopment with a modern and updated use that is
complementary to the locality has benefited not only the sellers
but also the buyerdeveloper and the neighbourhood
In the same vein other strata-titled buildings especially in the
central areas can also harness the collective sale route Strata-
titled retail buildings have a tendency to be characterised by a
lack of tenant-mix control Individual owners will let or sell to
the highest paying lessee or buyerinvestor with little regard
as to how the incoming entityrsquos business is going to impact the
other tenants in the building Te increase in incompatible
trades sometimes side by side can potentially increase the
level of conflict among neighbours and create a disjointed
disharmony of unlikely trades within the shopping complex
Tis dissonance could eventually affect public perception of
the mall as a whole where deferential customer goodwill in the
past might turn to a grudging negative avoidance in the future
Sometimes the different and conflicting agendas can also prove
detrimental to the physical building itself especially in the use
of funds for building improvements Te range of problems
include prompt payment of service charges and maintenance
fees by individual shop owners the appropriate usage of funds
and the need for majority consensus Tis not only involves
funds that can be used for advertisements and promotional
campaigns to increase the profile of the entire shopping
complex but also for more basic building maintenance and
improvement issues Te collective sale avenue presents a
practical exit for owners of such ageing buildings in the mannerof Midlink Plaza and Serangoon Plaza Owners of Te Arcade at
Collyer Quay also made a positive attempt to blaze the en-bloc
trail even though it was unsuccessful
Individual owners to
exit an ageing buildingas well as find and fundalternative premises thatbetter suit the needs of
their businesses
The neighbourhood togenerate more tourist
activity
The buyer
developer tocreate economic
value throughredevelopment
The neighbourhoodto progressively
rejuvenate
Peace Centre amp Peace Mansion Another attempt on the way after two failed collectivesale attempts Out of place ageing building in an area undergoing renewal
Tis Midlink Plaza collective sale provided opportunities for
Te Arcade Failed collective sale at high asking price
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 67
6 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
For example in Orchard Road there is little land from the
Government for fresh development Terefore it will be the
ageing strata-titled malls that have the best potential for
redevelopment in order to contribute to the continued renewal
of Singaporersquos premier shopping belt Instead of waiting for
the proverbial ldquopot of goldrdquo that may or may not materialise
before the building reaches a stage of terminal disrepair strata-
titled shop owners could at least give some consideration tocollective sales as a way to move on and upgrade their business
environment
recurring income as well as other non-tangible benefits Tis
could include personal enjoyment of a property that does not
require the hassle of repeated repairs and peace of mind in a
newer upgraded environment
It is inconceivable that buyers (developers and landlords)
are going to pay anywhere close to outrageous sums for
development land unless it makes economic sense As real
estate development becomes more competitive and intense
with Singaporersquos urban progress developersrsquo appetite for risk
will moderate to become more conservative Sellers need to
attempt to understand and appreciate that developersbuyers
ndash both now and in the foreseeable future ndash require a higher risk
discount to mitigate the magnitude of property development
in modern Singapore Because if the price is fair and in a range
that the developer stands an even chance at a decent profit
activity will return to the collective sales market
And in the end while nobody really wins in a big dramatic
fashion everyone does benefit in a fashion Individuals
obtain proceeds that are generally better than if they were tosell individually and thereby are able to fund a replacement
property that still has a reasonable length of economic and
functional life Buyersdevelopers continue to be able to obtain
the raw material needed for their development business
Communities are routinely renewed as old buildings make way
for functional up-to-date modern ones And on an islandwide
basis even the privately owned areas of Singapore would be in
a continual state of revitalisation without any neighbourhood
becoming jaded with obsolete properties
Te collective sales route is still relevant and can still be
meaningful for owners and developers despite the changes in
the real estate market in the last 20 years What is most needfulin order to harness the usefulness of the collective sales method
with present circumstances is a paradigm shift of perception
and mindsets Sellers must accept within their collective (no
pun intended) mindsets that making a sudden windfall from
chance is a thing best filed in the annals of history Te way
forward for collective sales should be that of a practical method
of disposal for an ageing asset that is past its functional prime
While not everyone can win big allthe time everyone benefits fromrenewalhellip
Sometimes owners do not wish to sell for sentimental reasons
having formed an indelible bond with their property over a longperiod of time And while this attachment is understandable
the other general perceptions motives and mindsets about
the collective sales market will have to change as Singaporersquos
real estate market evolves and matures If the herd mentality
towards collective sales remains one where sellers expect to
strike it rich in one lucky twist of fate the current impasse
between buyers and sellers will continue with no one
benefiting Eventually this will result in a growing number of
buildings developments neighbourhoods and communities
not being able to renew themselves Te standoff will lead to
sellers on one side wanting their windfall and developers on the
other wanting land for their business
