"I am a BLOGGER NOT an expert. This is a BLOG not a 'go-to' website for official information. I represent no one's view save my own. I have neither legal nor financial training, nor do I have anything to do with the real estate industry. My understanding of the Collective Sale Process is from a layman's position only. My calculations, computations and tables are homespun and may contain errors. Please note that nothing in this blog constitutes any legal or financial advice to anyone reading it. You should refer to your lawyer, CSC or financial adviser for expert advice before making any decision. This disclaimer is applicable to every post and comment on the blog. Read at your own risk."
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There is one thing worse than an Enbloc ----- and that is an Enbloc done badly. Since the majority have the necessary mandate to sell, then they owe it to all SPs to make a success of it. Minority SPs can only watch and wait, if they sell then lets pray it's at a price we can move on with, if they don't sell, then we are happy to stay for a few more years.

The Valuation

Singapore Institute of Surveyors and Valuers-Valuation Guidelines for Collective Sales

Don't rely on indicative valuations

VALUATION is indeed based on detailed research and analysis and not on sentiments (Ms Yvonne Lee-Lek Siew Ling, 'Same bank, same property but... Valuations differed by $200,000.'; last Tuesday).
Indicative valuations provided via agents or banks (if obtained from valuers) are rough estimates as they are given without field inspections, in-depth analysis and data.
They should not be relied upon when making decisions on property investment or divestment.
We caution against relying on such indications, and urge buyers or sellers to obtain proper valuation reports from licensed appraisers if they need to ascertain the market values of their properties.
They will thus avoid getting a wide $200,000 difference in estimate of the same property given by agents or banks.
Desktop valuations are not a subscribed practice and should not be treated as proper valuations.
Ms Lee cited her experience about receiving assurances from agents and bank officers that they could offer valuations to match the asking price.
We seek Ms Lee's assistance to provide us with more details to help us address the problem.
Evelyn Chang (Ms)
Executive Director
Singapore Institute of Surveyors and Valuers 
Straits Times Forum: Jan 24, 2011 

An indicative valuation isn't the final word

TO START with, 'indicative valuation' is a term coined to reflect the indicative market value, which should not be interpreted as the proper valuation of a property ('Indicative valuations are a vital tool' by Ms Monika Fischer; Jan 26).
The aim of valuation or appraisal is to determine the market value of a particular interest in a property at a point in time for a specific purpose. Valuation is an opinion arrived at logically using established techniques and methodologies.
Ms Fischer expressed her concern that she obtained four 'indicative valuations' of the same property ranging from $3.2 million to $4 million.
This is to be expected as an 'indicative valuation' is carried out without any field inspection, detailed research and analysis.
While Ms Fischer finds that 'indicative valuations' are useful, they must not be relied upon for one's property investment decisions. The institute maintains that any form of endorsement by valuers on the figures stated as 'indicative valuations' (before proper valuations are carried out) is not a subscribed valuation practice.
Evelyn Chang (Ms)
Executive Director
Singapore Institute of Surveyors and Valuers

Valuation is not a science, it is a subjective opinion - a valuer can juggle the figures to justify any price.  The  so-called valuation reports shown to owners are high on words and short on content, They usually do not give breakdown figures to show the basis of their valuation. In other words, Valuation Reports shown to owners are not worth the paper they are written on.

Unless the following method is laid out in detail, a valuation report aka TC round 1 can be thrown in the bin.

What are the proper methods used  in a valuation?

Two methods of valuation are commonly used in a Valuation:  
(A) Residual Land Value Method and
(B) Comparable Sales Method, each method being used as a check against each other.

(A) Residual Land Value Method (RLV)

The Residual Method is the best method to estimate the value of the property when developed to the best advantage. This is the gross development value (GDV) and from which is deducted the estimated expenses of development including an allowance for risks and developer's profit. The residue is the site value i.e the amount which a developer could afford to pay. Development to the best advantage means the most profitable development for which planning approval has been given.

The following is a rough breakdown of this method -

GDV: (total saleable area {(GFA* Efficiency) + Bonus GFA} * $psf)
less Marketing costs @ __ %
less reasonable Developer Profit @ 10%
less Construction costs (main areas @ $psf  + balcony @ $psf)
less Contingencies @ __%
less Professional fees @__%
less GST @ 7%
less Interest on cost of development 3 yrs @ __% @ 50%
less Acquisition cost @ __% ($ Land value for 99yr land)
less Land holding cost @ 3.5yrs @ __%
less Property tax 3.5yrs @ __%
less DC/DP (main area and balcony bonus)
 = Site value (the price a developer-buyer can afford to pay)

The efficiency (expressed as a percentage of GFA) is important, as a multiplier, it can reduce the GDV significantly. A mass market condominium in the suburbs will have a high efficiency because the developer will pack them in like sardines and use up every square inch of GFA allowable, including the 10% bonus GFA. It is important to know what is covered by GFA and what is excluded.

