ENBLOC MYTHS? ENBLOC FAILURE? UNDERSTANDING ENBLOC
En Bloc is often a topic which gets home owners excited with visions of a kind windfall and all the possibilities it brings. So what do home owners actually understand about the ins & outs of en bloc.
Summary: There are many En Bloc myths and misconceptions within the market. Certain criteria must be met for successful En Bloc and mismatch in expectations causes many En Bloc proposals to fail.
What is En Bloc?
Looking at the last few years, we saw 2017 & 2018 reflecting a high level of en bloc activity and it slowing in 2019. So is there an en bloc cycle? The short answer is yes, for various reasons. But before we go in depth into the reasons, let's understand what the idea of En Bloc is.
En Bloc happens when at least 80% in a condo is interested to sell their place and thus agrees on a whole to sell the land to an interested developer for redevelopment. A flurry of en bloc activity usually happens when developers feel there is demand for housing units and not enough supply in the market, that's when they will bid for land to redevelop.
Criteria for En Bloc to happen
There are some criteria that must be met before an en bloc proposal passes and is successful:
80% of homeowners are agreeable to the collective sale.
Selling price must meet developer's expectation
Other than being set at a price that is attractive for homeowners to sell, as compared to putting their property up for sale in the resale market, the price also has to make sense for developers. There is an assumption that en bloc represents a huge payout for homeowners, however this selling price can only happen if it meets the developers' expectations.
After all, the developers would need to calculate the cost of the collective purchase of land, cost of redevelopment and potential profits when they sell the new units.
Common myths and misconceptions
Considering how En Bloc is linked to profits, it's a common and popular topic for home buyers and home owners alike. With such interest, there will be many opinions and myths. Some misconceptions that Aaron has come across include:
"Freehold = En Bloc Potential and 99 years lease = No En Bloc Potential"
"Older property has a higher probability of En Bloc"
"Older property has higher value"
"A plot of land that is old and has a low psf value means it's going to En Bloc"
All these misconceptions cause house buyers to make misjudgments and potentially set themselves up for disappointment when they make purchases in anticipation of en bloc sales before realizing there're no quick profits to be made.
Conclusion and Advice
In 2021, we saw a significant level of En Bloc proposing activities, with Collective Sales Committees (CSCs) set up to garner the 80% signatures required. However, even when 80% signatures are achieved, there are proposals that fail to conclude. Why is this so?
This happens when CSCs do not understand elements of en bloc. For CSCs, it's recommended to get a strong dependable team that is able to advise on the appropriate price to set and the various considerations required. A strong agent team will greatly increase the success rate of any en bloc proposal.
For buyers & sellers in the market, it's important to find an agent with skill. A skilled and competent agent will be able to accurately judge how likely a property is to en bloc, how much the unit should be bought for and how much it can sell for in the event of an en bloc.
It's important to watch out for misconceptions in the en bloc and not to be blinded by the promise of quick and sizeable profits!
Watch as Aaron discusses the En Bloc fever in 2021, sharing candidly about what to look out for whenever you hear the term En Bloc!