Te way ahead will be more practical considered and
reasonable albeit not nearly as exciting nor as intoxicating as it
was in the past
For sellers the collective sales market must come to represent
a method where they can exit their ageing real estate with
a reasonable sum and perhaps some profits on the side
(reasonable profits are no longer defined as earth shattering
bonanzas) Te premium can no longer be as dramatic as that
of the past as plot ratios have not increased in any substantial
fashion in more than 10 years Te collective disposal of an
obsolete and ageing building allows individual sellers to moveon and right size to another property that is more modern
physically functional and that is better yielding in terms of
anglin Shopping Centre Another attempt on the way after previous failed collectivesale exercises at high asking prices
1 According to Strata itles Boards a collective sale is a combined sale by the owners oftwo or more property units to a common purchaser Te most common collective sale isthe sale of all the units in a strata-titled or flatted development to a purchaser Te sale
proceeds are then divided amongst all the unit owners
2 Te ratio of the gross floor area of a development to its site area
3 Te ABSD was introduced by the Government on 8 December 2011 An ABSD ofbetween 3 and 10 is to be paid by certain groups of buyers of residential properties(including land) Te ABSD rates for the purchase of residential properties were laterraised by between five and seven percentage points in January 2013 Besides Singapor-eans buying their first residential property all other groups of residential property buyersare affected by this increase
4 Effective from 29 June 2013 individuals (including sole proprietorships and vehiclesset up by an individual solely to purchase property) will be subject to a otal DebtServicing Ratio (DSR) framework for all property loans granted by financial institu-tions In addition to the 60 cap on a borrowerrsquos total monthly debt payment certainrules relating to the application of the existing Loan-to-Value (LV) limits on housingloans granted by financial institutions were also refined In particular ldquoguarantorsrdquo arenow to be included as co-borrowers and one of the purchasers on the option to purchase
Additionally the income-weighted average (based on gross monthly income) age of allco-borrowers is to be adopted when applying the rules on loan tenure
5 Te pre-agreed minimum price sellers are prepared to sell their properties for
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 77
Copyright copy 2014 Colliers International
The information contained herein has been obtained from sources deemed reliable While every reasonable effort has been made to
ensure its accuracy we cannot guarantee it No responsibility is assumed for any inaccuracies Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report
About Colliers International
Colliers International is a global leader in commercial real estate services with over 15800professionals operating out of more than 485 offices in 63 countries A subsidiary of FirstServiceCorporation Colliers International delivers a full range of services to real estate users ownersand investors worldwide including global corporate solutions brokerage property and assetmanagement hotel investment sales and consulting valuation consulting and appraisal servicesmortgage banking and insightful research Te latest annual survey by the Lipsey Company rankedColliers International as the second-most recognized commercial real estate firm in the world
collierscom
485 offices in
63 countries on
6 continentsUnited States 146
Canada 44
Latin America 25
Asia 38
ANZ 148
EMEA 84
US$21billion inannual revenue
146billion square feetunder management
15800professionalsand staff
Contact
Chia Siew Chuin
Director
singaporeresearchcollierscom
Colliers International | Singapore
1 Raffles Place45-00 One Raffles Place
Singapore 046818
TEL +65 6223 2323
FAX +65 6222 4901
RCB No 198105965E
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 47
4 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Tis means that those who bought residences three to four
years ago are soon approaching a point where they can sell
their property without attracting SSD Some might even feel
that a 4 SSD (in their fourth year from acquisition) might
be worthwhile paying the taxman in order to cash out before
private residential prices fall even further so long as they still
enjoy capital appreciation at todayrsquos prices Te attraction of
cashing out now without SSD or with minimal SSD is further
enhanced with an increasingly challenging leasing market For
this wave of potential home sellers cutting and running with
profits in hand might become common in the next 12 months
again providing affected en-bloc sellers with a wide variety
of reasonably new ready-to-move in choices in a variety of
locations all with likely discounts thrown in for good measure to
facilitate the sale
A unit holder in an ageing residential development that has
the potential to go down the collective sale route could and
should consider all these factors and if the mathematics make
financial sense it might very well be the practical decision to
dispose of an ageing functionally obsolete asset that requires
a burgeoning maintenance bill Sweetening a collective sale by
lowering the reserve price and hence drawing developers backinto the en-bloc arena might just be the most balanced and
sensible course as an exit strategy for home owners of aged
properties in such times
Commercial buildings get old toohellip
And why should this principle of using the collective sales
method as an exit strategy not also be applicable for
commercial properties After all commercial properties also
get old sometimes at a seemingly faster rate with modern shiny
new shopping malls and grade A office buildings taking shape
all over Singapore
recent peak in 3Q 2013 before the market cooling measures
had an impactful restraining influence on price With the
price index correcting by 32 between 3Q 2013 and 2Q
2014 residential prices are expected to moderate downwards
throughout the rest of 2014 with this trend continuing into
