Is our enbloc sale agent able to enhance Teresa Ville's land value?

 Is our enbloc sale agent able to enhance the land value of Teresa Ville?

 

(1) What can the enbloc sale agent do to increase the land value of Teresa Ville?

 

Answer: Very little and next to nothing.

 

There are a few things that can increase the land value of Teresa Ville, but the property agency cannot do most of these things.

 

Firstly, the enbloc sale agent cannot increase the plot ratio of Teresa Ville in the Master Plan. An increase in the plot ratio can increase the value of the development land.

 

Secondly, the enbloc sale agent cannot increase the building height limit of Teresa Ville. An increase in the building height limit together with the increase in the plot ratio can increase the value of the development land.

 

Thirdly, the enbloc sale agent cannot build a new MRT station, shopping mall or other value-accreditive buildings or infrastructure next to or near to Teresa Ville.

 

Fourthly, the enbloc sale agent cannot increase the property prices near Teresa Ville. That would be up to the condition of the property market. When the prices of residential properties near an enbloc sale project increases, the land value of the enbloc sale property would also rises.

 

The fifth thing that the enbloc sale agent cannot do is to create a property market bull run. Property developers would be willing to pay higher prices for development land during a property market boom and if they believe that the bull run will continue for the next few years.

 

Since the enbloc sale agent does not have the power to influence the direction of the market, does it deserve the additional bonus commission?

 

(2) What are the things that the property agent can really do to enhance the land price of the enbloc sale project?

 

Answer: The property agency can put up big advertisements about the Teresa Ville enbloc sale in the newspapers almost every other day during the tender period to draw attention to the enbloc sale. But big advertisements in newspapers could cost thousands of dollars. Furthermore, many readers are shifting from reading physical newspapers to online news. So, such advertisements are not as effective as in the past.

 

As a result, the property agency will not put up many newspaper advertisements.

 

Another thing that the agent can do is to call or email the decision makers in property development companies to invite them to bid in the enbloc sale tender. Since the Singapore property market is transparent and most major developers are well known in the market, it is not difficult to find out who these developers are.

 

However, the property agent has no influence over the developers. Any experienced developers will work out their own sums and decide on their own company business strategies regarding land acquisition independent of the property agents.

 

(3) Will the enbloc sale agent promote Teresa Ville aggressively to the developers?

 

Answer: Not necessarily in their best interest to do so.

 

The agent will not dare to push the developer too hard as they cannot afford to offend the developer. To the agent, Teresa Ville owners are one-time customers. After the owners sell Teresa Ville, they don’t have a second Teresa Ville to sell.

 

The developers on the other hand, are regular customers. They not only buy the land, they also appoint the agents to market and sell the new condo project when it is launched.

 

Hence, the property agency would also hope that the developer will appoint the agents to sell the new re-developed property when it is launched in the future.

 

Furthermore, if the developer buys the land at a lower price, the new condo project can be launched in the near future at a lower price and it would be easier for the agent to sell the newly launched condo units.

 

Most property agencies can earn more commissions from the sales of the housing units in newly launched projects than from the enbloc sales.

 

Therefore, there is very little that the enbloc sale agent can do to get the developer to bid a higher price in the enbloc sale tender. In addition, it is also the agency’s interest not to push the developers too hard.

 

(4) Why would a property agent charge a 5% commission after the initial 1% of reserve price?

 

Answer: To politely reject the CSC.

 

A common method for any consultants to politely reject an invitation from a client to bid for a job is to quote a very high fee to the client, in the hope that the client will not appoint the consultant.

 

However, if the client is desperate or foolish enough to appoint the consultant at the high fee, the consultant has little to lose.

 

(5) Does the enbloc sale agent deserve the 5% commission?

 

Since the property agent cannot do anything to increase the land value of Teresa Ville and if the developer submits bid that is above the reserve price, the incremental amount is due to the market condition and circumstances that are beyond the agent's control, rather than the actions of the property agent. 

Therefore, the enbloc sale agent of Teresa Ville does not deserve a commission rate that is above the usual market rate.

 

(6) How much money does the average Teresa Ville owner receive above the reserve price?

 

During the EOGM on 28 February, one of the Teresa Ville owners commented: For every $100 million above the reserve price that the developer is willing to pay, ETC will receive $5 million + GST, and we will get $94.65 million. So we will get more money!

 

However, this owner forgot to mention that the $94.65 million will be shared with the owners of 270 units in Teresa Ville.

 

So, on average, each owner of each unit will get $94.65 million / 270 units = $350,555.

 

Each owner, after selling his home, will only receive a small fraction of the amount that the property agent will receive.

 

With such a commission structure, if Teresa Ville is sold in an enbloc sale, the owners are getting fleeced and the enbloc sale agents will laugh all the way to the bank.

 

(7) What should we do?

 

We the owners of Teresa Ville should not sign the current CSA (Collective Sale Agreement).

 

If you accept the reserve price of $1.1 billion for the Teresa Ville enbloc sale, you deserve to be treated with respect and not be fleeced through a high commission rate. You should send a clear signal to the CSC that they must get the enbloc sale agent, namely Edmund Tie & Company (ETC) to lower the enbloc sale commission to the normal market rate of the transacted enbloc sale price.

 

If you sign the CSA, you will weaken your position to negotiate for a more reasonable commission rate.

 

Coming soon: Part 2

 

In the second part of this article, we will answer the questions about the enbloc sale agent’s commission.