When is Enbloc bad news?
Enbloc is back in favour and some property buying sentiment is back.
Receiving an Enbloc offer for your property is akin to striking lottery. So who wouldn’t be pleased with it? Not everyone actually, not all are greedy.
Some may have an emotional attachment to their home or location as their family or relatives may have stayed in this development or in this vicinity, some may move due to Primary school 1km requirement, still many others dislike the hassle of moving or face difficulties in finding a similar large size home. Once Enbloc comes, familiar sights of spacious grounds, old trees with dense foliage will be gone, in comes the dreaded concrete boxes and pigeon holes and super tiny houses with super high p.s.f. prices.
How did a French word En Bloc, meaning “in the block” or “in it’s entirety” become such a dirty word? Why not “bao gao liao” in Hokkien? Maybe French more sexy. That is a topic for another day.
Despite your reluctance to sell, you were forced to sell because the majority were persuaded to sell, as long as more than 80% vote to sell, you have no choice but to suck thumb.
Well En bloc, it is not bad striking lottery, right?
What if I tell you could end up losing money? But this could very well happen.
Hypothetical situation where you can lose money on your Condominium En bloc sale
1. You bought your property recently and it was En bloc against your will as the sales committee managed to obtain more than 80% of owners agreeing to sell. You got slapped with Seller Stamp Duty SSD as your sale is within the SSD period.
2. You spent $100,000 renovating your dream home and you have to move house and your renovation does down the drain.
3. The developer that bought over or en bloc your property is completing the deal, 1 to 2 years down the road. You will not receive all the monies until 1 to , upon completion.
4. There is a chance that the deal may not complete, as there are many conditions to the deal. In an aborted deal, there will be a whole host of costs, such as Legal and consulting and other incidental costs that will have to be paid by the home owners.
5. You cannot afford to buy a replacement house while your funds are not in yet as the en bloc deal is not yet completed.
Bank’s bridging loan (for Mortgage loan) is generally only for traditional Selling and buying property with a funding gap of not more than 6 months, for En bloc, most banks may not want to get involved.
6. During this time while you wait to move house, there is a potential that the property prices have started to move up. You will have sold your property for what you thought was a good price only to realize that any potential gains is gone as you end up buying a more expensive property in the open market.
Illustration: Here is how En bloc can lose you Money
• Bought a property (Completion) for $1m in 01 June 2017 to stay near parents.
• Renovation spent $100,000 01 July 2017
• The Enbloc deal for $1,300,000 is signed on 01 Sep 2017.
• Seller Stamp Duty (SSD) is payable around 15 Sep 2017. Seller stamp Duty (SSD) of 12% = $156,000.
• Date of actual completion of the deal is estimated to be .
• Sales proceeds of balance of $1,300,000 for the property to be received around .
While you wait for your Enbloc completion, another property that you were planning to buy at $1,000,000 rose to $1,100,000 in . This means you have to pay an extra $100,000 due to this wait.
En bloc Sale Price = $1,300,000
Bought Price = $1,000,000
Gross Profit = $ 300,000
Seller Stamp Duty @ 12% = $ 156,000
Renovation Cost = $ 100,000
Waiting cost to buy new Condo = $ 100,000
Other moving costs, time and effort = $ 20,000
Penalty on Home Loan 1.5% = $ 15,000
Loss interest on SSD @ 4% = $ 6,240
Total Costs = $ 397,240
LOSS = $ 97,240
As a result of En bloc your potential joy turned into nightmare. Instead of making $300,000 profit, you ended up losing $97,240 and ended up having to move house again. The lifestyle disruption is huge.
This could also kill your 1km Phase 1 primary school eligibility
What if you moved due to your child’s primary school entry requirement of 1km, this En Bloc would have killed your child’s chances of being within 1km from the school to be placed within the phase 1 registration.
You will have to fund your seller stamp duty (SSD) cost, as SSD is based on the En Bloc exercise date and not the completion date. And interest foregone is at the home owner’s cost.
This is considering if you eventually get the En bloc deal through. A famous case is where Horizon Tower where the En bloc is not approved. This not only cost the management money and hardship and any potential lawsuits will have to be funded by the residents.
Of course, if the deal does not go through, it is good news for those who rejected the sale.
Recently a blogger by the nickname of Nickleman has also faced the same above issues. Although he did not lose money, it was nonetheless a very unpleasant experience for him to be subject to Seller Stamp Duty and of not fault of his.
With so many developers (including foreign ones) in the Singapore market place, they are sure to bid for more land to build. This means more expensive land prices, more expensive En Bloc, not only that, if you want to raise your plot ratio, you have to pay the government Development Charge (DC) which is essentially a License to have more Built-up space.
You can think of Development charge (DC) is a bit like COE.
• For Cars, it is COE (~$50,000) + Car Price ($20,000) + Car Tax ($30,000) + Dealer Margin ($10,000) = $120,000
• For Condominiums, it is DC (~$700 psf) + Building Cost (~$250 psf) + Misc (~$100 p.s.f.) + Developer Margin (~$100 to $200 p.s.f.) or around $1200 to $1300. So this is only for those extra p.s.f. you want to build in the sky.
It is simply a “license” granted to you to build it’s like creating money from thin air. I let you build more square feet in the air, but you pay me development charge (DC). This works out to $715 dollars per square feet for Sector 108 (Leedon Heights area) as at 21 Sep 2017.
Since incomes are hardly rising, condominiums and apartments will have to get smaller.
Surely we can blame the developers or we can call it free-market economy?
Surely we should never blame the land policy. Our land policies are never wrong, because it is an asset enhancement policy whereby your house gets more and more expensive. Yes, but sell already stay where?