2015 and 2016 in light of the projected record number of new
home completions during these two years Some 21948 new
homes are expected to be completed in 2015 while another23876 units are expected to be completed in 2016 Sellers of
residential developments in the midst of the collective sales
process might well adopt a siege mentality and abandon any
notion of going the en-bloc route until times are better
Notwithstanding the impending supply of new private homes
increasing vacancy and easing rentals might be further
exacerbated by another inevitability In February 2010 the
Government imposed a sellerrsquos stamp duty (SSD) on sellers
who had purchased residential properties from 20 February
2010 and disposed of them within one year of acquisition Te
SSD time frame for disposal was later extended to within three
years of acquisition by August 2010 and again extended oncemore to four years by January 2011
Presently the SSD rates over four years are
Percentage of price or market value whicheveris higher
Holding period
However this very instinctive knee-jerk pull back just because
market prices are lower might not be the best course of action
Sure sellers have to market their projects at lower reserve
prices But with the general residential market weakening and
prices expected to fall further replacement units are likely to
become more affordable in the coming months If the need to
sell collectively at high prices was meant to mitigate the soaring
prices of replacement units in the last five years then by the
same token if sellers are willing to factor in a discount in their
price expectations in order to attract developers back into the
collective sales market so that they are able to dispose of their
older properties they might just be able to find more than
affordable replacement opportunities in a softening market
Depending on the mathematics of each individual householdrsquos
decisions a family might possibly gain as much profit (if not
more) by selling low and then buying an even more affordable
replacement unit in a downtrend market than one who is
attempting to collectively sell high in order to keep pace with
rising prices in a buoyant market
Could such a situation be mere fantasy and wishful thinking
Not likely After all with more new homes being completed
and the Government keeping stricter control on the size of the
foreign worker population and immigration private residential
property vacancy rates have started to creep up From 51 in
1Q 2013 private residential property vacancy rates have been
inching upwards to 71 by 2Q 2014 the first time the 70 level
has been breached since 1Q 2006 more than eight years ago As
vacancy rates increase private residential property rents have
gone the opposite direction with the URA Private Residential
Property Rental Index falling by 18 from 3Q 2013 to 2Q 2014
1 year
16
2 years
12
3 years
8
4 years
4
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 57
5 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Owners of offices retail stores medical suites or a combination
of these types of properties in either a strata-titled single-use
or mixed-use development might also wish to consider the en-
bloc route for similar reasons of practical disposal and renewal
Commercial users of strata-titled buildings sometimes are
reluctant to agree to a collective sale citing reasons of legacy
where their clients and customers will still extend their
patronage due to the familiarity of the location and the building
no matter how old or decrepit the property becomes However
locational goodwill is more pertinent for strata-titled property
owners of retail shops which are more location sensitive
than office and medical suite owners Businesses and clinics
relocate regularly with comparatively less impact compared
to retail shops as the brand or reputation of these businesses
and medical practitioners play a more important role than
an existing goodwill associated with a building or location
in supporting their business so long they do not relocate to
inaccessible remote areas
Terefore strata-titled property owners of commercialbuildings would need to also consider that a buildingrsquos lifespan
is finite and everything falls apart with time and neglect A
point will eventually be reached when the building services
mechanical electrical other utilities and finishes will one day
become obsolete with the resolute passing of time Despite any
ownerrsquos sentimental attachment to a place of business practical
functionality will one day overwhelm whatever locational
goodwill a building enjoys in the form of a loyal customer
base Such sentiment can also be dislodged by the often
capricious vagaries of fate as circumstances change and former
fundamentals are rendered moot with countrywide progress
and societal evolution Again the collective sales route offers a
practical way out
Te office and retail owners of the former Midlink Plaza
successfully disposed of the ageing commercial building
in 2011 with the new owner redeveloping the site into a
hotel Te strategic sale consolidation under a single owner
and redevelopment with a modern and updated use that is
complementary to the locality has benefited not only the sellers
but also the buyerdeveloper and the neighbourhood
In the same vein other strata-titled buildings especially in the
central areas can also harness the collective sale route Strata-
titled retail buildings have a tendency to be characterised by a
lack of tenant-mix control Individual owners will let or sell to
the highest paying lessee or buyerinvestor with little regard
as to how the incoming entityrsquos business is going to impact the
other tenants in the building Te increase in incompatible
trades sometimes side by side can potentially increase the
level of conflict among neighbours and create a disjointed
disharmony of unlikely trades within the shopping complex
Tis dissonance could eventually affect public perception of
the mall as a whole where deferential customer goodwill in the
past might turn to a grudging negative avoidance in the future
Sometimes the different and conflicting agendas can also prove
detrimental to the physical building itself especially in the use
