En Bloc Or Resale Of Entire Condominium

[mynextgig]

In Singapore between 2006 and 2008 there was a phenomenon in the condominium market known as en-bloc. This was driven by the high demand from foreign investment for new condo units often funded by the developer on a deferred payment plan.

Condo developments built 10-20 years ago in Singapore tended to be large units, on large plots of land providing spacious common areas. At regular intervals, the Singapore government would reissue guidelines governing height restrictions and plot ratio (how many units allowed per plot size) and so developers would often lobby all the owners of an old condo development to sell at an inflated market price, knock the whole thing down and rebuild a new development with x times more units. I believe the rule was that 80% of the owners had to agree to sell to make a majority decision, the 20% had no choice.

Many owners made a lot of money from this in the beginning, selling their units at upto double the market price, but as the property market rose rapidly in 2007 the price offered to owners who agreed to en-bloc sell their units was often at or below market value 12 months later when the deal actually executed. This resulted in some high profile cases where groups of owners tried to back out of the deals they had originally struck or tried to renegotiate based on the market conditions at the time of the deal.

When the market started to flatten out in late 2008 and into 2009 en-bloc sales ground to a halt, many of the people that had agreed to buy the new developments created out of en-bloc were forced to pulled out because they used deferred payments and couldnt afford to complete. As a result the singapore property market stalled leaving 1000's of unsold units and many developments virtually shutting down operations.

The interesting dynamic from this en-bloc market was that older more spacious property in singapore became very sought after as investers searched for developments that stood a chance of being snapped up En-bloc. En-bloc deals are still happening in singapore now and so still older more spacious properties still carry a premium.

So does this market exist in Bangkok, definately older developments offer much more space than the newer ones both within the units and the common areas surrounding them. But does the intrinsic value of a condomunium reduce as the unit ages (out of fashion) or does the space and devolopment potential make it more attractive ?

[quiksilva]

My firm (Knight Frank) was one of pioneers in en-bloc sales in Singapore, and its true that the co-owners made some very substantial profits by doing this. However, I can't talk to the details as this is not an area that I have direct experience in.

I can say though that this has not happened yet in Thailand, and insofar as I am aware the Thai condominium law does not specifically allow for the majority vote to force the minority into selling their units, but I believe this is untested.

En-bloc sales worked in Singapore partly due to the shortage of development sites in prime areas during a period of very high demand.

Bangkok is not in the same situation. Although you may have noticed over the past few years that the projects in prime locations here have increasingly been selling leasehold tenures, as the freehold development sites in very prime locations have become scarce. This has resulted in the appreciation of centrally located land values, especially for parcels with main road frontage and within short walk from mass transit stations.

For this practice to commence it will also need to come at a time when demand can push market prices to the levels where it becomes economically viable to demolish and rebuild or refurb and rebuild.

To get the majority (or perhaps even all) of the co-owners to agree to sell the incentive will need to be high, i.e. at open market value or more, which means that all of acquisition costs (which would be much higher than normal) will have to be incorporated into the development costs and still provide sufficient margin to make it an attractive proposition.

This would mean that unit prices for the end consumer would be at a very high top end of the market a sector that for now is thin on demand.

If by some miracle you can get all co-owners onto the same page this would only work here if new condo units prices were very very high, and the spread between rising land values and the flat growth of older condominium units grew significantly.

Edited November 30, 2010 by quiksilva

[malcolminthemiddle]

I just spent the last 3 1/2 years working in Bulgaria. This en-bloc concept could work very well in parts of Eastern Europe where there are thousands of units in soviet style apartment blocks occupying prime locations in all major cities and where there is a new middle class developing.

[trogers]

The en-bloc concept will eventually be introduced to Bangkok. The question is only when.

There will be a few indicative signals prior to implementing legislation empowering en-bloc sales.Tthe present zoning rules affecting plot ratio and building heights will be changed from being based on car ownership to housing people based on the use of the mass transit. Instead of requiring a min. number of carpark lots, development will be restricted to a max. number, and such lots will be sold with title deeds and not part of common area. This will effectively increase plot ratio and sales area of new developments, and thus land value.

The oldest condo developments were completed in the early 80s. There were a few property booms that saw subsequent substantial number of condo developments - in 1989, 1996 and 2006. I would say at least four decades from early 80s will be needed to enable the first en-bloc sales by majority vote. Reason is that ownership of such properties would have been passed on to heirs, reducing resistance to such a sales due to emotional ties to the properties.

[PattayaParent]

If by some miracle you can get all co-owners onto the same page this would only work here if new condo units prices were very very high, and the spread between rising land values and the flat growth of older condominium units grew significantly.

