Supplementary CSA to Lower the Reserve Price

The first question we should ask ourselves is do we even want a supplementary agreement to lower the RP in the CSA in the first place.  Do we want the Reserve Price to be  fixed and inviolable or impermanent and unpredictable as is the case now. 

In round 1, we were told the Reserve Price was the absolute minimum Owners would receive from the collective sale. It was based on a 66% premium Owners would have gotten over the then present market value of an individual unit. There was no talk of it being lowered and 80% of Owners signed; confident that that was the minimum figure they would get. We were naive and uninformed and did not know it was already at a bargain basement price and had  a buyer happy to snap it up. 

In this round, the carrot is bigger, but not stable,  neither is it  66% of  the last sale price of an individual unit, which was done in August at $1.08m. If it were, then the RP would  have been $1.79million !!! Even by round 1 standards the present Reserve Price is at an undersell!

Since developers would prefer a rock bottom  price, the supplemental agreement to lower it is a route to bringing it closer to the bottom. Now who proposed this alternative route? The Solicitor, the  MA or the sale committee? Whoever it was, it certainly wasn't the Owners.

"Oh, but you need 80% to agree to the new price, so it is safe, right? If 80% don't agree then cannot sell, okay? If the sale price is lower the Sellers must agree, simple la."

To fully agree with the above, we must first look into every possible nook and cranny to make sure we are not having the wool pulled over our eyes. We were told that the terms outlining the  SCSA are 'very clear',  - clear as mud, if you ask me. Here is what the CSA tells us about the supplemental agreement to lower the RP:

• it shall be done  by signing a supplemental agreement of some sort.

At the back of the CSA (pg 30 after the Terms of Appointments and schedules) ) we have the all-important execution page for the CSA. This page is spectacular in it's simplicity and the vital information that is missing... but that is fodder for another post. We are not similarly graced with a sample of what an execution page of a supplemental agreement would look like, and that is cause for concern.  We know that the Amendments to the LTSA  were partly in response to massive problems with property agents and their unscrupulous tactics for obtaining signatures to the CSA. It was deemed safer that the Solicitor, who has a higher professional code to follow, should be witness to this momentous signing. Now, looking at the Solicitors Terms of Appointment I notice that he is to witness the signatures on the CSA but there is no mention of witnessing signatures on any other owner document, whether it be a supplemental agreement to lower the RP or other supplemental agreements. I feel this omission is important. Note also how the fee charged in advance is for the CSA - again no mention of a SCSA or other supplemental agreements that will definitely pop up.  Knowing how the legal profession likes to charge for every single piece of paper, the Solicitor surely would have listed it as an extra to be charged separately. If it were under his purview would he not have included it in a separate Schedule at the back? Now turning to the Property Consultant's Terms of Appointment;  page 24 item (d)  seems to cover this SCSA signing very nicely. Note the 'at any time and from time to time'.

Now things  are beginning to look scary, are they not? Is the marketing agent regaining control of the signing via a back door? Isn't this a grave cause for concern?

We are further told that:

• the minimum sale price (the new RP) will be at or below whatever the proposed sale price might be.

When you read clause 8.1.3 (a) on page 9 of the CSA, what assumption do you make? How do you read that clause, what scenario pops into your head?  

Do you think that after a tender bid or after an offer has been made, Sellers will be asked to rethink the RP and either agree or disagree to lower the RP to match the bid or offer by signing a supplemental agreement? Do you think there might even be a time frame for this new consensus to sell at a lower price? Well, welcome to the club, because that is what most owners will assume and they will be wrong - on both counts. That is also what I assumed, but I was puzzled by the inclusion of "or below" because, if there is an offer on the table, why ask Sellers to sign for something below that?  It did not make sense and so up shot a red flag.

The answer to this conundrum is that a supplemental agreement to lower the minimum sale price is not restricted to this period in time - it can it be done 'at any time and from time to time'. That is my conclusion. If an owner is happy to sign the CSA at the RP stated, but is also willing to sell for a lower price if need be, what is stopping him from signing a supplemental agreement to this lower sale price at any time?
Reserve price: $100m
Minimum selling price; $80m

So, perhaps some Sellers might sign a CSA with the solicitor and a SCSA with the marketing agent. An official and a fall back selling price, as it were.

