By Getty Goh (guest contributor)
Many Singaporeans have long had a love affair with en-bloc property deals. Ever since the red hot en-bloc market in the mid-2000s, when we used to read about how some lucky property owners became millionaires overnight from en-bloc deals, some Singaporeans have been actively seeking out the next big en-bloc deal.
However, the Singapore property market has evolved significantly in the last few years. For those who are still on the lookout for the next big en-bloc deal, the question they should ask themselves is whether en-bloc deals are as profitable as they used to be?
Analyzing the En-bloc Transaction Volume
Some of you may recall that during 2006 and 2007, there were frequent media reports on en-bloc news transactions. On hindsight, the en-bloc market then was indeed very active. The high level of en-bloc activity could be seen from the high volume as well as amount transacted in 2006 and 2007 (see Figure 1).
Figure 1: Transacted Volume and Amount for En-bloc (1995- 2011)
Source: URA Realis and Ascendant Assets Pte Ltd
Due to the global financial crisis, the years that followed (i.e. 2008 and 2009) saw low en-bloc activity. The level of interest in en-bloc deals subsequently picked up again in 2010 and 2011. However, at a total transaction amount of around $2billion, the current market is a far cry from the peak of 2006 and 2007 (more than $8billion and $12billion respectively). More importantly, we can conclude that the en-bloc property market is not vibrant as it used to be and investors who are looking to find the next en-bloc deal would have to be more selective and not jump at any old development.
Location, Location Location! – Where is the hottest en-bloc location?
It is not surprising that en-bloc deals are not uniformly distributed across Singapore and some districts have more en-bloc transactions than others. However, what would be of interest to investors is where these hot en-bloc locations are.
Looking at en-bloc transactions since 2009, my research team at Ascendant Assets found that the top 5 districts that had the highest number of en-bloc transactions are as follows.
Figure 2: Top 5 Districts that saw the highest number of en-bloc transactions (Jan 2009 to March 2012)
Source: URA Realis and Ascendant Assets Pte Ltd
Why are there more en-bloc deals in these 5 districts? To answer this question, we turn to the past Government Land Sales (GLS) transactions for the answer.
Land is a very important component in any property transaction. To acquire land for a project, property developers have two main sources to turn to. The first source is to buy public land from the government via GLS program. The second source is to purchase private land from existing owners via the en-bloc process. Hence, developers who wish to profit from housing demand in locations that have little (or no) public land for sale would have to turn to en-bloc deals.
Figure 3: GLS around Singapore from 2000-2011
Source: URA and Ascendant Assets Pte Ltd
By visually analyzing the GLS map in Figure 3, it is observed that the top 5 en-bloc locations (highlighted in red) are districts that did not have much government land for sale. This seems to support our hypothesis that locations that have been en-bloc hotspots in 2009 to 2011 are up-and-coming areas that have limited public land for sale.
Age of the En-bloc Development
Apart from location, when it comes to en-bloc deals, we would intuitively think that an older development would generally stand a higher chance to be an en-bloc candidate. While that may be the case, have you wondered what is the average age of successful en-bloc deals?
From my company’s research, we found that the average age of successful en-bloc transactions is 22 years (from when the development was deemed to be completed to when it was sold collectively). Hence investors who wish to find suitable en-bloc candidates should potentially go for developments that are at least 20 years old.
Nonetheless, it does not mean that young developments do not stand a chance of being an en-bloc candidate. Based on caveats lodged with URA, the “youngest” development that was sold collectively was a 4-year old project called the Olivio (located in the Balestier). It was bought by the Sim Lian Group in 2006. However, older developments generally tend to be more viable en-bloc candidates.
Putting all these facts together, we can conclude that the en-bloc market is not as active as it once was. While going for en-bloc deals is not something that I would do right now, investors who are still keen to look at this market segment would have to be more selective in their purchase. Those of you who would like to have the full list of districts and their distribution of en-bloc transactions (as shown in Figure 2), do feel free to drop me an email at Research@AscendantAssets.com. I would be happy to share our findings. Who knows, using some of the information that we have provided here, perhaps you would be able to find the next en-bloc mega deal.
By guest contributor Getty Goh, Director of Ascendant Assets, a real estate research and investment consultancy firm.