of funds for building improvements Te range of problems
include prompt payment of service charges and maintenance
fees by individual shop owners the appropriate usage of funds
and the need for majority consensus Tis not only involves
funds that can be used for advertisements and promotional
campaigns to increase the profile of the entire shopping
complex but also for more basic building maintenance and
improvement issues Te collective sale avenue presents a
practical exit for owners of such ageing buildings in the mannerof Midlink Plaza and Serangoon Plaza Owners of Te Arcade at
Collyer Quay also made a positive attempt to blaze the en-bloc
trail even though it was unsuccessful
Individual owners to
exit an ageing buildingas well as find and fundalternative premises thatbetter suit the needs of
their businesses
The neighbourhood togenerate more tourist
activity
The buyer
developer tocreate economic
value throughredevelopment
The neighbourhoodto progressively
rejuvenate
Peace Centre amp Peace Mansion Another attempt on the way after two failed collectivesale attempts Out of place ageing building in an area undergoing renewal
Tis Midlink Plaza collective sale provided opportunities for
Te Arcade Failed collective sale at high asking price
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 67
6 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
For example in Orchard Road there is little land from the
Government for fresh development Terefore it will be the
ageing strata-titled malls that have the best potential for
redevelopment in order to contribute to the continued renewal
of Singaporersquos premier shopping belt Instead of waiting for
the proverbial ldquopot of goldrdquo that may or may not materialise
before the building reaches a stage of terminal disrepair strata-
titled shop owners could at least give some consideration tocollective sales as a way to move on and upgrade their business
environment
recurring income as well as other non-tangible benefits Tis
could include personal enjoyment of a property that does not
require the hassle of repeated repairs and peace of mind in a
newer upgraded environment
It is inconceivable that buyers (developers and landlords)
are going to pay anywhere close to outrageous sums for
development land unless it makes economic sense As real
estate development becomes more competitive and intense
with Singaporersquos urban progress developersrsquo appetite for risk
will moderate to become more conservative Sellers need to
attempt to understand and appreciate that developersbuyers
ndash both now and in the foreseeable future ndash require a higher risk
discount to mitigate the magnitude of property development
in modern Singapore Because if the price is fair and in a range
that the developer stands an even chance at a decent profit
activity will return to the collective sales market
And in the end while nobody really wins in a big dramatic
fashion everyone does benefit in a fashion Individuals
obtain proceeds that are generally better than if they were tosell individually and thereby are able to fund a replacement
property that still has a reasonable length of economic and
functional life Buyersdevelopers continue to be able to obtain
the raw material needed for their development business
Communities are routinely renewed as old buildings make way
for functional up-to-date modern ones And on an islandwide
basis even the privately owned areas of Singapore would be in
a continual state of revitalisation without any neighbourhood
becoming jaded with obsolete properties
Te collective sales route is still relevant and can still be
meaningful for owners and developers despite the changes in
the real estate market in the last 20 years What is most needfulin order to harness the usefulness of the collective sales method
with present circumstances is a paradigm shift of perception
and mindsets Sellers must accept within their collective (no
pun intended) mindsets that making a sudden windfall from
chance is a thing best filed in the annals of history Te way
forward for collective sales should be that of a practical method
of disposal for an ageing asset that is past its functional prime
While not everyone can win big allthe time everyone benefits fromrenewalhellip
Sometimes owners do not wish to sell for sentimental reasons
having formed an indelible bond with their property over a longperiod of time And while this attachment is understandable
the other general perceptions motives and mindsets about
the collective sales market will have to change as Singaporersquos
real estate market evolves and matures If the herd mentality
towards collective sales remains one where sellers expect to
strike it rich in one lucky twist of fate the current impasse
between buyers and sellers will continue with no one
benefiting Eventually this will result in a growing number of
buildings developments neighbourhoods and communities
not being able to renew themselves Te standoff will lead to
sellers on one side wanting their windfall and developers on the
other wanting land for their business
Te way ahead will be more practical considered and
reasonable albeit not nearly as exciting nor as intoxicating as it
was in the past
For sellers the collective sales market must come to represent
a method where they can exit their ageing real estate with
a reasonable sum and perhaps some profits on the side
(reasonable profits are no longer defined as earth shattering
bonanzas) Te premium can no longer be as dramatic as that
of the past as plot ratios have not increased in any substantial
fashion in more than 10 years Te collective disposal of an
obsolete and ageing building allows individual sellers to moveon and right size to another property that is more modern
physically functional and that is better yielding in terms of
anglin Shopping Centre Another attempt on the way after previous failed collectivesale exercises at high asking prices
1 According to Strata itles Boards a collective sale is a combined sale by the owners oftwo or more property units to a common purchaser Te most common collective sale isthe sale of all the units in a strata-titled or flatted development to a purchaser Te sale
