En Bloc Deal: 3 Ways You Can Still Not Make Any Money
In Singapore, there are some things that we can get which may be better than striking the lottery. These include securing a good queue number for your BTO flat in a mature estate, balloting successfully for your child’s enrollment in a popular primary school, or being an owner of a development that is getting en bloc.
While getting an en bloc deal is typically seen by most people as a sure-win deal for their owners, it’s not always true that all owners proceeding ahead with a collective sale would be striking the jackpot.
If you are not careful or have recently bought a private property assuming that an en bloc deal would surely make you rich, then there is a chance that you may end up disappointed with your proceeds.
In this article, we share three possible ways that owners may still lose out during an en bloc deal.
#1 Seller Stamp Duty Is Payable During En Bloc
The Seller Stamp Duty (SSD) is a tax that buyers pay if they sell their residential property within three years of the date of purchase. The tax payable is 12% (within 1 year), 8% (between 1 to 2 years), or 4% (between 2 to 3 years). This percentage is based on the selling price or market value of the property, whichever is higher. In this case, it would be the en bloc amount owners are getting.
|Holding Period For Property||Seller Stamp Duty Tax Rate|
|Up to 1 year||12%|
|More than 1 year and up to 2 years||8%|
|More than 2 years and up to 3 years||4%|
|More than 3 years||No SSD payable|
For example, if we purchase a property for $1.5 million thinking that an en bloc deal may happen soon – and it does, giving us a nice proceed of $1.7 million within one year, we will be liable to pay a 12% SSD on the en bloc proceed, which works out to be $204,000! This means the gains we thought we made would immediately be wiped out.
For such owners, the obvious solution here is to reject any en bloc offer until the 3-year period is over and/or to seek a higher level of compensation to agree to the collective sale. However, this isn’t always within our control. Also, most condominium developments will always have units that are going to be purchased within three years so it’s fair to say that there would always be some owners that are going to incur SSD during an en bloc.
#2 Buyer’s Stamp Duty (BSD) & Additional Buyer’s Stamp Duty (ABSD)
In Singapore, any property purchased would incur Buyer’s Stamp Duty (BSD). The BSD is paid on the purchase price of the property or market value, whichever is higher.
For example, if you purchase a property at $1.5 million, you will pay $44,600 in BSD. This will eat into the gains that you may make from your en bloc deal.
If you are purchasing your second or subsequent property, you would also have to pay for the Additional Buyer’s Stamp Duty (ABSD). This is 12% for Singapore Citizens buying their second residential property and would go up to 15% for third and subsequent properties. This is a sizeable amount that everyone buying a property needs to consider even if they are confident of getting a good en bloc deal.
Another possibility is the risk of incurring unnecessary ABSD costs after an en bloc deal has been agreed. This occurs if you purchase your next property before the en bloc sales are completed. So, check with your lawyers when you are buying a new unit to avoid incurring ABSD.
#3 You Mistakenly Assume That En Bloc Sales Amount Received Is Based On Share Value Or Size Of Your Unit Only
If you are buying a property with the hope of positioning yourself for an en bloc deal, don’t make the mistake of assuming that your share of the collective sale will be based on the share value that you own within the development, or that size area of your unit will be used.
This is because in Singapore, there is no fixed way to decide on how the sales proceeds should be distributed. The apportionment of sales proceeds from the en bloc is decided by the sales committee based on the advice of an independent valuer. Of course, this needs to be majority-approved by the owners of the development.
The point here is that if you are purchasing a unit thinking that 10 share value is going to get you double the amount of what a unit with 5 share value will get you, while only paying 1.75 times more, you may be disappointed when you find out this may not be the way that sales proceeds are distributed. Likewise, if you think that the size of units will be how sales proceeds are apportioned and as a result, deliberately opt for the lowest PSF unit in the development thinking it will give you the highest upside, you may also find yourself disappointed when the sales proceeds are distributed in a different way.
The biggest risk here is simply purchasing a unit based on the advice of agents/friends thinking that the apportionment method is already fixed based on one method and calculating – in advance – what your potential gains from the en bloc sales would be, without realising that this is contingent on the apportionment method being used in the first place.
You Can File A Dispute With The Strata Titles Boards If You Suffer Financial Losses During An En Bloc
For any owners of an en bloc sale that suffers financial loss, there is an avenue to object to the amount received by filing a dispute with the Strata Title Boards (STB). For owners who suffer financial losses, or have valid objections to the amount they received, STB can increase the amount that is payable to these owners.
Do note as well that purchases that are made after an en bloc sales have been awarded are not eligible to dispute for financial losses.
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