06 August 2008

IN-BETWEEN: Why en blocs are NOT right for Majority Consenters nor Minority Dissenters?

Having focussed on the SOURCE (ie, the en bloc legislation) in the 6 Aug 2008 posting below, let's now turn the spotlight on the IN-BETWEEN. Minority sues Majority, and vice-versa. Developer-buyer sues some Majority or threatens to sue all Majority. Majority sues Developer-buyer. Sue Strata Titles Boards (STB)? Sue Singapore Land Authority? Who’s next? Sue Sale Committee? Sue marketing agent, lawyer?

Why? When Singapore is not even litigious as a society? In fact, we are reputed to be a law-abiding people! By and large, we are even a sticky bunch when it comes to contracts - nothing more, nothing less, by-the-book type. So why???

En bloc “windfall” is
300% “shortfall”!

In a recent Straits Times Forum discussion thread, someone succinctly encapsulated it as:
They promise you Utopia during en bloc but you end up in Ethiopia after en bloc!
Yeeha, this says it all, man!

Hindsight is a precise science.

In Straits Times (16 Jun 2007) poll of 40 owners, half expected to downgrade after their estates’ en bloc in locations ranging Sophia Court, Nathanville, The Orange Grove to Minton Rise, Waterfront View because they “have to pay around twice the sum they got from their en bloc sale” for a similar size apartment.

D9: Hilton Towers redeveloped into The Lumos. Business Times (5 Jul 2007) said Developer could “recoup its entire initial investment in its exclusive The Lumos condo by selling just two pent­houses and a few mid-sized units”. En bloc owner got $1088psf but he’d pay $3000psf for comparable-size unit on 2nd floor – 176% difference in the 7 months between receipt of en bloc proceeds and earliest booking in redevelopment. By paying off owners of 72,800 sq ft aggre­gate strata area, land-value was unlocked to create 125,735 sq ft – 73% inventory windfall for Developer on top of 176% price hike!

D16: Waterfront View carved into three plots; one-third already yields 60% of en bloc strata area in new Waterfront Waves. New Paper (4 Feb 2008) recounted plight of Waterfront View en bloc owners who wanted to move back to redevelopment. One is hoping for market downturn to buy 2-bedder at half the size of his old 1,600 sq ft unit for almost $700k (en bloc price $660k). Another bit the bullet with 4-bedder of 1,600 sq ft at $1.27mn (double $630k en bloc sum).

A distinct pattern evolves in the en bloc aftermath as the mantra repeats itself ad nauseum, whether downtown or in the suburbia: From developer-buyer’s perspective:
1-4-2 (buy one; get one free);1-4-4 effectively (if both sold at double price - as is likely because en blocs bubble only when market heats up)
From en bloc owner’s perspective:1-4-½ divided by 2 (twice the price; half the size; quarter the value - en bloc land is shared with double the number of owners after redevelopment)Bear in mind that construction cost is 20-25% of total cost of new development (Straits Times, 24 Mar 2008). However, Q4 construction costs have risen another 20-25% in 2007 compared with 2006 for mid-market condos targetted at HDB upgraders (Business Times, 24 Jul 2008) which in turn translates into 55% or more profit margin shrinkage for this band of developers whereas the profit margin impact is much less at 25% or so for prime market developers (Business Times, 7 Aug 2008). This ill-timed spike is not only due to the global rise in raw material costs and fall-out from regional spats on resource exports but also partly due to government policies being behind the curve. When the corporates are adversely affected, the Gahmen would respond with alacrity - that's great! It was impressive that the Gahmen reacted 3 times within 8 months (Nov 2007, Feb 2008 and Jul 2008) by deferring public sector projects aggregating S$4.7bn to 2010 to ease Developers' construction woes. In sharp contrast, it took the Gahmen nearly a decade before they responded to citizens' en bloc woes by reviewing the Land Titles (Strata) Act (the legislative hole in respect of en bloc vote for mixed residential-cum-commercial estates was extant from Day 1 and it was this hole that kick-started the amendment review) - that's dismal. How I wish the Gahmen would respond with half that alacrity to citizens' woes? Sigh ... but never mind, each of us will have a chance to tell the Gahmen what we really think at the next General Election!