Worse, knowing how gullible some owners are, in this estate  there may be instances where owners are encouraged to sign the MA's slip of paper stating their minimum selling price without them even realising that this is their tacit agreement to the eventual lower RP!!! They might come back and say "but I didn't know it was that, when I signed off on it! I was just asked to state my absolute minimum  and was assured that I had already signed the CSA for the higher RP".
I am so scared for these people, they are putty in a smooth-talking property agent's hand

The 80% requisite is the first milestone that much be reached in order to go for a tender and beyond. But this is just a provisional 80% and the higher RP can be used for this purpose. Some Sellers, who sign for the higher RP only might baulk at signing for a lower minimum selling price and drop out afterward, bringing the percentage to below 80%.  Will this prevent the sale committee from signing a conditional sale contract? NO. The 80% requirement is at the point of application for sale at the STB and not at point of conditional sale. The conditions of the sale contract would be dependent on securing the 80% before application and the sale being granted by the STB/HC. So, the time frame for securing the second 80% can extend for many months.

THIS IS WHAT I THINK:

.

So, 'very clear', they said?

I also find 8.1.3(d) very, very odd. I ask myself, why would anyone sign for the lower sum and not the higher sum, presumably after the initial 80%.  In other words these new signers are from the 'minority' group. As an ex-minority owner, I know there are only 3 reasons why an owner could be persuaded to sign after holding out for so long a) he was fooled b) he was pressured or c) he was offered an incentive sum. If you juxtapose 8.1.3(d) with 2.11 what do you get? In 2.11,  owners are signing some kind of 'supplemental agreement' voluntarily ("or otherwise where they enter"), but what is it? How much more will they be getting?  Seeing how 'conditional signers' is now a dirty word, have they just found a more neutral term that can cover a multitude? Methinks there can be many kinds of supplemental agreements whereby conditional signing can continue incognito. If Sellers agree to these  supplemental agreements without knowing what they contain, then they are signing blindly.

Owners will have to draw their own conclusions.

Owners ought to reject any supplemental agreement other that those  ordered by the STB or HC.  I believe it is conditional signing by another name.

Owners ought to reject the supplemental agreement to lower the RP outright and remove it from the CSA.  Stick to a good, solid Reserve Price and run with that ball. Don't inject uncertainty, unpredictability and confusion. When things are not transparently clear, then you have to ask yourself, what else am I missing?

Remember also how incredibly long it is all going to take. You may be happy now to accept  the lower minimum sale price, but will you still be still happy in 2 years time?

If there must be a clause to lower the reserve price in the CSA - then let's guard ourselves against the shenanigans that will inevitably occur . Let us demand that owners are to decide only AFTER the  bids or offers are in and all agreements to the lower reserve price must be after this date and witnessed by the en bloc lawyer.

This was first partially posted on 5 Oct 2011 

NOTICE FOR EGM 4

Owners received the Notice for EGM 4 in the post today. It couldn't have come at a worse time for me as I am preoccupied with other matters.  Nevertheless, I will go through it by and by.

A quick glance and there is some improvement from their last half-baked effort. 

In escrow

I don't normally deal in wild rumors, but this snippet of information is very intriguing, if true. It does not concern Tampines Court, but one of our half-sister estates: LAGOON VIEW. This estate is only a half-sister because their land belongs to the Ministry of Finance and has not been privatised as yet (at least, no notice of such an event has been reported in the media). Their privatisation cost is around $30k per unit and when last reported (Weekend Today Jul 2009) just over 70% had consented. No collective sale can be attempted unless the estate is first privatised.

The rumour is this: owners who sign for privatisation are also possibly signing for the CSA in escrow ... or it could be the other way round, the Privatisation Agreement could be the document held in escrow because it's cost might be a stumbling block to many older owners in the estate, and the CSA might be a draft CSA not yet ratified at an EGM.
The details are sketchy at best.

What is in escrow, you ask? It's 'Something of value, such as a deed, stock, money, or written instrument, that is put into the custody of a third person by its owner, a grantor, an obligor, or a promisor, to be retained until the occurrence of a contingency or performance of a condition.'

But, there is only a privatisation committee in Lagoon View as far as I know, there is no elected sale committee, no EGMs held in accordance with the LTSA schedules etc... so how can it be true and if so, is it really legal?

