En bloc surge has legs if pricing stays realistic.
The current activity in en bloc sale transactions has legs but a number of factors could end the party, including owners' rising price expectations.
Historical data shows that a surge in collective sale transactions typically spans about six to eight quarters.
At the moment, demand for land from developers is still very strong. The current heightened activity in the collective sales market could probably last until the end of next year.
Analysts say Singapore's stable economic growth as well as a marked improvement in private homes sales will continue to fuel developers' appetite for land.
Another factor is the overall positive sentiment in the property market. There is also hope that the government may be more inclined to consider relaxing immigration policies, now that more infrastructure is in place, to accommodate a bigger population. This will help support demand for new homes that will be generated from a redevelopment of collective sale sites.
So far this year (up to Aug 31), eight collective sales have been transacted at a total of S$3.48 billion, surpassing the three deals worth just over S$1 billion for the whole of 2016.
The year-to-date tally is the best showing since 2007, when S$11.52 billion was done.
The en bloc sale boom in 2006-2007 was driven by the high-end segment with the bottom end taking off later - but was disrupted by the global financial crisis.
However, this time around the charge is being led from the bottom.
The current wave, which started last year and which has gained momentum this year, will probably peak around the middle of next year. Once developers have bought enough sites, they will start going slow on collective sales and land prices will pull back.
Already, the biggest challenge right now is the rising expectations of owners. As more collective sale sites are being sold, owners' expectations become more bullish. There will be a point where developers feel the margin is not worthwhile pursuing.
Observers say other factors that could spoil the party would be the emergence of a housing glut or if the Singapore economy slows down drastically, for instance.
As well, geopolitical tensions in the region, interest rate hikes, or the introduction of fresh property cooling measures - for instance if private home prices recover too quickly - could also cool the the en bloc fever.
And if the government increases supply on the Government Land Sales programme for the next half-year to help stabilise land prices, that would also steer developers away from collective sales.
Beyond the ebbs and flows, collective sales have a lasting and visible impact on Singapore's property scene.
For one, they play an important role in urban rejuvenation.
Some private residential developments are so old that there is no way you could do a major refurbishment. It would be very difficult to get owners to agree, and sometimes it's just not worthwhile as the design may be too archaic to incorporate new technology and energy-efficient solutions.
Moreover, typically a development that goes for collective sale would have unutilised gross floor area and redeveloping the site would enhance land productivity.
Adapted from: The Business Times, 4 September 2017