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IN WHAT is believed to be the first bulk transaction of residential units in a development following a tightening of stamp duty rules in March, American alternative investment manager Angelo Gordon has bought a stack of 22 units in the Draycott Eight condo for over S$100 million.
The units were sold by a fund managed by Alpha Investment Partners, a wholly-owned subsidiary of Keppel Capital, the asset management arm of listed Keppel Corporation.
The 22 units have a total strata area of 65,401 sq ft; Draycott Eight, comprising 136 units in three blocks of 24 storeys each, is on a site with about 79 years left on its lease term.
The Business Times understands that the sale was transacted through a sale of shares in the company owning the 22 units. Information on the final pricing and terms of the transaction have been closely guarded by those involved in the deal, but market watchers believe that it is a complex one involving some structuring.
An industry veteran said that for the purchase to have made sense to Angelo Gordon, the price would have to be S$1,700 per square foot (psf) of strata area at most. This takes into account the fact that more than a third of the 22 units are vacant, and that the property is on a site with a balance tenure of only 79 years.
"It's not a brand new property; it received Temporary Occupation Permit 12 years ago, in 2005."
That said, she acknowledged that the project is in an ultra-prime location, and has a distinctive clubhouse in a large black-and-white conservation bungalow.
Analysts noted that Angelo Gordon had renegotiated for a lower price for the units than what had been discussed earlier this year, to factor in the higher transactional costs following the introduction of the additional conveyance duty (ACD) in March.
This changed stamp duty effectively shut a tax loophole which institutional and sophisticated investors had for years exploited to save on stamp duty for their property purchases.
Before the announcement of the ACD, Angelo Gordon had already been doing exclusive due diligence on the purchase at around S$1,900 psf on a net basis after some income support.
Discussions are thought to have taken a break because the two parties could not seal a deal in the mere 12 hours between the announcement of the ACD shortly before noon on March 10 and its implementation from March 11.
The ACD is a new stamp duty imposed on residential property transactions involving significant changes in equity interest in entities primarily holding residential properties. This closed the previous differential in stamp duty treatment between such indirect property transactions and direct property deals.
A direct residential property purchase by a corporate buyer incurs 15 per cent additional buyer's stamp duty (ABSD), in addition to the standard buyer's stamp duty (BSD) of up to 3 per cent. Indirect purchases of properties through sales of shares in a company holding the properties would previously have incurred only a stamp duty of 0.2 per cent of the company's net asset value (NAV).
With the rule change, the significant buyer in indirect residential property purchases has to pay an ACD that is identical to the BSD of up to 3 per cent and the ABSD of 15 per cent in direct residential property purchases.
On top of that, the buyer will still have to pay the 0.2 per cent stamp duty on the NAV of the company.
The announcement gave a big push to parties that were already in advanced stages of bulk residential deals to swiftly wrap up their transactions by the end of March 10, to lock in significant stamp duty savings. This applied to the pending sales of balance units at Robin Residences, The Lumos in Leonie Hill, TwentyOne Angullia Park and The Line @ Tanjong Rhu by their respective developers.
However, there were some proposed bulk deals that could not be inked before ACD was implemented, and one of them was Angelo Gordon's proposed purchase of those 22 units at Draycott Eight.
On a positive note, a property analyst said the fact that the deal has finally been completed shows that bulk transactions of residential units can still be done despite ACD."It's a matter of how the higher transaction costs are split between the buyer and seller; a lot will also depend on their outlook of the residential property market," he said. Market sentiment has improved significantly in the last six months, having been given an impetus by the tweaks to cooling measures, such as the lowering of the holding period for the seller's stamp duty (SSD) and the cut in SSD rates, which were unveiled at the same time as the ACD.
A strong increase in private home sales and the collective sale fever have also added to the positive mood.
A seasoned property consultant said: "This, plus the view that prices of high-end condos in prime districts have bottomed out, could rekindle interest in bulk purchases of residential properties."
Agents estimate that prices of prime district condos have eased by 17 to 30 per cent between their peak in 2007 and early this year, depending on the property's land tenure, condition and the micro-market where it is located. Already prices have started to creep up in some projects.
"Some potential buyers may take the view that in entering the market today, they would be paying, say, 25 per cent less than a decade ago - which more than offsets the 18 per cent total ACD. Plus, there are prospects of capital appreciation. And many overseas investors like Singapore's stability - both political vis-a-vis other places in Asia, as well as in terms of its currency," said the property consultant.
The 22 units that the Alpha fund has sold formed the bulk of a stack of 23 units - comprising 22 four-bedroom apartments and a penthouse - which Alpha bought in 2010. It paid slightly over S$157 million or about S$2,300 psf for the units. In late-2012, the Alpha fund sold one of the four-bedders, on the eighth floor, for S$7.18 million or S$2,480 psf, leaving it with the 22 units which have now been sold to Angelo Gordon.
Some observers ask why Alpha is seling the units en bloc at a loss when it could have reaped a better price by selling off the units individually, especially given improving sentiment. It could be that Alpha prefers to divest the asset in its entirety as the life of the fund that holds the asset may be nearing an end; Alpha may want "a clean cut". The analyst said: "In the bigger scheme of things, this may be a small asset for the fund, which may have achieved strong returns on its other investments."