Friday, June 29, 2012

Credo keeps edge in en bloc sales by brainstorming

Business Times: Thu, Jun 28
[SINGAPORE] A defining moment for Credo Real Estate was a brainstorming session at the end of 2006, when the property consultancy was in its fourth year of operation. That year, it ranked fifth in terms of share of brokering collective sales.

"We were not a forerunner or the dominant force in the en bloc sale market," recalls managing director Karamjit Singh. "There were other incumbents - the big consultancies.

"We needed to break certain internal mindsets in order to grow our share significantly.We wanted to aim high, but also be realistic."

Out of that brainstorming session was born "Project Runner-Up".

Mr Singh explains: "There was one particular company that was dominant at that point in time and we felt that they were doing very well and it would be difficult to beat them and shake their market share; but we can aim to be runner-up and so set ourselves that as a target for the end of 2007.

"We were very fortunate. At the end of 2007, we didn't become runner-up, but No 1."

Credo handled about 18.7 per cent of the record $11.6 billion of collective sales in 2007, including the record $1.34 billion Farrer Court deal. 2008 and 2009 were quiet years for en bloc sales amid the global financial crisis. When the en bloc sale market began to revive in 2010, the group was back at the top of the game Over the past 21/2 years, Credo has brokered about $1.8 billion or 30 per cent of the $5.8 billion in total en bloc sales.

In all, since the group was set up in April 2002, it has closed more than 70 collective sales totalling nearly $5 billion. Besides a capable team, Mr Singh says, the key to success is a process of evaluating which en bloc sale job to pitch for.

"Whenever we receive requests for proposals, we spend quite a bit of time analysing the project from various angles and we brainstorm as a whole group so that the entire team comes up with the best ideas. It has been a great learning opportunity especially for the juniors to analyse and see whether there is any particular latent potential that can be unearthed.

"And this is probably one of the areas that we specialise in - rolling up our sleeves to try to sell the land and building from either unique angles or highlighting unique attributes that can create value."

Only after going through this rigorous evaluation process would the group decide whether to bid for a particular job.

A key evaluation parameter is the collective sale premium, which refers to how much more an owner stands to receive from selling their unit through a collective sale compared with disposing of it individually. Ideally, the figure should be at least 50 per cent.

In addition, Credo looks at the site's marketability in the current environment, and tries to zoom in on sites that could satisfy new emerging demand trends. The team also makes educated guesses on the location of future MRT stations and whether a pitch could be made to the Urban Redevelopment Authority for some change of use - to get an idea of the sort of value that could be unlocked for owners.

When it comes to relatively new (say, under 15 years old), well-maintained estates with little untapped development potential, "we usually advise owners not to pursue a collective sale, as very often that would end up in futility", says Mr Singh.

Amid keen competition to clinch appointments to market en bloc sales, some agents woo owners with a higher reserve price. This is the minimum price stipulated in the collective sale agreement, which has to be inked by majority owners controlling at least 80 per cent of share values and strata area in a development before an en bloc sale can be launched.

Mr Singh states Credo's philosophy: "We don't think it's the right thing to do to get into the business of dangling unreal carrots.

"We choose to tell owners what we think is the real assessment of the land value. We've got a rigorous marketing campaign that we will assure them of. That hopefully gives them the best, independent of whatever reserve prices that we advise them.

"We've had cases where we've achieved something like 20, 30, 35 per cent above reserve price and much to the delight of both the sellers as well as the buyer because it still works for the buyer as we're able to unlock new angles, new value.

"So we are in the business of marrying people and the beauty of it is, most of the time, hopefully, it's a win-win proposition."

In reality, en bloc sales have sometimes brought out the worst in owners, pitting those who champion the collective sale against those who oppose it.

How does one manage en bloc sales so that they don't become potential "community wreckers"?

Mr Singh says: "Our role is to provide as much information as possible for all owners to make the best informed choice and when they make a decision, whether it's "yes" or "no", then let's respect their decision. It is after all a democratic process whether you have 80 per cent or you don't. No point forcing an issue.

"Just let it take its natural course. The laws are clear and that way if it happens, it happens with maximum happiness and willingness, and if it doesn't happen, then let's live with it and respect that and be happy with that."

Mr Singh has no shortage of happy en bloc tales. "There have been many instances where owners, when we either met them after the sale or bumped into them, still come forward to thank us for having facilitated them in getting the money that they got.

"Some of them have gone to the extent of sharing with us how the successful sale changed their lives for the better and how they managed to achieve certain objectives that they could not have done without the sale - like they went on to buy two more apartments, made more money . . .financed their kids' education."

A major issue for property agents handling en bloc sales is the "dynamic and erratic" demand pattern, as Mr Singh puts it.

"We keep a close eye and ear on the ground."
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Martin Koh | 9383 3992 | R020968Z
Sherry Tang | 9844 4400 | R020241C
Senior Sales Director
DTZ Debenham Tie Leung (SEA) Pte Ltd (L3006301G)

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