Luxury home price slump draws interest from funds

Members of the key management team of ZACD's Asia-Pacific Real Estate Opportunistic Fund (from left): Mr Chen Siew, Mr Nicholas Mak, Mr Ryan Gwee, and Mr Darin Baur. The $300m fund is aiming for an internal rate of return of 15 per cent per year and
Members of the key management team of ZACD's Asia-Pacific Real Estate Opportunistic Fund (from left): Mr Chen Siew, Mr Nicholas Mak, Mr Ryan Gwee, and Mr Darin Baur. The $300m fund is aiming for an internal rate of return of 15 per cent per year and it will have a term of three years with the option to extend for another two years.PHOTO: ZACD

Firms setting up funds focused on this segment for investors to buy into property

The slump in luxury home prices in recent times has caught the eye of would-be fund managers, who are setting up funds to buy these units.

Yesterday, Singapore investment strategy firm ZACD launched a $300 million "opportunistic" fund to focus on this segment, along with data centres and Australian student accommodation.

On Monday, property developer Wing Tai Holdings said the firm had set up a new fund management unit to look into opportunities.

"The current market offers opportunities for investments, especially for investors with a medium- to long-term horizon and for institutional investors who are increasing their allocation to real estate," Wing Tai's chairman and managing director Cheng Wai Keung said.

Many wealthy people and family offices are believed to be investing in this field, including those of G.K. Goh, paint tycoon Goh Cheng Liang and shipping magnate Tan Boy Tee.

Plenty of funds from abroad are also on the hunt as the property market here still seems cheap relative to other top cities, said Mr Lee Liat Yeang, a partner in Rodyk & Davidson's real estate practice.

Some funds may not be purely invested in real estate, but may also be equity funds with the flexibility to invest in property, he added.

ZACD's Asia-Pacific Real Estate Opportunistic Fund (Series II) will aim to buy high-end properties at discounts of at least 15 per cent, said ZACD head of research and consultancy and chief investment officer Nicholas Mak.

The first series of the fund was launched in 2010 at a size of $125 million. It invested in three properties and reached maturity last year.

It targeted an internal rate of return of 15 per cent per year and achieved 30 per cent. For the second series, ZACD has again targeted about 15 per cent per year.

The fund will have a term of three years with the option to extend for another two years. It has raised over 50 per cent of the target equity. ZACD is taking a 10 per cent stake in the total equity raised.

Mr Lee of Rodyk & Davidson noted while those with financial muscle will always be looking to invest, opportunities may be limited.

For example, deals would ideally be structured in such a way as to avoid paying the Additional Buyers' Stamp Duty, such as through a sale of company shares. At the same time, should this be a development company, there would still be issues of possible Qualifying Certificate extension charges.

A version of this article appeared in the print edition of The Straits Times on February 19, 2016, with the headline 'Luxury home price slump draws interest from funds'. Print Edition | Subscribe