March 11, 2007

Proposed changes could present hurdles for en bloc sales

New rules may slow collective sale process but not dampen the appetite for such deals

By Joyce Teo, Property Correspondent


THE process for en bloc sales, particularly for large or mixed developments, can be rather complex.

And if recent proposed changes come into effect, the process could become even more of a headache, market watchers say. About a week ago, the Government proposed changes in three areas.

One was for a collective sale committee to be formed only at an extraordinary general meeting (EGM) arranged by the estate's management corporation (MC). Now, such a committee can be formed ad hoc.

The Government said the change is designed to achieve better accountability for all owners, not just the sellers.

While the change might seem small, it could affect the duration or success of an estate's sale.

Sale committees are oftentimes borne out of a casual chat among neighbours. They might then do a preliminary survey or have a property consultant assess the project's value to see how much each owner could get.

Without a rough idea of how much the estate is worth, the residents might not vote for the formation of a committee as they might not want to sell.

There is no data on the casual forming of committees, but lawyer S.K. Phang said: 'In my experience, many if not most of the pro tem committees are formed otherwise than in a formal EGM.'

The change would also make it more difficult for a second group of owners to form a committee to propose a hybrid collective sale, where for example some owners may cash out while the rest opt for an exchange unit in a new project.

Another issue: In some estates, the MC could oppose selling even if many owners support the sale.

The MC of one estate tried to sabotage the sale through tactics such as refusing to let the sellers use the notice board to explain the sale, said a market source.

In another case, a resident said a preliminary survey at his prime condo had supported a collective sale proposal, but the MC had quashed the survey result at a badly organised annual general meeting. He said: 'Owners should be free to get the support of other owners until they hit the trigger point of an 80 per cent or 90 per cent consensus before formalising it through the EGM.'

In such cases, under the proposed changes, sellers would first have to get the signatures of owners representing 20 per cent by share value, said Dr Phang.

Otherwise, they would need the consent of 25 per cent of the total number of owners in order to call an EGM, he said. But there is no formal way to do this if the condo has no MC, he noted.

Another proposed change is the addition of a second requirement for getting majority consent. For a sale to proceed, an estate would also need the approval of owners of at least 80 per cent of the number of units, or 90 per cent if it is less than 10 years old.

Now, a sale can proceed if there is approval from owners controlling at least 80 per cent of share values for estates that are 10 years or older, or 90 per cent for those less than 10 years old.

This extra rule is meant to address a problem arising in mixed developments or buildings that include homes and business units.

In this type of development, a shop may be regarded as having five times the share value of a home of the same size - thus giving the owner five times the voting rights under current rules. Higher share values correspond with higher maintenance charges.

Late last year, letters to The Straits Times' Forum section complained that using share value to determine voting rights is unfair in a mixed development.

One writer said the apartments in his building make up 40 per cent of the floor area but just 5 per cent of the share values.

'Even if all the residents vote against the sale, they would be powerless to stop their homes from being sold,' he wrote.

This could work the other way too. For example, in Golden Mile Complex, there is talk that some shops, possibly with combined share values of just over 20 per cent, are opposing the sale.

So far, collective sales of mixed developments have been few and far between, but more may come with increased interest spurred by the market upswing.

A third change would give the Strata Titles Board power to raise the sale proceeds for minority owners if, say, they had spent a lot to renovate their homes just before they learnt of a sale.

While there is a cap on the amount, the exceptional cases in which these sums can be awarded must be spelt out clearly to avoid objectors making frivolous claims, said Dr Phang.

There would be issues such as how to value various kinds of renovation works said to have been carried out, he noted.

Also, the Strata Titles Board would issue guidelines on the allowable expenditures that would be taken into account in the evaluation of claims for financial loss.

The proposed changes would not dampen collective sale fervour, said a market veteran, though they could slow sales.

The Government has said the public consultation process will not go beyond May or June. It will get feedback and suggestions, which it will consider before finalising the changes. The proposed changes could be in by year-end.

joyceteo@sph.com.sg