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The JV company is owned by UOL and Kheng Leong subsidiary Russville

IN ANOTHER major collective sale transaction, a joint venture company owned by UOL Group and a subsidiary of Kheng Leong Co Pte Ltd has signed a deal to buy Nassim Park for $380 million.

Including an estimated development charge of $8 million, the price works out to around $388 million or about $1,131 per square foot (psf) of potential gross floor area.

The breakeven cost for a new development on the Nassim Park site is estimated to be between $1,600 and $1,700 psf of gross floor area.

The joint venture company, Park Developments, is 70 per cent owned by UOL and 30 per cent owned by Kheng Leong’s subsidiary, Russville.

Kheng Leong is considered as an associate of UOL’s directors Wee Cho Yaw, Wee Ee Lim and Wee Ee Chao under the listing rules.

UOL and Russville are currently in negotiations with an unrelated third party for equity participation in Park Developments.

Completed in 1992, Nassim Park sits on a 245,135 square feet site which is zoned for residential use with a 1.4 plot ratio (ratio of potential maximum gross floor area to land area) and a maximum height of four storeys under Master Plan 2003.

Market players note that the price psf for such a choice location would have been steeper if the height restriction was higher as developers can sell units on upper floors at a higher price psf.

Located along Nassim Road, Nassim Park sits in an exclusive residential area surrounded by embassies, good class bungalows and high-end developments. The site is the largest condominium site on Nassim Road.

Michael Ng, managing director of Savills Singapore, which brokered the sale of Nassim Park, said the sale price achieved ‘reflects strong demand for quality sites in prime area’.

He added: ‘Confidence in the luxury condominium segment is robust.’

The existing Nassim Park has 104 strata-titled apartments and townhouses. The conditional agreement to sell Nassim Park to Park Developments was entered into with subsidiary proprietors of strata lots with not less than 80 per cent of the share values in Nassim Park.

Singapore’s residential property market is currently in the midst of an upcycle led by the high end of the market.

Source : Business Times - 31 Aug 2006

Deductibility of borrowing expenses hinges on purpose of loan

The Court of Appeal has delivered a landmark judgment against the Inland Revenue Authority of Singapore (Iras), allowing a property developer tax deductions of $4.3 million for borrowing and refinancing expenses.

BT understands that several cases involving property developers were held pending the outcome of this case. And the decision affects not just property developers but all traders who obtain loans to finance the purchase and development of trading stock.

Previously, Iras did not allow deduction of borrowing expenses, saying they were capital and not revenue in nature.

Lawyers say this will change now that the court has decided that the deductibility of borrowing expenses depends on the purpose of the taxpayer in getting the loan.

As for refinancing expenses, Iras previously allowed deductions on a concessionary basis. But lawyers say such expenses will now be deductible by law if the original loan is a revenue loan.

They also say that after this case, the way loans are structured will have a bearing on whether expenses incurred in connection with them are tax deductible.

‘Often businesses take large general purpose loans because they want to have the flexibility to use the money,’ said Teoh Lian Ee, head of tax at Drew & Napier.

‘But this flexibility to use the loan means they cannot get tax deductions under the new ruling which only allows tax deductions on loans which have the specific purpose of funding revenue purchases.’

This means that companies that are certain that a loan is to fund revenue purchases or to develop trading stock should make sure this is stated in the agreement, and that amounts drawn down are only used for such a purpose.

According to Mrs Teoh, they should then be able to enjoy tax deductions on expenses incurred in connection with the loan.

Mrs Teoh represented the developer with team members Stacy Choong and Seah Ching Ling in the long-drawn appeal, which took more than four years from the date of filing the petition of appeal to the delivery of judgment.

In the case, the property developer obtained a syndicated loan of $113 million to finance a major condominium project. The developer was able to repay the loan from progress payments received from the sales of the condo units before it was due, but had to furnish a bank guarantee to the Urban Redevelopment Authority to withdraw the sum.