But if the land values were rising wouldn't the value of the individual units in that building rise also?

[trogers]

If by some miracle you can get all co-owners onto the same page this would only work here if new condo units prices were very very high, and the spread between rising land values and the flat growth of older condominium units grew significantly.

But if the land values were rising wouldn't the value of the individual units in that building rise also?

Not in proportion. The building will depreciate due to age, outdated materials and services, and space layout. Example, note the difference in the design of windows and balconies of present condos with those of the 80s and 90s.

[mynextgig]

If by some miracle you can get all co-owners onto the same page this would only work here if new condo units prices were very very high, and the spread between rising land values and the flat growth of older condominium units grew significantly.

But if the land values were rising wouldn't the value of the individual units in that building rise also?

Not in proportion. The building will depreciate due to age, outdated materials and services, and space layout. Example, note the difference in the design of windows and balconies of present condos with those of the 80s and 90s.

So is it fair to say that the older the building the lower the price per sq ft ?

[trogers]

If by some miracle you can get all co-owners onto the same page this would only work here if new condo units prices were very very high, and the spread between rising land values and the flat growth of older condominium units grew significantly.

But if the land values were rising wouldn't the value of the individual units in that building rise also?

Not in proportion. The building will depreciate due to age, outdated materials and services, and space layout. Example, note the difference in the design of windows and balconies of present condos with those of the 80s and 90s.

So is it fair to say that the older the building the lower the price per sq ft ?

Here is an example. A almost 30-year old condo building on 2 rai of land inside Sukhumvit 24. Total sales area is about 15,000 sqm. Present selling price ranges from Bt50-60k/sqm, for lower to higher floors. Land value is probably about Bt650k/wah2. Recent completed projects inside this soi, eg. The Emporio are selling at Bt93-120k/sqm.

How much of the selling price is for a condo unit's share of land value, and how much for the actual unit area?

[mynextgig]

I think honestly this price differential between new and old is simply down to supply and demand. People tend to want the shiny new and somewhat cramped as opposed to grey, old but spacious. Is there any analysis available that shows cost per sqm across a range of ages ? I suspect value depreciates quite quickly in the 1st 2-3 years and then levels out into a more static range.

I dont own a condo in bangkok, when you get your title deeds does it allocate you a shareholding of the development ?

[trogers]

I suspect value depreciates quite quickly in the 1st 2-3 years and then levels out into a more static range.

I dont own a condo in bangkok, when you get your title deeds does it allocate you a shareholding of the development ?

Answer to the 2nd question is yes.

Whether recently completed condo units depreciate in value will depend on the point along the property cycle it was completed. If the point was on the upswing, values will rise instead of fall as seen in 2006-2007.

[mobil]

I think the Singaporean collective sales/en-bloc phenomenon is quite unlikely to occur here. <div><br><div>What happened in SG was essentially the result of the government's manipulation of the property market. It already owns over 80% of all land in SG because since the 60s, it has been using a rather draconian expropriation law (Land Acquisition Act) to take away sites from private owners at a fraction of market value and redeveloping them for public housing etc (btw this law was updated recently to allow sale at market prices). </div><div><br></div><div>En-bloc came about after the government increased plot ratios in key areas on the island in an attempt to increase built-up density (ie building heights) in line with their national Master Plan at that time. Many older condos were in prime locations and were built-up to maximize on older/lower plot ratios. By increasing the plot ratio, a commercial imbalance resulted and private developers were tempted by the increased GFA available for sale if older projects could be bought en-bloc and redeveloped. Initially, en-bloc required 100% consent of all owners, but after the government realised this was stalling redevelopment, they changed the rules to require only 80% consent on older projects and 90% on newer projects. This opened the gate to a flood of en-bloc sales as described elsewhere in this thread.</div><div><br></div><div>The most significant reason en-bloc is unlikely to occur here is that en-bloc with anything less than 100% consent, is a fundamental violation of the sanctity of property rights. In SG, even if a condo project was originally sold as 'free hold', the dissenting minority are now forced to sell their units against their will and in a fast-rising market such as SG, this has often meant that many of this minority have been forced to sell at a price that leaves them with insufficient funds to purchase a similar sized unit anywhere on the island, let alone in the same neighbourhood. Allowing a law like this to pass would be political suicide in most other countries.</div></div><div><br></div><div>Perhaps the main reason society accepts this in Singapore is that the government has done such a fantastic job with public housing and in allowing some 90% of nationals to own property. This means that by manipulating the market and increasing value where possible, they are keeping 90% of the people happy.</div>