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Aug 28, 2007

Revised en bloc law fixes imbalances in mixed estates

By Fiona Chan

HOME owners who live in mixed developments - which have both apartments and shops or offices - will now get a bigger say if their estates go en bloc.

This is thanks to a proposed law change which will require another layer of consent from an estate's owners for a collective sale.

Consent is granted now if owners who hold at least 80 per cent of a development's share values vote in favour of a sale. If a development is less than 10 years old, the requirement is 90 per cent.

But the upcoming change will add another condition to en bloc sales regardless of whether the estate is mixed or not: The owners who want to sell must also have units that make up at least 80 per cent of the development's total area. Again, this is upped to 90 per cent if the estate is less than 10 years old.

This change was made to address the imbalance in share values in a mixed development. Share values are assigned when a unit is first sold, and help determine what each owner pays in maintenance fees and how many voting rights he has in an estate's management.

Although share values are partly determined by unit size, owners of commercial units generally get more share values than home owners. For every one share value given to a home owner, an office owner in the same estate gets four and a shop owner, five.

This has led to complaints from residents in mixed developments who are reluctant to sell their estate en bloc but who may not have a choice.

The proposed change has itself been tweaked since March, when the Ministry of Law first considered a second layer of consent.

Its initial proposal was based on the total number of an estate's units, rather than its total area. But after feedback from the public and experts, the ministry changed its mind.

Property consultants yesterday said the new rule will make things more equitable for home owners.

'The original plan to go by number of units would have been unfair to owners of large units, because they would have paid more for their units but would have only one say,' said Mr Karamjit Singh, executive director of property firm Credo Real Estate.

Mr Lui Seng Fatt, head of investments at Jones Lang LaSalle, warned that this new rule may make it harder for mixed developments to go en bloc. 'Also, owners with a larger floor area may now have a bigger say, not only in voting but also in how to split the sale proceeds,' he added.

But the change may not have much impact on the en bloc market - 90 per cent of deals done since last year were in purely residential estates, said Mr Nicholas Mak, director of research and consultancy at Knight Frank.