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In land-scarce Singapore, collective or en bloc sales play a crucial role in urban renewal, complementing government land sales, by breathing new life into ageing private properties to keep pace with evolving urban needs. This process maximises land use, revitalises communities and keeps urban areas adaptable, ultimately fostering a dynamic and vibrant cityscape.

In recent years, despite a continued healthy pipeline of collective sale launches, there has been a noticeable shift in interest beyond residential sites.

Rise in demand for non-residential collective sale sites

Several factors could be driving developers’ growing interest in non-residential and mixed-use sites.

In the Orchard Road vicinity, tourism recovery has fuelled a series of successful commercial and hotel collective sale transactions – including Tanglin Shopping Centre, Ming Arcade, Delfi Orchard and Concorde Hotel and Shopping Mall. Other developments, such as United House and Singapore Shopping Centre, are currently at different stages of their respective collective sale process.

This wave of rejuvenation is further amplified by initiatives such as the refurbishment of The Cathay and the redevelopment of Faber House, drawing keen interest from developers and investors looking to capitalise on the prime shopping district.

Incentive schemes by the Urban Redevelopment Authority (URA), including the Strategic Development Incentive (SDI) and Central Business District Incentive (CBDI), have also spurred the redevelopment of older buildings, evidenced by collective sales such as Shenton House and Maxwell House. These initiatives add further appeal to such sites by creating higher value for both the strata owners and the buyer.

Interest in the industrial sector continues to grow, driven by limited availability of freehold industrial land, particularly those with strong locational and site attributes. The collective sale of Noel Building at 50 Playfair Road, for instance, saw competitive bidding and attracted close to 10 bids, transacting 17 per cent above its guide price in a reflection of robust investor enthusiasm.

Challenges faced by residential collective sales

To maintain the stability of the property market and keep housing affordable, the government has significantly boosted private and public housing supply. In 2024, the Government Land Sales (GLS) Programme will introduce 11,110 private residential units – the highest annual supply since 2013.

Compared to collective sale sites, GLS sites offer developers a more streamlined sale process.

Delivered as greenfield land, GLS sites do not require demolition. Neither do they have the uncertain wait-time for the Sale Order nor the need for rent-free periods post-legal completion. Understandably, when there are ample GLS sites available, they make an alluring alternative to private residential collective sale options.

There is also a widening gap between homeowners’ and developers’ price expectations. On one end, rising home prices have prompted collective sale owners to increase their asking price, in the hopes of securing enough for an ideal replacement property.

On the other, developers are facing pressures of their own, including rising financing and construction costs, potential fluctuations in Land Betterment Charge (LBC) and Lease Upgrading Premium (LUP) payable, as well as regulatory changes such as the harmonization of floor area definitions which effectively reduce sellable areas affecting the bottom line.

Moreover, developers face significant pressure to complete construction and sale of all units in the new residential development within five years of land acquisition, to avoid a steep Additional Buyer’s Stamp Duty (ABSD) payment of up to 35 per cent of land price.

Collective sales remain an important mechanism for land recycling in Singapore. We believe there may be opportunities for the authorities to make measured adjustments on several levels to further enhance the processes that support this practice.

Owners’ consensus level

Under the Land Titles (Strata) Act (1965), a collective sale can only proceed when at least 80 per cent of owners by share value and strata area agree to sell their units for developments that are 10 years or older, and 90 per cent for newer developments.

One potential avenue to facilitate more collective sale deals could be to explore adjustments to the consensus threshold. For instance, in addition to the current two-tier system of using a development’s age at 10 years as the yardstick, there could be another layer for even much older developments, where a lower-than-80 per cent consensus rate is applied.

Guidelines for distribution methods

The method of distributing sales proceeds is often a contentious issue among property owners, particularly for mixed-use developments where owners’ expectations on the acceptable range of en-bloc premiums and what constitutes a “fair and equitable” method of apportionment may differ.

Current guidelines recommend that the distribution method be based on strata area, share value, valuation, or a combination.

The premium variance test has recently gained traction as a helpful tool to assess the fairness of distribution methods. Premium variance refers to the range between the highest and lowest en-bloc premiums received by subsidiary proprietors in the development, based on the land sale proceeds and the selected apportionment method.

Given its applicability, premium variance as an objective measure could help guide a fairer allocation of sale proceeds. While it is impractical to dictate a one-size-fit-all method for the apportionment of sale proceeds, the provision of clearer guidelines on premium variance’s tolerance limit can promote higher transparency and consensus in collective sales.

ABSD for foreign owners

Foreign owners of a residential collective sale project face a hefty 60 per cent ABSD when buying a replacement residential unit. In developments with a high proportion of foreign ownership, especially those in central locations, the probability of reaching the required 80 per cent owners’ consensus can be significantly affected. Perhaps, a review of the ABSD structure, with considerations for foreign owners of a collective sale project buying their first (and only) replacement home could encourage greater participation and alignment in such projects.

ABSD for developers

Currently, developers face a 40 per cent ABSD, including a 35 per cent remittable portion, subject to conditions including completing and selling the project within five years of site acquisition. While recent adjustments have reduced the clawback threshold to 90 per cent of units sold, the effective ABSD rates remain substantial.

Additionally, the five-year timeline applies to all developments comprising five or more units. Projects with 2,000 dwelling units face the same five-year timeline as projects comprising 10 units. Therefore, for larger projects, extending the timeline beyond the standard five years could help ensure realistic and achievable completion goals. For example, projects with over 1,000 units could benefit from a seven-year timeline, aligning the schedule with the project scale.

Moreover, the five-year timeline for collective sale sites starts from the Sale Order date, although handover may take several months post-legal completion. Starting this countdown upon site handover, rather than the Sale Order, could help ease timing pressures for developers and streamline the process.

Singapore’s collective sales market undoubtedly continues to play a pivotal role in urban rejuvenation. Nonetheless, the various challenges – ranging from owner-developer consensus gaps to regulatory and financial hurdles – can impact its effectiveness.

Addressing these areas with measured adjustments could create a more conducive environment for collective sales and accelerate redevelopment efforts. Such refinements would not only support Singapore’s ongoing urban renewal, but also enhance value for homeowners and developers alike, ultimately sustaining a balanced and thriving property market.

Swee Shou Fern is head of Investment Advisory and Lee Zhanhui is director of Investment Advisory at Edmund Tie