Thursday, January 24, 2013

ABSD hike may see more investing in property SPVs



It does not apply when buying shares in firms that own real estate
The Business Times
January 24, 2013

[SINGAPORE] The significant jump in the additional buyers' stamp duty (ABSD) for corporate entities has made it more compelling for them to buy shares in special purpose vehicles (SPVs) that own properties, rather than purchase apartments directly.

At least two such potential deals have been advertised in the last two days. On Tuesday, Savills put up an advertisement in The Business Times for the sale of 36 units at Goodwood Residence, through an SPV that owns the apartments.

Yesterday, Jones Lang LaSalle also put on the market 21 Anderson, Royal Oak Residence, with a similar arrangement as one of the available purchase options.

Ashish Manchharam, regional director of investments at Jones Lang LaSalle (JLL), said: "Whilst the vendor is selling the asset, potential investors may also consider acquiring shares in the company that owns the property, thereby realising Additional Buyers' Stamp Duty (ABSD) savings."

Transaction of real estate through SPVs is not a new phenomenon. But the government's latest move to raise the ABSD to a hefty 15 per cent from 10 per cent for corporate entities has made it more compelling for companies to consider this route.

This is because the ABSD applies only when investors buy the units of a development directly. But it does not apply when the transaction is through the sale of shares in companies, even if they own real estate.

Corporate entities were one of the groups that were the hardest hit by the ABSD, which was raised to a hefty 15 per cent over a week ago. When the ABSD was first introduced at end 2011, these buyers had to pay an ABSD of 10 per cent. ABSD comes on top of the 3 per cent buyer's stamp duty.

Said Teo Wee Hwee, an international tax, funds & real estate partner at PwC Services LLP: "The more savvy investors do (already) look at whether they should acquire the shares of the company that own the asset . . . Of course, with the introduction of ABSD, share deals naturally become even more attractive."

Ian Loh, Knight Frank's director and head of investment, said that it is hard to track whether or not such deals have risen since the introduction of the ABSD because many such share deals go unreported, but believes that purchasing shares in a SPV that is holding a development will see interest from investors.

"With the introduction of latest round of cooling measures, investors on the lookout to acquire residential property and wish to hold for the medium to long term may feel that it makes more sense for them to acquire a stake in the SPV that owns the development."

But such deals are not without risks, said Lee Liat Yeang, real estate partner at Rodyk & Davidson LLP.

"Sometimes, some companies don't want to do deals like that because they are afraid that the SPV has liabilities. The danger is that the company may have exposure, because it may have developed the land but didn't pay off the contractor, or may have a mega dispute with a contractor.

"That is one of the risks of buying a company. But the benefit is that if you buy the company, you immediately avoid the ABSD."




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