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Kuwait fund pulls out of bulk purchase of high-end homes

March 11, 2008

It allows options for 97 condo units at Goodwood Residence to lapse

A KUWAIT bank fund that agreed in December to buy 97 units at posh Goodwood Residence for $818.4 million has let the purchase option lapse.

Kuwait Finance House has given no reason for the move, which could result in the firm having to pay developer GuocoLand multimillion-dollar penalties.

It could also be the first time a foreign institutional investor in Singapore has pulled out of such a deal, raising concerns that the property market, already hit by weaker sentiment, may be heading into a downturn.

‘While the current market is cautiously optimistic, news of such a pullout might cause it to turn more cautious,’ said Cushman and Wakefield managing director Donald Han.

GuocoLand did not provide a direct reason for the lapse but said in a statement yesterday that the private residential market in Singapore appears cautious.

The developer also said it is in talks with Kuwait Finance House, an Islamic investment bank, with ‘a view to a grant of fresh options for units in the development’.

The firm declined to comment further, citing ongoing talks. Kuwait Finance House also declined comment for the same reason.

Kuwait Finance House’s huge deal was for 97 four-bedders ranging from 2,500 sq ft to 3,900 sq ft at the former Casa Rosita site in Bukit Timah Road, near Newton Circus.

The condo has 210 freehold units on a large 24,845 sq m site fronting Goodwood Hill. The Kuwait fund’s purchase would have been the single-largest purchase of residential units under construction in Singapore.

Kuwait Finance House had agreed to buy the units at a median price of $3,200 per sq ft (psf), which would have set price benchmarks for the area. Industry sources said the price was way too high, considering that bulk purchases typically come with a discount.

‘If it were to have bought at an average of, say, $2,700 psf last December, it would still be a record for the Newton Circus area,’ said an industry source who declined to be named.

‘If it had held on for 15 to 20 years and leased the units for up to a 5 per cent yield, it may have been able to justify the deal. But if it had wanted to buy and sell, why didn’t it bargain for a rock-bottom price as the property had not been launched?’

It is believed that Kuwait Finance House was keen on flipping the units as they were marketed in Dubai recently, but the sale campaign was unsuccessful.

Another industry source, who declined to be named, said: ‘The pullout may be due to the terms of the deal. The buyer could have realised that it had bought at a higher-than-expected price, had problems flipping the units and wanted to cut its losses. ‘It could also reflect the current market and the possibility that the property market may stagnate in the next two to three years.’

The stale market appeared to have led GuocoLand to put off the launch of Goodwood Residence, scheduled initially for the first quarter.

Many developers are following suit, delaying launches until keen interest returns to the sector, which is in the doldrums with buyers and sellers staying on the sidelines.

A GuocoLand spokesman said: ‘We would be tapping selected overseas markets when we decide to launch Goodwood Residence at a later date.’

It added in its statement that the expiry of the options will not have any material financial effect on its net tangible assets per share or earnings per share for the financial year ending June 30.

Source: The Straits Times

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