En Bloc Chuan Park En Bloc Saga: 4 Key Lessons To Learn For Future En Bloc Hopefuls
- Ryan J
- September 23, 2022
- 9 min read
The collective sale of Chuan Park may be the biggest en-bloc deal since Tulip Garden, back in 2019. Despite the final offer being under the reserve price, it seemed things were about to go smoothly; but now, a group of owners has filed objections with the Strata Titles Board (STB) over a failure to disclose material facts. Here are a few important lessons to note on this en-bloc event:
Why is Chuan Park a big deal?
Kingsford Group and MCC Singapore secured Chuan Park in July this year, with an offer price of $890 million. While this is still below the reserve price of $938 million, it would be the biggest collective sale since Tulip Garden ($906.9 million) back in January 2019.
This is the fourth attempt to secure a collective sale, with the last attempt being in 2018 (the reserve price at the time was $900 million.
It’s estimated that owners will receive gross proceeds of between $1.16 million to over $2.5 million, from units that range between 710 to just over 2,000 sq. ft. The 2 commercial units will fetch roughly $1.09 million for a 474 sq. ft. unit and $2 million for the 1,238 sq. ft. unit.
Chuan Park is a leasehold condo located at 240 Lorong Chuan (District 19), with 444 homes, plus two commercial units. Originally developed by Far East Organization in 1985, the condo has a 400,588.7 sq. ft. plot. At $890 million, plus an upgrading premium of $165 million, this works out to around $1,254 psf for the developers (there’s no Development Charge payable).
With a Gross Plot Ratio of 2.1, Chuan Park can be redeveloped to a GFA of 841.236.3 sq. ft.
A strong location close to Serangoon Central
Developers have a good reason to be confident in the location. Chuan Park is next to Lorong Chuan MRT station (Circle Line), which is just one stop from NEX Megamall and the attached Serangoon MRT station (Circle Line, North-East Line).
The location is about an eight-minute drive to Serangoon Garden, and there are four schools within the one-kilometre Home-School Distance (HSD): St. Gabriel’s Primary (eight minutes walk), CHIJ Our Lady of Good Counsel, Yangzheng Primary, and Zhonghua Secondary.
It’s easy to see why this was an attractive plot to developers if we ignore the context of current events like rising interest rates, volatile construction costs, etc.
Objections have been raised to the sale
As of September this year, a group of dissenters has filed an objection to the en-bloc sale with STB. One of the issues appears to be the supposed plot ratio.
Chuan Park owners were told that the site’s plot ratio was 2.1, as indicated under the URA Master Plan 2019. However, a letter from a previous en-bloc attempt, dated 2017, indicated a Development Charge (DC) for development above a GFA of 89,824 sq.m. (about 966,857.4 sq.ft.), which would be a GPR of about 2.4.
The difference between a ratio of 2.1 and 2.4 works out to about 11,671 sqm. (about 125,625 sq. ft.), which developers can sell.
The argument is that this amount would have factored into the buyers’ decision-making, over whether or not to accept the $890 million offer.
The second objection was over the Method Of Apportionment (MOA). Rather than go by strata area or share value, unit valuations were used to determine how much each owner would get. The objections pointed out that two units, of 1,959 and 1,981 sq. ft., would receive lower sale proceeds than the smaller 1,851 sq. ft. units.
The third objection was over the notices indicating progress in the Collective Sale Agreement (CSA). These have to be put up by law. The objection is that the notices didn’t indicate the reserve price the owners had agreed to. There was allegedly confusion over the reserve price ($938 million), a previously reduced offer ($860 million), and the final offer price ($890 million).
Key lessons to note
Here’s what we can learn from the Chuan Park en-bloc attempts:
- The size of the development matters
- Whether the collective sale is a “windfall” is subjective
- The process is still a bit one-sided
- We have no fair, universally accepted MOA
1. The size of the development matters
Despite the size of the deal, Chuan Park was not an easy en-bloc sale. To put it in perspective: the collective sale took four attempts, despite an obviously strong location. Even then, Chuan Park was unable to secure its reserve price; and the final price was below even its previous 2018 reserve price.
Under normal circumstances, we wouldn’t expect so much difficulty from a land plot next to an MRT station, and close to an area like NEX and Serangoon Garden. What made it so tough?
