Hiap Hoe to offload unsold units of WaterScape @ Cavenagh to parent to relieve QC penalty headache

Artist's impression of Waterscape At Cavenagh, a 200-unit freehold condominium.
Artist's impression of Waterscape At Cavenagh, a 200-unit freehold condominium. PHOTO: HIAP HOE

SINGAPORE - 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 officer Teo Ho Beng and its managing director Roland Teo Ho Kang, will pay S$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, Hiap Hoe said that the property cooling measures have 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 S$1.19 million to extend the sales period for the properties by six months to March 23, 2017.

This extension is merely kicking 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.

The sale will therefore enable Hiap Hoe to realise a gain of $24 million over the carrying value of the properties as at Sept 30 while avoiding future additional extension charges of about $1.19 million, $4.75 million and $7.13 million for extension of time till Sept 23 2017, Sept 23, 2018 and Sept 23, 2019 respectively.

Upon the completion of the sale, Hiap Hoe will be able to deploy the estimated net cash proceeds of $30.96 million for other corporate purposes.