proceeds are then divided amongst all the unit owners
2 Te ratio of the gross floor area of a development to its site area
3 Te ABSD was introduced by the Government on 8 December 2011 An ABSD ofbetween 3 and 10 is to be paid by certain groups of buyers of residential properties(including land) Te ABSD rates for the purchase of residential properties were laterraised by between five and seven percentage points in January 2013 Besides Singapor-eans buying their first residential property all other groups of residential property buyersare affected by this increase
4 Effective from 29 June 2013 individuals (including sole proprietorships and vehiclesset up by an individual solely to purchase property) will be subject to a otal DebtServicing Ratio (DSR) framework for all property loans granted by financial institu-tions In addition to the 60 cap on a borrowerrsquos total monthly debt payment certainrules relating to the application of the existing Loan-to-Value (LV) limits on housingloans granted by financial institutions were also refined In particular ldquoguarantorsrdquo arenow to be included as co-borrowers and one of the purchasers on the option to purchase
Additionally the income-weighted average (based on gross monthly income) age of allco-borrowers is to be adopted when applying the rules on loan tenure
5 Te pre-agreed minimum price sellers are prepared to sell their properties for
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 77
Copyright copy 2014 Colliers International
The information contained herein has been obtained from sources deemed reliable While every reasonable effort has been made to
ensure its accuracy we cannot guarantee it No responsibility is assumed for any inaccuracies Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report
About Colliers International
Colliers International is a global leader in commercial real estate services with over 15800professionals operating out of more than 485 offices in 63 countries A subsidiary of FirstServiceCorporation Colliers International delivers a full range of services to real estate users ownersand investors worldwide including global corporate solutions brokerage property and assetmanagement hotel investment sales and consulting valuation consulting and appraisal servicesmortgage banking and insightful research Te latest annual survey by the Lipsey Company rankedColliers International as the second-most recognized commercial real estate firm in the world
collierscom
485 offices in
63 countries on
6 continentsUnited States 146
Canada 44
Latin America 25
Asia 38
ANZ 148
EMEA 84
US$21billion inannual revenue
146billion square feetunder management
15800professionalsand staff
Contact
Chia Siew Chuin
Director
singaporeresearchcollierscom
Colliers International | Singapore
1 Raffles Place45-00 One Raffles Place
Singapore 046818
TEL +65 6223 2323
FAX +65 6222 4901
RCB No 198105965E
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 57
5 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
Owners of offices retail stores medical suites or a combination
of these types of properties in either a strata-titled single-use
or mixed-use development might also wish to consider the en-
bloc route for similar reasons of practical disposal and renewal
Commercial users of strata-titled buildings sometimes are
reluctant to agree to a collective sale citing reasons of legacy
where their clients and customers will still extend their
patronage due to the familiarity of the location and the building
no matter how old or decrepit the property becomes However
locational goodwill is more pertinent for strata-titled property
owners of retail shops which are more location sensitive
than office and medical suite owners Businesses and clinics
relocate regularly with comparatively less impact compared
to retail shops as the brand or reputation of these businesses
and medical practitioners play a more important role than
an existing goodwill associated with a building or location
in supporting their business so long they do not relocate to
inaccessible remote areas
Terefore strata-titled property owners of commercialbuildings would need to also consider that a buildingrsquos lifespan
is finite and everything falls apart with time and neglect A
point will eventually be reached when the building services
mechanical electrical other utilities and finishes will one day
become obsolete with the resolute passing of time Despite any
ownerrsquos sentimental attachment to a place of business practical
functionality will one day overwhelm whatever locational
goodwill a building enjoys in the form of a loyal customer
base Such sentiment can also be dislodged by the often
capricious vagaries of fate as circumstances change and former
fundamentals are rendered moot with countrywide progress
and societal evolution Again the collective sales route offers a
practical way out
Te office and retail owners of the former Midlink Plaza
successfully disposed of the ageing commercial building
in 2011 with the new owner redeveloping the site into a
hotel Te strategic sale consolidation under a single owner
and redevelopment with a modern and updated use that is
complementary to the locality has benefited not only the sellers
but also the buyerdeveloper and the neighbourhood
In the same vein other strata-titled buildings especially in the
central areas can also harness the collective sale route Strata-
titled retail buildings have a tendency to be characterised by a
lack of tenant-mix control Individual owners will let or sell to
the highest paying lessee or buyerinvestor with little regard
as to how the incoming entityrsquos business is going to impact the
other tenants in the building Te increase in incompatible
trades sometimes side by side can potentially increase the
level of conflict among neighbours and create a disjointed
disharmony of unlikely trades within the shopping complex
Tis dissonance could eventually affect public perception of
the mall as a whole where deferential customer goodwill in the
past might turn to a grudging negative avoidance in the future
Sometimes the different and conflicting agendas can also prove
