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Heeton set for growth after QC pain
BOUTIQUE property developer Heeton Holdings is ready to move on with its growth strategy after clearing its overhang of unsold units at two projects - iLiv@Grange and The Lumos - which had cost it painful qualifying certificate (QC) penalties in the past couple of years.
iLiv@Grange along Grange Road was sold through a sale of shares to a group of Singaporean private investors including executive chairman of The Straits Trading Company Chew Gek Khim and KSH Holdings' executive chairman Choo Chee Onn in October 2016.
All the 30 units in the luxury condominium remained unsold at the time of transaction, despite the project having obtained its temporary occupation permit (TOP) in October 2013. It had incurred about S$5 million in QC charges.
Heeton, which co-developed The Lumos condominium along Leonie Hill with Koh Brothers, in July this year, also sold its 50 per cent stake in the holding company of the asset together with its joint venture partner to a company held by individual Singapore buyers.
The transaction did not incur the additional conveyance duty (ACD), a new stamp duty introduced in March this year to close a tax loophole which institutional and sophisticated investors had been exploiting to save on stamp duty for their property purchases - by transacting assets through shares.
At the time of sale, The Lumos had 36 unsold units, out of a total of 53 units. It had incurred S$35 million in QC charges, evenly split between Koh Brothers and Heeton. The development had obtained its TOP in August 2011.
QC rules require all foreign and listed developers to finish building their projects within five years of acquiring the site; they also have to sell all the units within two years of obtaining their TOP.
If they fail to meet the deadline, the penalties are punitive. They incur extension charges at 8 per cent of the land purchase price in the first year; this goes up to 16 per cent in the second year and 24 per cent a year in the third and subsequent years.
During the hour-long interview in the show gallery of its 121 Collection at Whitley project, Heeton's chief executive Eric Teng, also the company's first non-family CEO, said that he is "pleased" that the company managed to overcome the overhang of unsold units.
"This sets the group in the right direction to move on instead of having something constantly pulling on your leg and preventing you from moving far," he says.
The numbers show it. Following the disposals, the developer's latest nine-month results showed net profit jumping to S$40.3 million, reversing net losses of S$1.9 million a year ago. Revenue inched up 1.9 per cent year-on-year to S$47.5 million.
While the developer made gains on the disposal of The Lumos, the QC charges that it had to pay half-yearly proved a constant drain on its cash flow.
Mr Teng says he considers the group's strategy of securitising the assets to be "innovative" because it beats two other routes that other developers have taken, such as by privatising their companies and by selling the property to an internal, wholly local-owned subsidiary or parent firm.
This was the company's way of cutting losses and redeploying capital, he says.
"This was something we realised will drag the group down and prevent our growth, so the way to manage it would be to securitise it and allow high net worth individuals to participate."
Still, he feels it is slightly unfair that listed firms should be classified under the same category as "foreign firms" just because they do not have 100-per-cent Singaporean ownership, even as he agrees with the rationale behind the ruling, enacted to prevent foreigners from hoarding land in Singapore.
"I will support the government in saying that we do not want developers to control the land, but I think that listed firms controlled by Singaporeans should still be given some leeway. If not, it defeats the original intent of growing Singapore enterprises to be successful."
One method he supposes could work is for the Singapore stock exchange and government to implement a rule for listed companies to declare when the developer's own stake in the company falls below a certain stipulated threshold.
As for the two offloaded projects, he thinks it was bad timing and the dismal property buying sentiment in the last two years that affected sales of their units.
He can see the sentiment turning, going by sales at the group's 121 Collection at Whitley project, which is a group of eight semi-detached houses and one bungalow along the namesake road.
"In the last two years, we have tried to push for sales but it was not so easy because people were resistant. But in the last two months we have sold four units." The houses average about S$5.4 million in quantum.
Along with this, Heeton is also selling Onze, a condominium at Tanjong Pagar, which is currently more than 70 per cent sold, with about 12 residential units left unsold, according to URA figures at end-October.
Recently in July, Heeton, together with its usual partners Chip Eng Seng and KSH Holdings, also bagged a residential site in Woodleigh for S$701 million, or S$1,110 per square foot per plot ratio (psf ppr), beating Keppel Land and Wing Tai Holdings by a mere S$9 psf ppr.
On the aggressive land bidding going on, he says: "New benchmarks are being set. The concern is actually to the end consumer, the buyer. The developer has to ensure that it is affordable for buyers because we all know that real wage growth has been slow in the last couple of years vis-a-vis the improvement in the property market."
Responsive pricing was what helped to move all its 1,399 units at High Park Residences in just 20 months, a project that it co-developed with KSH and Chip Eng Seng, he says.
"It's important to be responsive to the most important stakeholder in the ecosystem: the buyer or investor. Pricing is definitely important. But equally challenging are factors such as government regulations, market conditions, and wage growth that determine it."
Yet pricing is also something that developers can recalibrate with every subsequent phase of launch of their units, he adds.