In a simple word: size. Chuan Park is big by today’s standards – when redeveloped, it might yield as many as 900 units; almost on par with a mega-development.
Given a five-year time limit to build and sell such a project, most developers will think twice. This is especially given that ABSD rates for developers were raised in December 2021, and that rapidly rising home loan rates can make buyers cool off.
In the end, consider which developers it was that took up Chuan Park’s deal: Kingsford Group and MCC Land.
Kingsford Group is behind the gigantic Normanton Park development, which managed to meet the deadline despite a no-sale license. Their past experience may have given them a sufficient dose of confidence to develop something this huge, at this time.
If it wasn’t for Kingsford being flushed with recent success, it’s not inconceivable to think that Chuan Park would have to wait around for a fifth attempt.
2. Whether the collective sale is a “windfall” is subjective
Consider the amounts the owners are getting: between $1.16 million to $2.5 million, for units between 710 sq. ft. to just over 2,000 sq. ft.
Just to give you an idea of the upside, the average that residents paid for a 710 sq. ft. unit at Chuan Park is $732 psf. As such if each owner gets $1.16 million or $1,634 psf. This represents more than double what the average owner would have paid for it in the first place.
Mind you, there was an owner that managed to acquire a 710 sq. ft. unit for just $280,000 or $394 psf in 2004. That represents a nearly 4x increase.
But the bigger question is, what can you really get for that same amount today? Let’s compare that to prices on the property market in 2022. According to Square Foot Research, a new launch condo is priced at around $2,518 psf island-wide, while a resale condo is priced at about $1,492 psf as of August 2022.
To replace a 710 sq. ft. unit, a typical quantum may be around $1.7 million (new launch), or $1.059 million (resale). For a pure homeowner, who is simply replacing their en-bloc home with a new one, this may not come across as a big windfall – especially after you consider the cost of renovations, furnishing, and possibly renting while you wait for the new home, etc.
Of course, if this is an investment property that you bought in the early years, this deal is a no-brainer given the leasehold nature of the development.
We also have to consider that it takes time for the en-bloc sale to go through, and for sale proceeds to arrive. In the meantime, private home prices may well rise even higher.
This isn’t to say the en-bloc is a terrible deal for everyone of course; it wouldn’t have gone through unless the majority of owners saw profit in it. But the point is that not everyone sees huge benefits from an en-bloc sale; and those who buy older condos should keep that in mind.
3. The process is still a bit one-sided
We’ve mentioned before that, in many cases, the pro-sale camp has an unfair edge. Some of them even buy into the property planning to incite an en-bloc, and are already organised and working together.
Regular owners, on the other hand, are often disparate parties who get caught off-guard.
Some of the objections being raised to STB reflect this. It’s understandable that the average homeowner may not grasp nuances regarding plot ratios, or the alleged discount that may mean for developers.
Even regular communications, such as the amount of the actual offer price, can be misunderstood.
While the government doesn’t like to interfere too much in en-bloc proceedings, perhaps it’s time to put some basic measures in place. We should have a neutral panel or counsel approved by authorities, that advises regular homeowners facing an en-bloc sale.
At present, it feels very much like some homeowners are thrown to the wolves, and emerge from the various meetings even more confused than when they went in.
4. We have no fair, universally accepted MOA
The objectors to the Chuan Park en-bloc seem to prefer using share value as the MOA. But this method isn’t really fair either.
Share value is determined by the size of your unit; it starts at five for the first 50 sqm., and rises by 1 for every 50 sqm. afterward. This method was set up by BCA to determine your maintenance fees, and not to determine en-bloc sale proceeds.
Consider that a 150 sqm unit is triple the size of a 50 sqm unit; but the share value difference is only 7:5. This is a disadvantage to owners of larger units.
Furthermore, this MOA ignores factors like how well maintained your unit is, or how much your renovations are worth.
But as you can see with Chuan Park, going by individual valuations also makes some owners unhappy. There doesn’t seem to be any universally accepted MOA, and this will continue to be a sticking point in every en-bloc sale.
This is yet another reason you shouldn’t count on an en-bloc as an exit strategy: the MOA adds yet another unknown on top of the existing variables, and the end result is too tough to predict.
For more on the Singapore property market, follow us on Stacked. We’ll also provide you with in-depth reviews of new and resale properties alike.