detrimental to the physical building itself especially in the use
of funds for building improvements Te range of problems
include prompt payment of service charges and maintenance
fees by individual shop owners the appropriate usage of funds
and the need for majority consensus Tis not only involves
funds that can be used for advertisements and promotional
campaigns to increase the profile of the entire shopping
complex but also for more basic building maintenance and
improvement issues Te collective sale avenue presents a
practical exit for owners of such ageing buildings in the mannerof Midlink Plaza and Serangoon Plaza Owners of Te Arcade at
Collyer Quay also made a positive attempt to blaze the en-bloc
trail even though it was unsuccessful
Individual owners to
exit an ageing buildingas well as find and fundalternative premises thatbetter suit the needs of
their businesses
The neighbourhood togenerate more tourist
activity
The buyer
developer tocreate economic
value throughredevelopment
The neighbourhoodto progressively
rejuvenate
Peace Centre amp Peace Mansion Another attempt on the way after two failed collectivesale attempts Out of place ageing building in an area undergoing renewal
Tis Midlink Plaza collective sale provided opportunities for
Te Arcade Failed collective sale at high asking price
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 67
6 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
For example in Orchard Road there is little land from the
Government for fresh development Terefore it will be the
ageing strata-titled malls that have the best potential for
redevelopment in order to contribute to the continued renewal
of Singaporersquos premier shopping belt Instead of waiting for
the proverbial ldquopot of goldrdquo that may or may not materialise
before the building reaches a stage of terminal disrepair strata-
titled shop owners could at least give some consideration tocollective sales as a way to move on and upgrade their business
environment
recurring income as well as other non-tangible benefits Tis
could include personal enjoyment of a property that does not
require the hassle of repeated repairs and peace of mind in a
newer upgraded environment
It is inconceivable that buyers (developers and landlords)
are going to pay anywhere close to outrageous sums for
development land unless it makes economic sense As real
estate development becomes more competitive and intense
with Singaporersquos urban progress developersrsquo appetite for risk
will moderate to become more conservative Sellers need to
attempt to understand and appreciate that developersbuyers
ndash both now and in the foreseeable future ndash require a higher risk
discount to mitigate the magnitude of property development
in modern Singapore Because if the price is fair and in a range
that the developer stands an even chance at a decent profit
activity will return to the collective sales market
And in the end while nobody really wins in a big dramatic
fashion everyone does benefit in a fashion Individuals
obtain proceeds that are generally better than if they were tosell individually and thereby are able to fund a replacement
property that still has a reasonable length of economic and
functional life Buyersdevelopers continue to be able to obtain
the raw material needed for their development business
Communities are routinely renewed as old buildings make way
for functional up-to-date modern ones And on an islandwide
basis even the privately owned areas of Singapore would be in
a continual state of revitalisation without any neighbourhood
becoming jaded with obsolete properties
Te collective sales route is still relevant and can still be
meaningful for owners and developers despite the changes in
the real estate market in the last 20 years What is most needfulin order to harness the usefulness of the collective sales method
with present circumstances is a paradigm shift of perception
and mindsets Sellers must accept within their collective (no
pun intended) mindsets that making a sudden windfall from
chance is a thing best filed in the annals of history Te way
forward for collective sales should be that of a practical method
of disposal for an ageing asset that is past its functional prime
While not everyone can win big allthe time everyone benefits fromrenewalhellip
Sometimes owners do not wish to sell for sentimental reasons
having formed an indelible bond with their property over a longperiod of time And while this attachment is understandable
the other general perceptions motives and mindsets about
the collective sales market will have to change as Singaporersquos
real estate market evolves and matures If the herd mentality
towards collective sales remains one where sellers expect to
strike it rich in one lucky twist of fate the current impasse
between buyers and sellers will continue with no one
benefiting Eventually this will result in a growing number of
buildings developments neighbourhoods and communities
not being able to renew themselves Te standoff will lead to
sellers on one side wanting their windfall and developers on the
other wanting land for their business
Te way ahead will be more practical considered and
reasonable albeit not nearly as exciting nor as intoxicating as it
was in the past
For sellers the collective sales market must come to represent
a method where they can exit their ageing real estate with
a reasonable sum and perhaps some profits on the side
(reasonable profits are no longer defined as earth shattering
bonanzas) Te premium can no longer be as dramatic as that
of the past as plot ratios have not increased in any substantial
fashion in more than 10 years Te collective disposal of an
obsolete and ageing building allows individual sellers to moveon and right size to another property that is more modern
physically functional and that is better yielding in terms of
anglin Shopping Centre Another attempt on the way after previous failed collectivesale exercises at high asking prices
1 According to Strata itles Boards a collective sale is a combined sale by the owners oftwo or more property units to a common purchaser Te most common collective sale isthe sale of all the units in a strata-titled or flatted development to a purchaser Te sale
