What are your Chances of En Bloc?
This brings us to our third question – what are our chances of pushing through a successful en bloc?
First and foremost, the land must have redevelopment value.
Even for SERS and VERS, HDB is more likely to select precincts that are in closer proximity to key activity areas and infrastructure.
Likewise for profit-driven private developers.
An en bloc will only be successful if the developer is able to make profits from the redevelopment of the property.
In order for the redevelopment to be profitable, developers will first look at the costs they have to incur, including the purchase price required for the en bloc sale.
They will then consider the feasibility of redeveloping the property to maximise profits through various strategies.
These strategies may include optimising the gross floor area (GFA) and utilising the full plot ratio of the property.
If a developer deems an en bloc project unattractive in terms of profitability, it is only natural for them to look elsewhere instead.
The developer will always look to buy over the property at the lowest possible price.
On the other hand, owners will definitely seek a higher premium.
It takes two hands to clap. For a successful en bloc sale, both the developer and existing owners need to come to an agreement.
Simply put, the sales price must be low enough for developers to see profits, yet attractive enough to entice at least 80% (typically) of existing owners to cash out on the property.
How, then, can we identify properties that have redevelopment value and, at the same time, owners who would be open to an en bloc sale, before word of a potential en bloc goes public?
In order words, how can we identify properties with en bloc potential before the price is inflated due to speculation?
To begin with, we can check the plot ratio and GFA, and compare the existing market price of surrounding properties.
We then have to find out if the en bloc sale would be agreeable to the existing owners.
As a guide, we look at properties whereby more than 80% of the owners can make at least a 100% profit from the sale.
We can also gather sentiments from the ground.
Reasons for existing owners to seek an en bloc include increased upkeeping costs and decreased demand.
With age, a property may become increasingly run down and incur excessively high maintenance fees.
As the property deteriorates, the market value and demand will be affected as well, causing the owners to seek an exit plan.
One noteworthy mention is that Seller’s Stamp Duty (SSD) still applies to en bloc sales.
If you are hunting for properties with a high likelihood of a successful en bloc, do make sure to factor in the additional costs that will be incurred when calculating the returns on investment of the property.
Do not fall into the trap of blindly chasing properties with en bloc potential.
Please bear in mind that all investment, including property investment, carry risks, and results may differ based on each individual’s situation and needs.
Always make your investment decisions based on the numbers and substantiate it with statistics and information from reliable sources!
Find out from our expert on how to get started with property investment.