GFA information can be found here, though watch put for circulars for updates



(B) Comparable Sales Method

By the Comparable Sales Method, a comparison is made with sales of residential development sites in the immediate location and other locations around Singapore. Adjustments are then made for differences in location, plot size, contour, plot ratio, tenure, and date of sale before arriving at the value of the subject property. It is not at all reliable and is highly subjective.

When is the Valuation done?


(v)  a valuation report from an independent valuer on the value of the development as at the date of the close of public tender or auction; and
(vi) a report by an independent valuer on the proposed method of distributing the proceeds of the sale due under the sale and purchase agreement.

This is to "assist the sale committee in the evaluation of the bids. It also gives greater assurance to owners that the sale committee will not sell the development at a price that is below market value. In a rapidly rising/falling market, a valuation report 3 months ago may not reflect value of the development at the time the bids are submitted by interested purchasers." Amendments 2007 Annex B 23.

Is this the only Valuation done?

It is the only Valuation mandated in the LTSA.  No Valuation is mandated to provide a basis for which the reserve price is set, so it is up to the owners themselves to make sure that their reserve price is based on a formal Valuation and not just a number plucked from the air by the marketing agent.

Can owners request for more than one valuation?

This is what the Minister of Law, Mr. Shanmugam said about this very issue at the Second Reading of the LTSA (Amendment) Bill 2010

Valuation report: 'there is no one size fits all solution for the provision of valuation reports to guide owners when they are signing the CSA. Ultimately it depends on their risk appetite and comfort level of different owners. Valuation reports have a shelf life..... hence,  it's best to leave it to the owners to jointly decide on the number and frequency of valuations to be carried out. We do not mandate that it should only be given at one point in time, we mandate that it should be given at such a point in time, and at all other points in time it is up to the owners to decide whether they want further valuations at whatever cost is appropriate. '

It is not mandatory for a formal valuation to be done before setting the Reserve Price but prudent owners should request that an independent formal valuation using proper methods be done to set the reserve price.

And at the other end of the process, when a valuation at the time of close of tender is required by law, will owners trust the SC enough to do a proper, independent Valuation or worry they will do a rubber-stamping job on the original.

What is the WRONG kind of Valuation?

This is the most common method sold to gullible owners. It is wrong, wrong, wrong.
The property agent  asks his in-house valuer to do an informal 'valuation' to present to the sale committee and the owners  No breakdown of the figures is given, and the method chosen for this informal valuation (comparative sale price of individual units ) is neither recognized nor accepted practice in the industry. In other words, you do NOT look at the average price of units in the present market, then divide the proposed RP by the total number of units and say "hey look! you can get $300k more by this method". 

From the Tape transcripts of the STB tribunal of Tampines Court (Case no 2. 2008); Mon 16 June 2008; cross examination of the en bloc property agent (A) by the minority lawyer (Q) . All names have been removed:

Q. Do you agree that taking the land area divided... sale price divided by the land area is not the correct way?
A. Yes, I know

Q. ... my question -- (name of agent) , we’ll be a lot faster if you’ll listen to my question and then answer my question. My question is: The sale price of the individual unit has got nothing to do with saying that the indicative valuation of the site of 389-odd million was fair and reasonable?
A. Yes.
This simplistic comparison of individual unit price is not accepted market practice in en bloc sales. This 'premium' is a myth and is pegged to an individual unit price that will be anyhow outdated at the eventual time of sale. In an enbloc sale, you are not selling your individual unit but the precious land on which it sits. How many times have we been told we are "unlocking the potential of the land" - only to hand it over lock, stock and barrel to the developer. A proper, formal valuation is done using published figures taken from government/industry tables.

The property agent has a vested interest in doing the informal Valuation and setting the Reserve Price; too low and the owners won't bite, too high and it will put his commission in jeopardy. An in-house valuation doesn't cost the owners a penny but the ultimate price the owners pay for this free estimation is a true independent valuation, which might, on hindsight, turn out to be millions of dollars higher.  Penny wise, pound foolish.

So the property agent throws out an unsubstantiated figure with which they are comfortable selling at and assume no liability whatsoever as to it's accuracy.

A completely different set of Business/Investment figures are shown to potential developer-buyers who are , unlike the owners, extremely knowledgeable in this area.  These are the figures you really want to see, they are based on the RLV

Here is what the Minister of Law has to say:

Business proposals: It is best to leave these matters to the owners to request such information if they consider it appropriate. .. At the end of the day, owners are making choices  in respect to their properties which involve millions of dollars, you expect them to know what they want, and what sort of safeguards they wish

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