Tuesday, April 27, 2010

Harder to try and try again for en bloc sales

Bill seeks to put restrictions in place; other changes may simplify process

A new amendment bill introduced in Parliament yesterday will make it harder for property owners to keep re-trying for a collective sale.

But analysts said other changes - such as allowing contested sales to bypass Strata Titles Board (STB) hearings and reducing the number of extraordinary general meetings (EGMs) that must be held - could help to speed up the en bloc sale process.

A key revision that has been tabled will make it harder for motivated owners to re-start an en bloc process once it fails as there will be a two-year restriction period.

Within this restriction period, the first re-try to convene an EGM will need 50 per cent of share value or number of owners. And for the second and subsequent re-tries, 80 per cent will be needed.

Right now, the support of either 20 per cent of owners by share value or 25 per cent of the total number of owners is needed to call an EGM to start the process.

'The objective of this change is to discourage numerous attempts at en bloc sales where there is insufficient level of interest and support from owners,' said the Ministry of Law in a statement. It also added that this move prevents management committee funds from depleting.

The amendment bill to the Land Titles (Strata) Act also looks to streamline the role of the STB and balance the interests of minority and majority owners. The changes are expected to take effect in June.

'In recent years, a number of en bloc sale applications have become highly contentious, with objectors raising questions on points of law ranging from fiduciary to constitutional law,' said the Ministry of Law. 'Many of these cases have ended up in the High Court and even the Court of Appeal. This has resulted in lengthy and costly proceedings.'

In addition, once a sales committee (SC) is formed it will have one year to obtain the first signature for the collective sale agreement (CSA) or it will be automatically dissolved. This is to ensure that the sales process is not dragged out.

Analysts were not too worried about the two-year restriction period.

Credo Real Estate managing director Karamjit Singh said en bloc transaction volumes are driven more by market forces and owners' expected gains.

'But having said that, the two-year restriction period following a failed attempt may be disadvantageous to some projects that may want to capitalise on improved market sentiments, should that happen after the failed attempt,' said Mr Singh.

But Chua Chor Hoon, head of DTZ's South-east Asia research team, said that the two-year restriction period could have a large impact as the definition of a failed attempt covers a whole host of situations - including right at the beginning, when the quorum required for an EGM to discuss a collective sale is not met within an hour and the EGM is dissolved.

The new amendments could also speed up the process 'in theory'.

'It helps to eliminate some of the ambiguities in the current legislation and will help to expedite the process,' said Ho Eng Joo, executive director for investment sales at Colliers International.

The Ministry of Law last amended the Act in 2007, introducing changes to make the en bloc sale process more transparent.

Then, it was decided that SCs will have to be properly formed and elected. It was also decided that CSAs will have to be witnessed by lawyers who can clarify doubts and explain terms and liabilities. And even after they signed, potential sellers were given a five-day 'cooling-off period' during which they can change their minds.

This latest round of changes comes as activity in the collective sales market appears to be picking up after falling off sharply in 2008 and 2009.

According to data from CBRE Research, there were 110 collective sale transactions worth a total of $11.9 billion in 2007. This fell to eight deals worth $381 million in 2008 and just one deal worth $101 million in 2009 as the property market took a downturn.

But since the start of this year, five collective sales worth $275 million in all have gone through - signalling that the en bloc market could be picking up again.

'There has been more interest on the ground from Q3 and Q4 last year,' said Jeremy Lake, executive director of investment properties at CBRE.

Most analysts were also disappointed that two measures, in particular, were not axed.

'I am disappointed that they have not removed the cooling off period of five working days, notwithstanding the requirement that a solicitor must witness the signatures of the owners executing in Singapore,' said law firm Rodyk & Davidson partner Norman Ho. CBRE's Mr Lake likewise pointed out that the requirement for the CSA to be witnessed by lawyers is the 'biggest hindrance' to a collective sale going through.

'The main problem that SCs face at the moment is securing the 80 per cent or 90 per cent agreement needed and that is principally due to the need to have the signing witnessed by lawyers,' he said. Sometimes it was difficult to get a lawyer and owner together at the same time to get the CSA signed, he said.

Source: Business Times, 27 Apr 2010

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