Anyway, back to the point ... with Developers reaping as much as "1-4-4" whilst Owners get raped with "1-4-½ divided by 2", the obscenity is multiplied by the en bloc exponential increase in 2006/07:

Year - Sites - Value (bn)
2007 - 109 - $13.3
2006 - 79 - $ 8.2
1999 - 39 - $ 2.5 (majority consent is legislated)1996 - 36 - $ 1.7 (total consent)
The sense of being aggrieved persists beyond one generation because property ownership is emotive and punches twice below the belt, being part of:

(a) retirement planning (real estate is a store of value/inflationary hedge);

(b) estate planning now deprived from being bequeathed.

Despite being aggrieved, most would concede that Government is “being right” in asserting the greater interest of Urban Renewal.

Is “Being Right” = “Doing Right”? Let’s dissect the “Dào Lǐ“ ( 道 理 ) ("rationale") as applied to the sense and sensibilities of en blocs. "Dào Lǐ“ is more than “rationale”! Its etymology traces back to "Dào" (denoting "the Way" under Daoism) and "Lǐ" (denoting "Logic”).

Urban Renewal (National Cause) through En Bloc/SERS
= Being right

Result of En Bloc: (Personal Sacrifice) as Squatter, Refugee, Downgrader, Downsizer
= NOT doing right

Although this distinction of "being right" versus "doing or NOT doing right" was made in my mega 4-part Nov 2007 blog posting ("After the 2007 law, what's next???"), this point merits re-emphasis. After heeding government exhortations to be prudent and not over-commit in real estate investment, an Owner-Occupier with one residential property would face a daunting prospect. In the en bloc aftermath of “twice the price; half the size; quarter the value”, you simply can’t afford a new replacement unit in same vicinity.

As a reputable property marketing agency was recently quoted in the press as saying:
Property is all about LOCATION and TIMING.

Location is turf issue because it embeds your sense of time/place and defines your community. Location also determines investment value at a first cut.

Timing inherently means that the en bloc process must be a quickie one-nite stand (decide go/no-go and if you go, then you need to get in and out quickly so as to collect the money and buy a replacement unit - whether as a roof over your head or as an asset replacement). It is madness to drag things out over a 24-42 month courtship for divorce (up to 24 months is mandated by law) which only guarantees Displacement, NOT Replacement, in a moving market!

Hence, the present en bloc business model is so, so, so out-of-whack! The current long gestation period serves the interests of everybody BUT the Owners!

Let's draw a correlation between Sovereign Wealth Funds buying into MNCs and Developers buying into en bloc land.

- It only takes about a week for Temasek Holdings and the Government of Singapore Investment Corporation to decide and plonk billions of dollars for stakes in Barclays, Citicorp, Merrill Lynch, UBS. Why? Because as potential buyers, they did their homework in advance and they kept their finger on the pulse all the time. [Whether that purchase is well-timed or not, it is another matter because the first decision hurdle is whether to buy or not to buy.]

- So it is beyond comprehension why our legislation provides for a SECOND period of up to 12 months for the Sale Committee essentially to find an en bloc Developer-buyer and finalise the deal!!! The law already provides for a FIRST period of up to 12 months for the Sale Committee to collect the requisite 80% (90%) signatures for the Collective Sale Agreement (CSA) and apply to STB for a collective sale order. Surely, as market players, potential Developer-buyers would have gotten wind of the CSA signature collection during the first time-period of up to 12 months? All pertinent facts about the present estate and the redevelopment potential are available in public records and/or ascertainable for Developer-buyers to do their homework in advance.

Maybe the en bloc window of "12+12 = 24 months" was NOT the intention of Parliament when this piece of legislation was first enacted in 1999? Maybe Order 2004 is NOT in order (elaboration is set out in my 6 Aug 2008 blog posting entitled The SOURCE and Themis)? Maybe, maybe, maybe ... as in Hans Christian Andersen's fable, we need a child to say "but he hasn't got anything on" just as the Emperor regally struts by amidst our en bloc blitz and glitz!
With legal suits flying all over town ..., with seemingly law-abiding citizens resorting to hooliganism, vandalism and criminal acts ..., “being right” is turning out all gloriously wrong!

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