Property Singapore - UOB Kay Hian 2016-07-07: Taking Charge Of Nouvel 18

Property Singapore - UOB Kay Hian 2016-07-07: Taking Charge Of Nouvel 18 Singapore Property WING TAI HLDGS LTD W05.SI  CITY DEVELOPMENTS LIMITED C09.SI  HO BEE LAND LIMITED H13.SI  CAPITALAND LIMITED C31.SI 

Property − Singapore: Taking Charge Of Nouvel 18

  • The deal paves the way for CDL to unlock value from Nouvel 18 in a potential third PPS transaction, while allowing Wing Tai to recycle capital and avoid hefty extension charges. 
  • Watch out for a special dividend from Wing Tai. 
  • We see signs of residential price floor formation and believe the market has over-discounted the negative prospects for the sector. 
  • We maintain OVERWEIGHT with CapitaLand and City Developments as our top picks.


  • Wing Tai Holdings has sold its 50% stake in the 156-unit Nouvel 18 for S$410.96m (approximately S$2,757psf) to JV partner City Developments (CDL). The transaction brings CDL’s original 50% stake in Nouvel 18 to 100%.


We remain OVERWEIGHT on the property sector. 

  • We believe the market has over- discounted the negative prospects for the residential segment by pricing in a 40-50% correction in property prices. 
  • We expect a healthy 15-20% correction in property prices beyond which prices should trend in line with GDP growth. 
  • We expect developers to rally once there is confirmation that prices are unlikely to correct more than 20% on average. 
  • The key re-rating catalyst will be demand-side policy easing by the government.


Move comes as extension charges come home to roost, with Nouvel 18 (100% unsold) set to incur qualifying certificate (QC) charges later this year (TOP: Nov 14). 

  • We previously highlighted that Wing Tai could face up to S$114.6m in QC charges from the Novel 18 project, with an estimated S$19.1m in Year 1. Assuming no sales over the next three years, the Nouvel 18 project’s QC charges amount to S$229.2m, on a 100% ownership basis. 
  • Recall that QC charges on unsold property are pegged at 8%, 16% and 24% of the land cost pro-rated on proportion of unsold units for the next three years respectively from the date of enforcement.

Full ownership paves the way for CDL to unlock value. 

  • In a move certain to fuel speculation of potential securitisation, CDL has highlighted capital market transactions as a means of unlocking value from Nouvel 18, as well as bulk sales. Full ownership of the project would heighten flexibility and pave the way for a potential third Profit Participation Securities (PPS) transaction. 
  • As none of Nouvel 18’s 156 units have been moved thus far, coupled with QC charges looming in 4Q16, Nouvel 18 could be an addition to CDL’s hinted third PPS transaction potentially forthcoming later this year. 
  • We note that with two PPS platforms completed so far (about S$2.6b), CDL is on its way to reach its lofty target of managing S$5b in funds over the span of five years from 2014. 
  • The purchase price is in line with the recent transactions at Wheelock’s Ardmore 3 project.

Means of capital recycling for Wing Tai and potential dividend. 

  • The disposal of its 50% stake in Nouvel 18 for about S$411m would enable the company to redeploy capital. The selling price of S$2,757psf is 10.3% higher than our built-in estimate of S$2,500psf (0.6% accretion to the RNAV). We estimate an attributable profit of about S$45m from the sale of Wing Tai’s Nouvel 18 stake assuming a breakeven cost of S$2,450psf. A 100% dividend payout could imply special dividends of about 6 S cents (~3% yield).

Future transactions of a similar nature between Wing Tai and CDL unlikely. 

  • CDL’s stated motivation for full ownership of a project it already jointly owns was to obtain further flexibility in exploring asset monetisation opportunities. Nouvel 18 was the sole JV project in which Wing Tai and CDL held equal stakes, stemming back from the en bloc sale of the Anderson 18 in Mar 07.

Novel strategies put into play by developers. 

  • Beyond bulk sales of unsold inventories to parent companies, contractor companies, or related parties, we also highlighted that recent offerings by developers have increasingly seen greater novelty. These include:
    1. Wheelock’s “ABSD Assistance” package offers a further discount (13-15%), on top of the existing 15% discount dangled and “Deferred Assistance” schemes.
    2. CDL is offering discounts of up to 18%+2% at the recently-opened preview launch of Gramercy Park (TOP 2H16)
    3. Besides offering 12-15% discounts, OUE’s deferred payment schemes allow buyers to: 
      1. pay 20% upfront with the remaining 80% paid at the end of the year, potentially gaining if ABSD is lifted by then; and 
      2. pay 20% upfront, with the remaining 80% payable after 2-3 years.

Signs of price floor formation as rate of decline slows down. 

  • URA’s 2Q16 flash estimates indicate that while residential property prices continue to slide 0.4% qoq to mark the 11th straight quarter of decline, the rate of decline is slowing down (0.7% qoq drop in the first quarter). The mid-tier and high-end segment prices of non-landed properties rose 0.3% qoq and 0.2% qoq respectively while mass market prices declined 0.7% qoq. 
  • The pick-up in buying activity was a result of the attractive promotions highlighted above. The residential property prices are now 9.4% below the peak.


Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-07-07
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