Singapore property gloom has silver lining for investors

SINGAPORE (Bloomberg) - Here's a good reason to own Singapore property shares: you might not have to own them for long.

Investors from ABN Amro Private Banking to Baring Asset Management Ltd. are eyeing developers that may be taken private by their parents as 66 per cent of the companies trade at less than the value of their net assets. Six developers were bought out since 2010 at an average share-price premium of 26 per cent, data compiled by Bloomberg show. In the most recent and largest transaction, Keppel Corp. paid $2.7 billion for the rest of Keppel Land Ltd. in March.

Listed developers with just one share in non-Singaporean hands are treated as foreigners under Singapore regulations, leaving them open to penalties if they miss deadlines to finish projects and sell apartments. Government curbs drove home sales to a six-year low in 2014, leaving more real-estate companies holding unsold units.

"For some of the developers which don't need funding, privatization might make sense," said Daphne Roth, head of Asian equity research at ABN Amro Private Banking. "There's a possibility of more privatizations, especially for the smaller companies where profit will be very much distorted by the charges that they take for unsold properties."

The controlling shareholder of Wing Tai Holdings may opt to take the company private to avoid such penalties, according to Maybank Kim Eng Holdings. The developer of luxury homes would face as much as $211 million in penalties over three years if its units in the Le Nouvel Ardmore and Nouvel 18 projects remain unsold, according to a March report from the brokerage.

Other prime candidates for delisting include Ho Bee Land, Wheelock Properties Singapore. and Guocoland, because their shares are cheap, according to Vikrant Pandey, an analyst at UOB-Kay Hian Holdings. The companies trade at between 0.6 times and 0.8 times their book value, according to data compiled by Bloomberg.

Under the Residential Property Act, foreign developers need to complete construction within five years of purchasing land and offload all units in another two years after that. If they fail to sell them they have to apply for extensions and pay charges from 8 per cent to 24 per cent a year on the value of unsold units. The law is designed to ensure land in Singapore isn't hoarded for speculation.

Controlling shareholders of Popular Holdings, made a buyout offer in January before a deadline to sell all units at its condominium project Ei8ht Raja. Hiap Hoe in December said its parent will buy the unsold units at its high-end condominium project Treasure on Balmoral near Orchard Road. SingHaiyi Group on April 1 said it will sell its majority stake in Corporate Residence Pte, the developer of the City Suites condominium project.

"Why pay levies or sell at rock bottom prices when we can find other ways like going private," said Donald Han, managing director of Chesterton Singapore Pte, a real estate consulting company.