Well, I can only surmise that as soon as the 75% /80% mark is reached, the statutory requirements will be dealt with in quick succession and so the conditions for the CSA/Privatisation Agreement held in escrow will be met.

It's like giving birth to an adult instead of a baby.

Not being a lawyer, I can only pose questions, not answer them.  In round 1 we had a few 'conditional' signers who would have received higher sales proceeds had their conditions for sale been met. In round 2, there are provisions in the CSA (Draft 28 Sep 2011) for owners to sign an unspecified 'supplementlal agreement.

Document held in escrow, conditional agreement, supplemental agreement.... all birds of the same feather?

The power of money

There has been a rash of new measures and news from the Gov in the last few days. The main one is here:

Additional Buyer's Stamp Duty for a stable and sustainable property market
REDAS dissappointed with propert cooling measures
Cooling measures a bolt out of the blue

The Gov has been very swift to act on event of the inevitable fall of the Euro. (today being D-Day1 for talks in Brussels). I suspect so much money is flowing into the country from private wealth and fund managers (capital flight from Europe in general), money that can be parked in the purchase of new condominiums. Hot money has to go somewhere. and even if just a tiny portion of it comes here, the property market will mop it up. TheyGov is not quite trying to stem the flow but rather being opportunistic in filling their coffers. The developers can devise sweeteners to make the medicine go down. They could bump up the price and absorb the extra stamp duty.  If the 'foreign' element of purchasers was broken down by district, or even condominiums in the past 2 years , you would probably see a high concentration in the city area - where many empty new luxury blocks currently stand. The measure is being  advanced as a cooling strategy - it is that in a limited sense, but the mass market segment (where ordinary Singaporeans spend their money) will be largely untouched. As for the anti-speculation measure, it applies only to the 3rd property and only 3%.

I think I feel a new chart coming on... must download some data on the issue soon :)

As for the Euro: well, it is the Titanic in it's death throes and the politicians are still busying themselves rearranging the deckchairs instead of preparing the citizens to abandon ship.

STAMP DUTY NEWS

8 DEC 2011

Developers fear impact of targeted stamp duty

Extra 10% duty for foreigners set to help cool prices for S’poreans

The government yesterday announced significant steps that could bring private home prices back within the reach of Singaporeans. Developers, however, have called these steps, which are expected to hit sales and prices, untimely.

Starting today, foreigners and corporate entities buying private homes in Singapore will have to pay an extra 10 per cent by way of an additional buyer’s stamp duty. This duty will also apply to permanent residents (PRs) buying their second or subsequent homes and Singaporeans buying their third residential property or more – though only to the tune of 3 per cent. Overseas properties are excluded from the count of properties owned.

The move is aimed at reining in private property prices, which some felt were slipping beyond the reach of many Singaporeans. Real Estate Developers Association of Singapore (Redas) said, however, that the measures are untimely given that the local economy is expected to slow down next year. “Redas is disappointed in the lack of consultation on the latest measures. They came as a surprise as the current market outlook is uncertain. The good take-up rate in the primary market is driven by the increased number of new launches and unique selling points of certain projects. It is not indicative of a return to a speculative market.”

The government also boosted the supply of land for executive condos in H1 2012 as part of its land sales programme.

Though the additional buyer’s stamp duty (ABSD) kicks in today, remission will be given for options granted on or before Dec 7 and exercised within three weeks (that is, on or before Dec 28) or the option validity period, whichever is earlier.

Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam said: “We have always had open markets and must keep them that way. However, the reality is that investment flows into our property market are now larger than before, and unlikely to recede as long as interest rates remain low. The additional buyer’s stamp duty should help cool investment demand, and avoid the prospect of a major, destabilising correction further down the road.”

A joint release from the Ministry of Finance and the Ministry of National Development yesterday evening said: “A higher ABSD rate for foreign buyers in particular is necessary, in view of the large pool of external liquidity and strong buying interest from abroad, and the relatively small size of the Singapore market.”

It added: “Excessive investment demand will . . . make the property cycle more volatile, and thus increase the risks to our economy and banking system.”

Foreign purchases accounted for 19 per cent of all private residential property purchases in H2 2011, up from 7 per cent in H1 2009, it noted.

