When Banks Say ‘No’ – The En Bloc Owner’s Dilemma

For those who need a new place to live after their properties have been sold en bloc, there are three options available.

First, they could choose to rent. With rising sale prices, it may be better to wait until supply increases — when a large number of properties are completed in 2009 or later — before making a purchase.

Second, they could buy another property with the cash from the sale.

The third option would be to buy a property immediately using a term loan from a bank. A purchase now rather than later would enable the owner to beat any further rise in sale prices.

In a surprising twist, however, banks have given a resounding “No!” to the third option.


The case for buying soon is compelling.

“Overall prices of private residential properties rose 4.8 per cent in the first quarter (this year)”, according to the Urban Redevelopment Authority, and the flash estimate for the second quarter showed prices rising 7.9 per cent.

If property prices rose about 12.7 per cent so far this year and they’re expected to rise by 20 per cent year-end, then prices could rise another 7.3 per cent during the remainder of the year.

If an en bloc sale brings $1.5 million and the owner wants to use the full amount to buy a new property, then he would need to pay over $100,000 more if he waits until the end of the year. Buying now could save him a tremendous amount.


The best way to make an immediate purchase would be to obtain a 12- to 18-month term loan from a bank, as many property-rich, cash-poor owners simply do not have the money to pay for the new property before receiving proceeds of the en bloc sale.

A term loan would seem to be a great opportunity for banks as well, since they could make loans with relatively little risk. The banks’ answer, though, is clearly and collectively “No”.

In a recent case, an owner of a property sold en bloc asked four banks for a one-year term loan. Two local banks and two foreign banks said they could only make a term loan for a maximum of six months, and most said they would not even be able to make a term loan at all until every aspect of the sale was confirmed.

One foreign bank said they couldn’t even consider the request. The other banks offered to consider a standard mortgage loan for the new property purchase — assuming, of course, that the owner had enough money to make monthly payments for both the existing loan on the property sold en bloc and the loan for the new property.

In the example above, the collective sale price of $2.4 million, current property loan of $500,000 and the owner’s request for a term loan for the full amount of a new $2-million property, means the bank would just be loaning about 52 per cent of the $3.9-million net value of the total collateral.

In rejecting the request for a term loan, banks said that there was always a chance that the Strata Titles Board (STB) could reject the application for approval, or something else could derail the collective sale. Yes, the risk is there — but it seems quite low.


While en bloc sales vary, the overall process seems relatively similar in most cases. Once the required percentage of owners agree, the property is offered for sale. If there is a sufficiently high offer, the property is sold and owners are informed. If 100 per cent of the owners agree, the sale proceeds. If 100 per cent do not agree, then the STB must approve the sale. If not all owners sign but none object to the sale, the approval can be completed within three more months. If one or more owners object, then STB approval could take about six more months.

After STB approval, it still takes about another three months for owners to receive the money, and then they’re given some time to move out. This means that it could easily take six to nine months for owners to be paid.

There is always a risk that STB could reject the application for approval of the sale. This rejection is possible if any owner would receive less money than what they had paid for the property.

However, the STB has so far approved all but one sale. So, the actual risk seems quite low.


When asked why a term loan could not be approved, most bankers gave the standard response of “bank policy”. Mid-level bank staff were not aware of any Monetary Authority of Singapore restrictions on longer term loans.

Yet every bank had exactly the same policy of not making term loans for more than six months, and every bank had the same response for rejecting a request.

The banks seem to face an opportunity cost from this policy, and the cost to owners of properties sold en bloc is also high.

While banks and regulatory authorities do need to be prudent lenders, the old maxim seems more true than ever — if you don’t need a loan it’s easy to get one, and when you do need money, it’s extremely difficult to get a loan. 
Source: Weekend Today, 14 July 2007

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