Analysts: Timing not good for IOI's land buy in Singapore

KUALA LUMPUR/SINGAPORE (Jan 17): IOI Corp Bhd is said to have won the bidding for a prime piece of land in Singapore that is earmarked for a RM1.7 billion to RM1.9 billion development. But analysts opine the timing of the venture may not be quite right.

It is learnt that IOI put in a bid for the tract at Jalan Lempeng, not far from the Clementi MRT station.

Maybank Investment Bank said in a note on Monday IOI subsidiary MultiWealth (S) Pte Ltd has emerged as the highest bidder for S$408 million (RM995 million) or S$554 per sq ft per plot ratio (ppr), citing Singapore's Housing and Development Board (HDB) as its source.

Analysts are cautious on IOI 's venture into the Singapore property market, which is expected to soften after the government decided to make foreign buyers pay more in taxes.

"To go in at a time when the foreign buyer market is collapsing due to the introduction of the additional stamp duty is not good [timing]," said an analyst.

Analysts are concerned that IOI has bitten more than it can chew with the latest venture, especially since there is little development at its South Beach project after five years.

South Beach is a planned commercial and residential complex located on Beach Road in downtown Singapore. City Developments Ltd and IOI holding 50.1% and 49.9% respectively in the venture.

Analysts expect foreign demand for Singapore properties to weaken, after it introduced an additional stamp duty amounting to 10% of the property value in December 2011.

Singapore permanent residents will be subject to additional stamp duty of 3% for second and subsequent properties while citizens buying their third and subsequent homes will also have to pay an extra 3% on the property's value.

Analysts expect property prices there to drop by 30% to 40% with the new ruling.

Market observers question whether the price of land negotiated by IOI is reflective of the latest market conditions, after factoring in the imposition of the 10% stamp duty.

Apart from IOI, other Malaysian property players that have expanded to Singapore include S P Setia Bhd, Selangor Dredging Bhd, YTL Land and Development Bhd, and Khazanah Nasional Bhd.

According to official data, foreign buyers accounted for 19% of all private residential property purchases in the second half of 2011, almost triple the 7% of the first half of 2009.

Maybank IB is neutral as it is cautious on the outlook for residential property in Singapore in the near term. Pending an announcement by IOI, it retained the hold call on the group.

The house noted that IOI's S$408 million bid for this 99-year leasehold land is 13% higher than that of the second highest bidder, UOL Group Ltd.

Maybank IB said the 2.4ha plot is earmarked for a 685-unit condominium development, translating into an average 1,074 sq ft of built-up area for each unit.

It said, based on an average selling price (ASP) of S$1,000 to S$1,100 per sq ft, each unit will be priced between S$1.07 million and S$1.18 million. This translates into a combined estimated gross development value of S$736 million to S$809 million.

Maybank said the land is well located as it is some 500m away from Clementi MRT Station and Clementi Bus Interchange.

It added that another key attraction is its proximity to Nan Hua Primary School and Clementi Town Primary and Secondary School, which will make project appealing to young families.

The research house said, based on a construction cost of about S$350 per sq ft added to its land cost of S$554 per sq ft, it estimates IOI's breakeven cost to be at about S$900 per sq ft ppr.

Based on the latest ASPs in the surrounding area of S$1,000 to S$1,100 per sq ft, IOI should enjoy pre-tax margins of 10% to 18%, translating into S$61 million to S$123 million in net profit.

Maybank IB said the project has a marginal uplift to IOI's net profit base of circa RM2 billion per year if recognised progressively over a three- to four-year period.

For FY11 ended June 30, IOI posted a net profit of RM2.22 billion versus RM2.03 billion.

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