Property and hotel group Hiap Hoe has agreed to offload a company that owns the unsold units of WaterScape@Cavenagh to its controlling shareholder Hiap Hoe Holdings to avoid having to cough up increasingly hefty penalty payments to the authorities.
Hiap Hoe Holdings - which is substantially owned by the mainboard- listed company's executive chairman and chief executive Teo Ho Beng and managing director Roland Teo Ho Kang - will pay $31.1 million for Cavenagh Properties, which owns the unsold units.
The price tag takes into account the most recent valuation of the properties on an en-bloc basis, adjusted for their carrying value in the Cavenagh Properties book.
Explaining the rationale for this interested-party transaction in an announcement last week, Hiap Hoe said that the property cooling measures had resulted in foreigners diverting their investments to markets outside Singapore.
"The group has experienced a notable reduction in the pool of potential buyers and has not been successful in selling the remaining units of the properties despite different marketing activities and strategies rolled out by various marketing agents," said Hiap Hoe.
Meanwhile, the company has had to comply with qualifying certificate (QC) rules, which state that foreign developers have up to five years to finish the construction of their residential projects and sell all units within two years of the developments obtaining their temporary occupation permit (TOP).
WaterScape@Cavenagh obtained its TOP in September 2014.
The group has since paid an extension fee of $1.19 million to extend the sales period for the properties by six months until March 23 next year.
This move merely kicks the can down the road as "market conditions for the next few months are expected to remain subdued and the authorities did not provide any clear sign that the cooling measures will be lifted anytime soon in the near future", Hiap Hoe noted.
By selling now instead of hanging on, Hiap Hoe will be able to realise a gain of $24 million over the carrying value of the properties as at Sept 30, while potentially avoiding additional QC charges of about $1.19 million, $4.75 million and $7.13 million for future extensions until Sept 23 next year, Sept 23, 2018, and Sept 23, 2019, respectively.
Upon completion of the sale, Hiap Hoe said, it would deploy the estimated net cash proceeds of $30.96 million for other corporate purposes.
Hiap Hoe stock edged up half a cent to 70 cents last Friday on light turnover of 23,800 shares.