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Homeowners intending to sell collectively for better pricing will be disappointed to find property firms cutting deals with individual sellers

Owners of flats in old buildings who expect to gain a windfall from collective sales of their properties to developers by tender will be disappointed by some developers' latest strategy in acquiring old units for redevelopment.

Even though collective sale is a short cut for developers to gain 100 per cent ownership of old buildings for redevelopment, they have opted to buy units from individual flat owners, property consultants say.

Such a move will take a lot of time but can help developers save on costs.

Willis Mak Tse-hing, a director of investment at Colliers International, estimated that developers can save 20 per cent of acquisition costs through this strategy, compared with joining tenders in collective sales.

Individual owners putting up their flats for collective sale ask for a tender reserve price usually  more than what developers want to pay, Mr Mak said.

After the successful sale of Fortune Villa in late 2004, many individual owners of flats in old buildings in Kowloon Tong and Seymour Road at Mid-Levels were planning to sell their properties by tender.

However, collective sales of most old buildings such as Moonbeam Terrace in Kowloon Tong and 25 Robinson Road in Mid-Levels  have failed as developers' offers did not meet the owners' aggressive asking prices.

Thus, developers have begun to adopt a 'one by one' strategy in acquiring old buildings, said Mr Mak.

'Developers would buy units in old buildings one by one or buy majority units from local investors,' he said.

For instance, a developer has acquired 20 per cent ownership of 27 to 29 Seymour Road through its shell company, Excel Free,  since last year.

The developer has also bought units of 25A  and 33 to 35 Seymour Road, forcing flat owners at 27 to 29 Seymour Road to give up their plan  for a collective sale.

Property agents believe the developer is Swire Properties, as it owns the site at the junction of Seymour Road and Castle Road.

Sources said that the developer has slowed down its property acquisitions after  gaining 20 per cent ownership of target properties.

'It's the developers' strategy,' Mr Mak said.

A collective sale works only when the owners of usually more than 80 per cent of units in a strata-titled  building have agreed to sell. This is so because the buyer can call for a compulsory sale according to the 90 per cent statutory threshold for  such a sale.

'Some developers would slow down or even stop their acquisition process after they have bought 20 per cent ownership  to prevent the remaining owners from asking for aggressive prices,' Mr Mak said.

'The remaining flat owners therefore have to cut their asking prices to attract developers.'

This kind of acquisition usually takes 10 years to complete.

For example, Swire Properties had taken more than 10 years to complete the acquisition of Sai Wan Terrace in Quarry Bay using this strategy, which blocks individual flat owners from organising collective sales or other developers  from coming in.

Only major developers can adopt this strategy as it takes longer and entails bigger interest costs. Mid-tier players have turned to buying from local investors.

Emperor Investment, the property arm of Emperor Group, has  gained more than 90 per cent ownership of properties at 9A-H Seymour Road and Ying Fai Mansion through this strategy.

Elwyn Chan,  general manager  of Emperor Investment,  said: 'Many flat owners  worry about the market response to  their tenders. They  would rather  sell their units directly to developers.

'We also bought majority units  in old buildings from local investors  who  began to acquire the properties before 1997.'

He said the company will continue to adopt this strategy  in acquiring development sites.

Many investors such as Franco Yeung have bought majority units  in old buildings since 1997, acquiring more actively  since the property market rebounded.

Mr Yeung sold his more than 90 per cent ownership of old buildings at Wood Road in Wan Chai to Lai Sun Development and AIG Global Real Estate Investment (Asia) for HK$595 million last month.



Developers shift tactics in buying old buildings