The identity of the property developer was not disclosed.

The issues before the court were whether expenses of $4.3 million incurred in connection with the syndicated loan and the bank guarantee were revenue expenses and deductible against the developer’s taxable income.

Under the Income Tax Act, revenue expenses are generally deductible if they are wholly and exclusively incurred in the production of income, but capital expenses are generally not deductible.

The expenses incurred in connection with the syndicated loan included underwriting and agency fees, and expenses associated with the bank guarantee included bank commissions and agency fees.

The court, which looked at cases from various jurisdictions, held that whether an expense is capital or revenue in nature depends on the purpose of the taxpayer in obtaining the loan.

The court, which comprised judges Andrew Phang, Judith Prakash and VK Rajah, found that the loan was obtained for a revenue purpose because it was to develop the condominium project for sale.

Because of this, the borrowing and refinancing expenses in connection with the loan were also revenue in nature and deductible.

However, developers who develop projects not for sale but for lease will not enjoy tax deductions on borrowing and refinancing expenses connected to a loan, as this will be considered a capital investment.

Source : Business Times - 31 Aug 2006

Focusing on prime areas may affect urban renewal

A PROPERTY forum on the popular en bloc and redevelopment issue held yesterday raised fears that developers are snapping up land - and sometimes sitting on them - at a cost of what might be best for the market.

Industry players were also worried that with developers focusing on the prime districts when it comes to buying sites, these areas could be developed at the cost of the rest of Singapore - which does not bode well for Singapore’s overall urban renewal plans.

And those present at yesterday’s Singapore Property Research Forum also pointed out that with the potential supply of new residential units set to climb - with developers going on a buying spree after years of holding back - the market could soon see a glut of homes.

‘This grabbing of land and building up land reserves has a lot of implications for planning,’ said Malone-Lee Lai Choo, from the National University of Singapore’s real estate department.

Developers, said Dr Malone-Lee, might not act in the market’s best interests when deciding when to launch the sites they are sitting on - unlike the government.

She added that this trend could lead to a redefinition of the role of the government’s Government Land Sales Programme, which might have to focus on certain types of sites or seek to control the public sector through increased development charges, which might dampen the en bloc fever.

Another concern raised is that with the central area continuing to draw new investments through en bloc sales and redevelopment programmes, the ‘fringes’ could suffer.

Data from property consultancy Credo Real Estate, which specialises in collective sales, shows that in the last 14 months, of the 75 en bloc sales that have taken place, 71 per cent were in the prime districts of 9,10 and 11.

More government intervention and incentives might be needed to encourage redevelopment outside the prime districts, Dr Malone-Lee said.

Industry players also expressed worries that with the record number of en bloc sales in the past 12 months, there may be an over-supply of homes across Singapore.

The net supply of potential new units in Singapore is set to rise by more than 4,200 from collective sales transacted from July 2005 to August 2006, according to figures from Credo.

Credo’s data also shows that since the start of the year, 41 collective sale transactions - worth more than $4.5 billion - have taken place.

But Credo’s managing director Karamjit Singh was not worried, saying that the buying has not been overdone.

‘So, far, they (the number of new potential units) are not alarming yet,’ he said. And he does not expect the en bloc fever to cool any time soon.

‘As long as the outlook (of the property market) is good, developers will buy; it is as simple as that,’ Mr Singh said.

Source : Business Times - 31 Aug 2006

Price for the 19,335 sq ft freeholdsite works out to $1,154 ppr

FORMER Singapore Land chairman SP Tao’s Shing Kwan Group has bought St Martin’s Lodge in St Martin’s Drive for $29.25 million in a collective sale.

The unit land price of the 19,335 square feet freehold site works out to $1,154 per sq ft of potential gross floor area including an estimated $2 million development charge.

The site is zoned for residential use with a 1.4 plot ratio and a maximum height of five storeys.

