En bloc sales, property market and maturity readiness

Recently, I read an interesting article by Chris Tan of Chur Associates. I have listened to him 2 times, both times I felt that his presentation is easy to understand and he is indeed a passionate guy in the legal aspects of real estate. His recent article touched upon en bloc sales and he gave the example of both Hong Kong and Singapore and how en bloc sales are done in both countries. En bloc sales, in one sentence means, ‘when majority in the block wants to sell, the minority cannot block the sale and this is legalised. It’s main purpose it to ensure the increase in supply of properties in areas where more residential properties may be needed. For example, instead of a 20 level condo building, it can be demolished and a 60 level building be built instead, with more modern facilities and thus giving greater value to more residents.

This has happened in Hong Kong in 1990s and Singapore in 1999. Chris said that perhaps this would be the way to go for Kuala Lumpur due to the continuous urbanisation as well as the need for more affordable housing. On paper this looks viable and I would love for this to happen too. I support anything which boosts the real estate development because this is the correct way to go instead of always shortage of supply and too much increase in prices within a short period of time. In fact I spoke to my Malaysian friends working in Singapore about this before many years ago. I said, one of these days, surely Kuala Lumpur would have en bloc sales. They are actually not that agreeable to en bloc sales but I told them some of the benefits then and they sort of said, they will see when it comes. Few years later, I read about this article by Chris Tan. 🙂

squarefoot If we look at Hong Kong and Singapore, there are actually no such thing as affordable properties. In terms of pay, a Hong Kong retail sales person earn 6 times or more than Malaysians in similar job. In fact a typical teacher’s pay is around RM10,000 per month. You can see the huge gap with us. Singaporeans earn roughly 3 times more due to exchange rate. Thus, in terms of earning power, both countries can be said to be well ahead of Malaysia. However, when we look at the most expensive asset that all of us would be buying in our lifetime, the cheapest properties in Hong Kong are at least 10 times more expensive than Malaysia and only between 400-500 sq feet. In Singapore, a typical HDB flat is also around 8 times more expensive. Thus, you can see that in terms of available choices, KL does have more affordable choices. Just go to any online property sites, search for the 700sf apartments. I do not recommend the low cost flats. The choices for these older properties are still around RM200,000 or lower, depending on areas. In fact, even in an island like Penang despite all of its expensive condos, you can still buy a 700sf apartment for less than RM250,000. Yes, these apartments may even come with swimming pools!

Maturity readiness. When we look at the readiness, I seriously doubt so. I think the minority of people who oppose to such en bloc sales would not just use legal means but might even resort to means that is unimaginable. Think stopping the tractors from going in to demolish the building. Think about building their own walls to stop the trucks. Think about threatening the contractors from carrying about their job. Yes, it’s true, legislation helps but the issue would definitely be blown up, depending on which political parties these people go to who may exploit this to their advantage. At this very point in time, I do not see this maturity building up as well.

I think Chris Tan sums it up best when in his final sentence, he said, “En bloc sales could be the way of the future for Malaysia to ensure housing for the population of tomorrow given that affordable housing is the flavour of the day.”  It may be happening in future but personally, I do not believe this will be happening even within the next 5 years, if not more. En bloc sales has to be supported not just by legislation but also the property market affordability level and available choices plus the readiness of the people to accept such possibility. 

written on 20 May 2014

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