Credo Real Estate’s analysis showed that foreigners’ presence is much stronger in the prime and mid-prime districts, where they accounted for nearly a quarter of caveats lodged in Q3 2011 – up from 16 per cent in 2010 and 13 per cent in 2009.

For the suburban mass- market segment (Outside Central Region), the proportion has also been rising, from 5 per cent in 2009 to 7 per cent in 2010 and nearly 15 per cent in Q3 2011.
“The suburban mass market is probably of greater concern as buyers of first private homes would feel threatened by increasing number of foreign purchasers,” said Credo executive director Ong Teck Hui.
DTZ’s Southeast Asia chief operating officer Ong Choon Fah said the ABSD is not a blunt policy tool. “They have made distinctions between foreigners and PRs and whether they are buying for owner occupation or investment. This is very carefully calibrated to strike a balance between the price that Singapore has to pay for being an open economy and ensuring property prices remain within the reach of Singaporeans.”

She reckons developers will take a wait-and-see attitude, evaluate their options and watch how buyers react.

“Prices should fall but activity has to drop significantly first before developers re-price their projects. The likelihood is that some may first take soft measures to mitigate the situation – such as absorbing the additional buyer’s stamp duty or giving furnishing vouchers – before resorting to a price cut.”
Knight Frank chairman Tan Tiong Cheng too acknowledged that prices will soften. “With so much supply coming into the market, developers will either have to revise their prices to move units, or absorb the additional buyer’s stamp duty.” The latter will be tantamount to a price cut as far as a developer is concerned, note analysts.

“This set of measures will definitely help to cool prices. The concern has been that foreign buying is pushing up prices,” said Mr Tan. With the 10 per cent ABSD on foreign buyers, the long-awaited recovery in demand in the luxury sector will take even longer, he added.

Standard Chartered Bank said in a research note last night: “We expect the policy to induce a 20 per cent decline in sales volume in Q1 2012. . . We continue to expect residential prices to fall 20-30 per cent next year.”

08 Dec 2011 Straits Times

GLS 1H2012

URA LAND SALES  FOR 1st Half of 2012

I think TC should forget about en bloc for a couple of years - there are no less than 6 GLS sites coming up for sale in the first half of 2012 in our area:

Confirmed List
Residential Sites
1	Upper Serangoon View / Upper Serangoon Road (EC)	Jan-12	HDB
2	Hillview Avenue		URA
3	Fernvale Lane (EC)	Feb-12	HDB
4	Elias Road / Pasir Ris Drive 3		HDB
5	Punggol Central / Edgefield Plains (EC)(3)		HDB
6	Woodlands Avenue 5 / Woodlands Drive 16 (EC)  (3)	Mar-12	HDB
7	Tampines Avenue 9 / Tampines Avenue 7 (EC) (3)		HDB
8	Tampines Avenue 10 / Tampines Avenue 1 (Parcel A) (3)		URA
9	Buangkok Drive / Sengkang Central	Apr-12	URA
10	Sengkang Square / Compassvale Drive		HDB
11	Pasir Ris Drive 3 / Pasir Ris Drive 10 (3)		URA
12	Upper Serangoon Road / Pheng Geck Avenue (Parcel B)	May-12	URA
13	Tanah Merah Kechil Road / Tanah Merah Kechil Link	Jun-12	URA
14	Bright Hill Drive (3)		HDB
Reserve List
Residential Sites
1	Jalan Jurong Kechil	Already Available	URA
2	Bishan Street 14		HDB
3	Stirling Road	Dec-11	URA
4	Boon Lay Way		URA
5	Punggol Way/Punggol Walk (EC) (3)	Feb-12	HDB
6	Tampines Ave 10 (Parcel B) (3)		Mar-12	URA
7	Tiong Bahru Road / Alexandra View (3)	Apr-12	URA
8	Farrer Drive (3)		URA
9	Farrer  Road / Lutheran Road (3)		URA
10	Tiong Bahru Road / Kim Tian Road (3)	May-12	URA
11	Prince Charles Crescent (3)		URA
12	Sengkang West Way (3)		HDB
13	Upper Serangoon Road / Tai Thong Crescent (3)		URA
14	New Upper Changi Road / Bedok Road (3)	Jun-12	URA
15	Dairy Farm Road (3)		URA

SC Meeting : 19 Nov 2011

SC Minutes 11 (Edited)

I did not attend this meeting. It looks like they are trying to fix a few of the deep flaws in the CSA to make it more palatable to the owners.

