GIVEN the rapid urbanisation of Malaysia and the infrastructure extension, development land is now a scarce resource, especially in Kuala Lumpur and Penang.
Expanding of the boundary is not a solution in maximizing land usage.
All buildings have an unwritten expiry date. Malaysia can learn from our neighbours in renewing the aging and dated parts of our cities. One obvious solution is en bloc sales.
En bloc sales are most notably used in city states like Hong Kong and Singapore. This happens when a majority of owners in a building agree to sell the entire block for redevelopment, effectively forcing any dissenting minority owners to sell their property.
The idea behind this concept is to encourage redevelopment in land scarce countries and cities. It stops a single person or a few from blocking a redevelopment, which is currently the case in Malaysia. What are the benefits? Does Malaysia really need en bloc sales?
This would help Malaysia meet its Vision 2020 of a self-sufficient industrialised first world nation.
The constant redevelopment of buildings stimulates the economy. It ensures that cities and the nation grow accordingly.
It increases the availability and proximity of vital infrastructure for a greater number of the population. This includes access to power, water, sewage facilities, and public transport.
There are also benefits for individual unit owners. Individuals are able to obtain a far greater sale price by selling collectively due to the cost savings.
Developers do not have to bargain for each individual lot and potentially not be able to redevelop if one unit owner decides to hold out.
It converts an unrealised value into cash.
Upgrading to newer and larger properties or investing in better properties would further spur a long tail effect on the economy.
Developers in major cities have lobbied for for this and have organised trips to both Singapore and Hong Kong.
Singapore
This was introduced in 1999. It is globally the second most densely populated city nation.
This created a need for constant redevelopment and improvement to meet housing needs. The basic formula is if a building is less than 10 years old at least 90% of the owners must agree to sell.
If a building is more than 10 years old, 80% of the owners must agree to the sale.
These thresholds aim to prevent minority unit owners from stopping the sale and redevelopment of a building.
The process for such a sale is fairly extensive to ensure that fairness for all parties.
There must be a General Meeting of Owners to determine whether the requisite consensus is met.
A maximum of 3 owners must then be appointed to form a sale committee to handle the process.
This committee must obtain a valuation on the whole block, obtain a proposal for distributing sale proceeds, advertise the proposed en bloc sale application, prepare the application for the Strata Titles Board and serve a notice of the proposed application on all owners.
Once the advertisement has been submitted, the Strata Titles Board will consider the application.
The Strata Titles Board’s decision-making process depends on whether a minority owner objects to the sale within 21 days of the notice for an en bloc sale.
If there is no objection, the sale is automatically approved unless it can be shown that the transaction was not entered into in good faith.
If there is an objection, the board will consider if the application was in good faith. It will not approve the en bloc sale if an owner will suffer a financial loss, or if the mortgage will not be redeemed.
No single owner will be disadvantaged by losing money from the sale. It also secures the rights of the mortgagee over the property.
Once the board orders an en bloc sale, all unit owners must agree to sell their units to the purchaser in accordance with the sale and purchase agreement created by the sales committee.
Owners usually have three to six months to vacate the property on completion of the sale.
An en bloc sale usually takes about a year from application to handing over vacant possession.
Hong Kong
En bloc sales were introduced in the 1990s, before Singapore. Under their model, at least 90% of owners must agree. At least 80% must agree if:
·the building is more than 50 years old
·each unit makes up more than 10% of the undivided shares in the lot
·the industrial building is more than 30 years old and is not sited in an industrial zone.
It is more stringent compared with Singapore as minorities have greater rights.
However, the application process is simpler; it predates Singapore’s legislation.
Owners must prepare a valuation of the property, serve a copy of the application on each minority owner, and advertise the application.
To make up for this simplified process, the Lands Tribunal has more stringent tests than Singapore when deciding such a sale application.
The Lands Tribunal must be satisfied that redevelopment is justified due to age or state of repair of property and that the majority owners have taken reasonable steps to acquire the minority lots.
On approval by the Lands Tribunal, a trustee is appointed to conduct the sale.
The property is sold by public auction unless all parties agree to another method of sale.
Any person can bid at the auction but if the property is not sold after six months, the en bloc sale becomes void.
Finally, if there is a dispute the parties must first attend mediation to resolve the issue before the Lands Tribunal can hear the case.
Malaysia
Currently, blocks can only be sold if all the owners are agreeable.
A single owner can stop a sale.
While this is not a major issue at the moment, it could pose a serious threat to Malaysia’s development and progress towards a self-sufficient industrialised nation.
There may be other potential issues.
Article 13 of the Federal Constitution says that no person shall be deprived of property save in accordance with law, and that no law shall provide for the compulsory acquisition or use of property without adequate compensation.
Legislators need to ensure that they draft the legislation properly to comply with the requirements of the Constitution.
En bloc sales would also circumvent the existence of strata schemes as they may be terminated by the management corporation where the owners seek to fully or partially demolish the building or there is only one owner for all lots under the Strata Titles Act 1985.
This will allow a developer to terminate the strata scheme before they redevelop the building.
Now that we know that en bloc sales is possible, are they needed? En bloc sales are important for the continual redevelopment of Malaysia’s biggest cities, such as Kuala Lumpur.
Kuala Lumpur has a population density similar to Singapore, which indicates this need for more efficient use of land. Indeed, major cities in Malaysia face restrictions on expansion.
Finally, the Government will need to build new infrastructure to cater to previously undeveloped areas if population density is not increased and land used more efficiently.
Here are some proposed features:
·Less than 10 years old, at least 90% of owners must agree;
·Between 10 and 20 years old, at least 80% must agree;
·More than 20 years old, at least 75% must agree;
·Option for minority owners to appeal the en bloc sale;
·En bloc sale will be rejected if an owner will suffer financial loss or is unable to redeem his mortgage;
·Parties have to attend mediation for disputes before bringing them to the Strata Titles Board;
·Owners given a minimum 3 months to vacate the property from sale date;
·Owners to be offered priority to purchase new units in the redevelopment;
·Faster completion of the en bloc sale, which will go to the buyer’s credibility to pay;
·Make such sales to subject to a timeframe;
·Re-valuation of the property if there is a delay in the timeframe; and
·Greater education given to owners about the impacts of en bloc sales.
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.
Chris Tan is the founder and managing partner of Chur Associates