proceeds are then divided amongst all the unit owners
2 Te ratio of the gross floor area of a development to its site area
3 Te ABSD was introduced by the Government on 8 December 2011 An ABSD ofbetween 3 and 10 is to be paid by certain groups of buyers of residential properties(including land) Te ABSD rates for the purchase of residential properties were laterraised by between five and seven percentage points in January 2013 Besides Singapor-eans buying their first residential property all other groups of residential property buyersare affected by this increase
4 Effective from 29 June 2013 individuals (including sole proprietorships and vehiclesset up by an individual solely to purchase property) will be subject to a otal DebtServicing Ratio (DSR) framework for all property loans granted by financial institu-tions In addition to the 60 cap on a borrowerrsquos total monthly debt payment certainrules relating to the application of the existing Loan-to-Value (LV) limits on housingloans granted by financial institutions were also refined In particular ldquoguarantorsrdquo arenow to be included as co-borrowers and one of the purchasers on the option to purchase
Additionally the income-weighted average (based on gross monthly income) age of allco-borrowers is to be adopted when applying the rules on loan tenure
5 Te pre-agreed minimum price sellers are prepared to sell their properties for
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 77
Copyright copy 2014 Colliers International
The information contained herein has been obtained from sources deemed reliable While every reasonable effort has been made to
ensure its accuracy we cannot guarantee it No responsibility is assumed for any inaccuracies Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report
About Colliers International
Colliers International is a global leader in commercial real estate services with over 15800professionals operating out of more than 485 offices in 63 countries A subsidiary of FirstServiceCorporation Colliers International delivers a full range of services to real estate users ownersand investors worldwide including global corporate solutions brokerage property and assetmanagement hotel investment sales and consulting valuation consulting and appraisal servicesmortgage banking and insightful research Te latest annual survey by the Lipsey Company rankedColliers International as the second-most recognized commercial real estate firm in the world
collierscom
485 offices in
63 countries on
6 continentsUnited States 146
Canada 44
Latin America 25
Asia 38
ANZ 148
EMEA 84
US$21billion inannual revenue
146billion square feetunder management
15800professionalsand staff
Contact
Chia Siew Chuin
Director
singaporeresearchcollierscom
Colliers International | Singapore
1 Raffles Place45-00 One Raffles Place
Singapore 046818
TEL +65 6223 2323
FAX +65 6222 4901
RCB No 198105965E
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 67
6 Te Collective Sales Market ndash Boom or Bust | August 2014 | Investment | Colliers International
For example in Orchard Road there is little land from the
Government for fresh development Terefore it will be the
ageing strata-titled malls that have the best potential for
redevelopment in order to contribute to the continued renewal
of Singaporersquos premier shopping belt Instead of waiting for
the proverbial ldquopot of goldrdquo that may or may not materialise
before the building reaches a stage of terminal disrepair strata-
titled shop owners could at least give some consideration tocollective sales as a way to move on and upgrade their business
environment
recurring income as well as other non-tangible benefits Tis
could include personal enjoyment of a property that does not
require the hassle of repeated repairs and peace of mind in a
newer upgraded environment
It is inconceivable that buyers (developers and landlords)
are going to pay anywhere close to outrageous sums for
development land unless it makes economic sense As real
estate development becomes more competitive and intense
with Singaporersquos urban progress developersrsquo appetite for risk
will moderate to become more conservative Sellers need to
attempt to understand and appreciate that developersbuyers
ndash both now and in the foreseeable future ndash require a higher risk
discount to mitigate the magnitude of property development
in modern Singapore Because if the price is fair and in a range
that the developer stands an even chance at a decent profit
activity will return to the collective sales market
And in the end while nobody really wins in a big dramatic
fashion everyone does benefit in a fashion Individuals
obtain proceeds that are generally better than if they were tosell individually and thereby are able to fund a replacement
property that still has a reasonable length of economic and
functional life Buyersdevelopers continue to be able to obtain
the raw material needed for their development business
Communities are routinely renewed as old buildings make way
for functional up-to-date modern ones And on an islandwide
basis even the privately owned areas of Singapore would be in
a continual state of revitalisation without any neighbourhood
becoming jaded with obsolete properties
Te collective sales route is still relevant and can still be
meaningful for owners and developers despite the changes in
the real estate market in the last 20 years What is most needfulin order to harness the usefulness of the collective sales method
with present circumstances is a paradigm shift of perception
and mindsets Sellers must accept within their collective (no
pun intended) mindsets that making a sudden windfall from
chance is a thing best filed in the annals of history Te way
forward for collective sales should be that of a practical method
of disposal for an ageing asset that is past its functional prime
While not everyone can win big allthe time everyone benefits fromrenewalhellip
Sometimes owners do not wish to sell for sentimental reasons
having formed an indelible bond with their property over a longperiod of time And while this attachment is understandable
the other general perceptions motives and mindsets about