It can be redeveloped into a new project with about 15 units averaging 1,800 sq ft. Analysts estimate the breakeven cost could be $1,550 to $1,650 psf

A company owned by Mr Tao’s Shing Kwan Group was the highest bidder in a tender closed on Aug 22. CB Richard Ellis brokered the deal.

Garden Estates, part of Singapore’s Hong Leong Group, developed the 12-unit St Martin’s Lodge, which was completed only in 1994. Owners of 11 of the 12 units have so far agreed to a collective sale.

They will walk away with handsome gains, receiving $2.3 million if they own a 1,248 sq ft apartment or $2.6 million for a 1,668 sq ft unit - between 60 per cent and 100 per cent more than the units would have fetched if sold individually.

Shing Kwan Group is looking primarily at boutique residential developments in Singapore with an all-up investment of about $50 million each.

Cosmopolitan Development - Shing Kwan’s joint venture with Mackmoor Pte Ltd, which is controlled by parties linked to Indonesia’s Metropolitan group - developed 11 Amber Road, a 40-unit apartment block in Katong that is fully sold. It also developed The Quayside apartments and retail outlets along the Singapore River, and Anson House.

Shing Kwan also has interests in China and Sri Lanka - including Shanghai Mart, Landmark Towers complex in Beijing, Mandarin Garden Hotel in Nanjing and The World Trade Center in Colombo.

Source : Business Times - 31 Aug 2006

Extra money was to make up for breaking tenancy

DEVELOPER Kwee Liong Keng stands to pocket $8.814 million when his penthouse apartment near Orchard Boulevard is sold in a collective deal.

But Pontiac Land?s chairman and managing director went to the Strata Titles Board recently to object to the sale of Beverly Mai condominium in Tomlinson Road.

He wanted an extension of two months before all the residents had to move out, or another $20,000 on top of what he will get for the apartment, to make up for him breaching a rental contract with a tenant.

Mr Kwee, who bought the unit 31 years ago for $360,000, got his way somewhat on Saturday morning when the board sat.

He will get $10,000 extra, paid out of the pockets of four residents who make up the sale committee.

The five-member tribunal - headed by its president Tan Lian Ker - heard that the collective sale of the freehold estate requires all residents to move out by next August.

But Mr Kwee?s lease with his tenant was up only two months later, in October. His tenant, an expatriate, was reluctant to move out before then.

He said he had raised his concerns with CB Richard Ellis, which had brokered the deal, in March and again at the estate?s extraordinary meeting in May, to ensure that the handover date fell after October next year.

This did not happen.

Mr Kwee told The Straits Times he opposed the deal not because he wanted to get more money, but to ‘protect the integrity of a business contract’.

He had initially asked the board to move the deadline back to October next year, but it refused, he said.

‘If they could have let us extend it by two more months, then everyone would have been happy,’ he said.

‘I would be happy, my tenant would be happy and the rest of the estate would also be happy.’

Mr Kwee added that he would now tell his tenant that he had tried his best to fulfil his contract but he had to comply with the board?s decision.

Beverly Mai was represented by Mr Norman Ho and Mr Lee Liat Yeang from Rodyk & Davidson, while Mr Kwee sent one of his employees to represent him at the mediation.

With the only objection out of the way, the board gave its approval for the sale of Beverly Mai to property magnate Ong Beng Seng?s Hotel Properties at a price of $238 million.

The deal will be sealed in three months? time.

Fifty apartment owners will collect $4.4 million each from the collective sale while the two penthouse owners will each get double that amount.

Mr Kwee is the president of the Real Estate Developers? Association of Singapore and chairman of the Pontiac Group, a family business set up by his father 47 years ago.

The group has developed landmark buildings such as The Ritz-Carlton, The Conrad Centennial, The Regent and Camden Medical Centre.

Mr Kwee said he will donate the $10,000 to charity.

Source : Straits Times - 30 Aug 2006