Draycott Eight bulk sale is about to be sealed

A DEAL is said to be nearing for the bulk sale of a stack of 23 units at Draycott Eight owned by a German core fund managed by Morgan Stanley, BT understands.

The price could be slightly above S$150 million, or around S$2,200 per square foot based on the total strata area of 68,419 sqft.

The sale of the Draycott Eight units is expected to be effected through the sale of shares in a company that owns the 22 four-bedders and a penthouse. Most of the units are understood to be leased.

Developed by Wing Tai, Draycott Eight comprises 136 units in three blocks of 24 storeys each. The 23 units owned by the Morgan Stanley-managed fund are in a block that also has another 23 units owned by a fund managed by Alpha Investment Partners. Alpha purchased its units in 2010 for slightly more than S$157 million or about S$2,300 psf from another Morgan Stanley-managed fund. The two funds bought their respective stacks of units at the same time in 2007 at an identical price of S$2,600 psf.

Other bulk transactions of apartments since late last year include Blackstone’s en bloc purchase of 21 Anderson Royal Oak Residence, a 10-storey property with 34 units. The price was S$164 million, or S$1,917 psf – based on the total strata area of 85,552 sq ft. Blackstone has also picked up 17 units at Paterson Suites for S$2,100 psf or close to S$80 million from a fund in the Real Estate Capital Asia Partners (Recap) series managed by SC Capital Partners. Both are completed freehold developments.

Other bulk transactions include the sale of the last 16 units at 111 Emerald Hill, a 40-unit completed freehold condo project, and Straits Trading’s divestment of 14 units at The Holland Collection for S$53.8 million to Haiyi Holdings, a private vehicle of Chinese businessman Gordon Tang and his wife.

Meanwhile, listed SingHaiyi Group has said it plans to sell the subsidiary that is the developer of the freehold City Suites along Balestier Road to the project’s main contractor; only about 10 per cent of the 56-unit project had been sold as at the date of the announcement in early April.

Typically these bulk sales are effected through a change in ownership of shares in a special purpose vehicle (SPV) that owns the apartments or which developed the project. Thus these purchases do not entail payment of the up to 15 per cent additional buyer’s stamp duty, according to tax experts and conveyancing lawyers. Even the regular buyer’s stamp duty of up to 3 per cent does not apply to such share purchases; instead the stamp duty rate payable is 0.2 per cent of the net asset value or the market value of the company, whichever is higher.

However there are other issues involved in buying a property through a company because one would have to do due diligence to make sure there are no hidden liabilities, said KPMG executive director Leonard Ong. “Moreover an investor that acquires a property through the purchase of shares in an SPV or property development company, and subsequently sells the property may end up with a higher tax liability on the profit from the transaction because of the lower cost base for the property reflected in the company’s books.”

Knight Frank’s latest Prime Global Cities Index tracking luxury residential property prices released on Wednesday showed Singapore posting the biggest year-on-year fall of 15.2 per cent as of June 2015, among the 35 cities covered by the index. For the first half of this year (June 2015 vs December 2014), the drop for Singapore was 7.9 per cent.

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