the collective sales market will have to change as Singaporersquos
real estate market evolves and matures If the herd mentality
towards collective sales remains one where sellers expect to
strike it rich in one lucky twist of fate the current impasse
between buyers and sellers will continue with no one
benefiting Eventually this will result in a growing number of
buildings developments neighbourhoods and communities
not being able to renew themselves Te standoff will lead to
sellers on one side wanting their windfall and developers on the
other wanting land for their business
Te way ahead will be more practical considered and
reasonable albeit not nearly as exciting nor as intoxicating as it
was in the past
For sellers the collective sales market must come to represent
a method where they can exit their ageing real estate with
a reasonable sum and perhaps some profits on the side
(reasonable profits are no longer defined as earth shattering
bonanzas) Te premium can no longer be as dramatic as that
of the past as plot ratios have not increased in any substantial
fashion in more than 10 years Te collective disposal of an
obsolete and ageing building allows individual sellers to moveon and right size to another property that is more modern
physically functional and that is better yielding in terms of
anglin Shopping Centre Another attempt on the way after previous failed collectivesale exercises at high asking prices
1 According to Strata itles Boards a collective sale is a combined sale by the owners oftwo or more property units to a common purchaser Te most common collective sale isthe sale of all the units in a strata-titled or flatted development to a purchaser Te sale
proceeds are then divided amongst all the unit owners
2 Te ratio of the gross floor area of a development to its site area
3 Te ABSD was introduced by the Government on 8 December 2011 An ABSD ofbetween 3 and 10 is to be paid by certain groups of buyers of residential properties(including land) Te ABSD rates for the purchase of residential properties were laterraised by between five and seven percentage points in January 2013 Besides Singapor-eans buying their first residential property all other groups of residential property buyersare affected by this increase
4 Effective from 29 June 2013 individuals (including sole proprietorships and vehiclesset up by an individual solely to purchase property) will be subject to a otal DebtServicing Ratio (DSR) framework for all property loans granted by financial institu-tions In addition to the 60 cap on a borrowerrsquos total monthly debt payment certainrules relating to the application of the existing Loan-to-Value (LV) limits on housingloans granted by financial institutions were also refined In particular ldquoguarantorsrdquo arenow to be included as co-borrowers and one of the purchasers on the option to purchase
Additionally the income-weighted average (based on gross monthly income) age of allco-borrowers is to be adopted when applying the rules on loan tenure
5 Te pre-agreed minimum price sellers are prepared to sell their properties for
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 77
Copyright copy 2014 Colliers International
The information contained herein has been obtained from sources deemed reliable While every reasonable effort has been made to
ensure its accuracy we cannot guarantee it No responsibility is assumed for any inaccuracies Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report
About Colliers International
Colliers International is a global leader in commercial real estate services with over 15800professionals operating out of more than 485 offices in 63 countries A subsidiary of FirstServiceCorporation Colliers International delivers a full range of services to real estate users ownersand investors worldwide including global corporate solutions brokerage property and assetmanagement hotel investment sales and consulting valuation consulting and appraisal servicesmortgage banking and insightful research Te latest annual survey by the Lipsey Company rankedColliers International as the second-most recognized commercial real estate firm in the world
collierscom
485 offices in
63 countries on
6 continentsUnited States 146
Canada 44
Latin America 25
Asia 38
ANZ 148
EMEA 84
US$21billion inannual revenue
146billion square feetunder management
15800professionalsand staff
Contact
Chia Siew Chuin
Director
singaporeresearchcollierscom
Colliers International | Singapore
1 Raffles Place45-00 One Raffles Place
Singapore 046818
TEL +65 6223 2323
FAX +65 6222 4901
RCB No 198105965E
8112019 Colliers Report - Aug2014
httpslidepdfcomreaderfullcolliers-report-aug2014 77
Copyright copy 2014 Colliers International
The information contained herein has been obtained from sources deemed reliable While every reasonable effort has been made to
ensure its accuracy we cannot guarantee it No responsibility is assumed for any inaccuracies Readers are encouraged to consult
their professional advisors prior to acting on any of the material contained in this report
About Colliers International
Colliers International is a global leader in commercial real estate services with over 15800professionals operating out of more than 485 offices in 63 countries A subsidiary of FirstServiceCorporation Colliers International delivers a full range of services to real estate users ownersand investors worldwide including global corporate solutions brokerage property and assetmanagement hotel investment sales and consulting valuation consulting and appraisal servicesmortgage banking and insightful research Te latest annual survey by the Lipsey Company rankedColliers International as the second-most recognized commercial real estate firm in the world
collierscom
485 offices in
63 countries on
6 continentsUnited States 146
Canada 44
Latin America 25
Asia 38
ANZ 148
EMEA 84
US$21billion inannual revenue
146billion square feetunder management
15800professionalsand staff
Contact
Chia Siew Chuin
Director
singaporeresearchcollierscom
Colliers International | Singapore
1 Raffles Place45-00 One Raffles Place
Singapore 046818
TEL +65 6223 2323
FAX +65 6222 4901
RCB No 198105965E