Item 2

If my memory serves me correctly, in the last round it was the owners who coughed up over $700 each for the 'costs & expenses' which were to cover items a) and b) - and the collection of monies (contractually agreed) was attempted before the announcement of the conditional sale in 4 languages in the various newspapers. I say attempted because by then many majority owners had rebelled and refused to pay.  The newspapers required their fees up front and in those days the announcement covered 3 or 4 full pages in tiny print. It must have been very expensive. The rules have since changed on the amount of detail to be publicly revealed but still, this cost is for the owners to bear. 

Item 4

I am a little confused here.. if it is the Final Draft they are discussing, are they 'discussing 'the actual amendments or 'recommending' further changes, in which case it isn't the Final Draft? 

It seems both.

Item 5

The vote was 5 to 4 not to raise the RP.  Oh dear, there are 5 members who have the 'sale might not go through' mentality. This is the same mentality that got us into trouble in round 1. It is not about getting a sale through, it is about selling collectively only when the price is right. If the price is not reached then so be it.  Therefore, I do not agree to a lower RP to serve the lowest common denominator (the flippers and those who want to cash out) and the RP agreed to in the last EGM should be reconfirmed in the next EGM. 

I have a feeling there were irregularities in the last meeting anyhow, which could possibly make that EGM null and void.

How seriously did they challenge the MA's figures?  True, My Manhattan was bought for $523 psfppr in 2010 - but it is being sold for over $1200psf in 2011. To compare land bought in Simei and then new units sold in Pasir Ris is disingenuous. Our site is much more attractive than anything in Pasir Ris and future units in our estate (in 2016)+ may attract anything between $1200 -$1400psf. So it is right to be bullish and set the target price high. No one can predict the economic outlook so far ahead with any certainty. It is for the developer to take the risks - not the owners. We do not want pessimists on the sale committee, people who live in the now and are easily swayed by negative market spiel. The choice is simple - be optimistic, think ahead, don't lower your sights, base your decisions of upward projections not downward. If the sale does not go through then the owners will not be angry, but if it goes through at a price that looks paltry and diminished then all hell will break loose again.

Item 6

The Strata Roll does not give the square footage of the units.

Let's see how the next meeting went with the lawyers :)

Total number of units en bloc-ed to date

How many units in the country have been en bloc-ed to date? 15,467. As can be seen from my unofficial graph, the total number of units sold in the last 2 years is nowhere near the total in the boom years of 2005 to 2007.

The ex-HUDCS in the outer areas (OCR) that were sold in 2006/2007 (Amberville, Waterfront View, Minton Rise are showing strong  sales in their new developments as can be seen from this chart from URA (the red/blue/pink notations are my additions). Indeed, the mass market properties in OCR places such as Pasir Ris, Simei, Tanah Merah Tampines, and Bedok are being snapped up like there was no tomorrow.

D'Leedon in upmarket D10 is lagging behind. Yes, the developer paid top dollar when acquiring the land through an en bloc,  but  neither the price paid nor it's ex-HUDC status have any bearing on it's present identity and lack-lustre performance.  Something about this project just does not gel with would-be buyers. 

I looked up some other new projects in the D10 to see how they were/are faring:

Apart from D'Leedon, they are all freehold and the ones launched are either sold out or showing healthy sales. The one to watch here will be Leedon Residence which will be directly opposite D'Leedon and will probably be priced >$2000 psf.  So D'Leedon is competitively priced in comparison. Mind you, if I had to choose between Silversea and D'Leedon (both around the same price), Silversea would trump because of it's superior location.

So, what else could be causing the lower than expected sales?

Personally, I think it's behemoth size at 1,715 units makes it too big for comfort. The developer could have divided the land into 2 or 3 different developments - as in the Waterfront Collection - people like to feel they are buying into exclusivity, not an entire neighbourhood.  Looking at the floor plans, there are next to no balconies, a crucial mistake if Westerners are their target sector.

But not to worry, they bought the land at $762 psfppr and are currently selling it at a median price of $1577 psf.  The development will eventually sell out and we shall see then just how much money was won or lost.