Singapore’s latest round of measures to curb record property prices has become a stumbling block in the city-state’s two-biggest corporate takeover deals.
Overseas Union Enterprise Ltd. this week gave up its two-month S$13.8 billion ($11.2 billion) tussle against Thai billionaire Charoen Sirivadhanabhakdi for property and drinks company Fraser & Neave Ltd., citing the measures. Wheelock Properties Ltd., which tried to thwart a plan by SC Global Developments Ltd.’s chief executive officer to buy out the company, dropped the fight less than a week after the new rules, citing “market developments.”
Singapore’s latest curbs -- from higher taxes to tougher mortgage requirements -- have been described by broker Knight Frank LLP as the “most severe” since the government started cooling the market more than three years ago. Announced acquisitions of Singapore property companies and real estate investment trusts were worth $37.3 billion last year, the top destination for property deals behind the U.S., according to data compiled by Bloomberg.
“It’s a game changer,” said Bryan Go, an analyst at Phillip Securities Research Pte. “The new measures are some of the key considerations in both of these M&A deals. They will now evaluate differently on discounting deals.”
A group led by OUE, which in November tried to outbid Charoen for Fraser & Neave, said Jan. 21 it won’t match the billionaire’s higher offer, bowing out of the battle. OUE wanted F&N’s property assets, which include serviced apartments, shopping malls and residential projects in Singapore, and are the biggest contributor to the company’s sales.
OUE “would need to significantly increase the offer price to a level which is no longer as attractive to OUE, in particular, given the potential impact of the recent measures taken by the Singapore government in relation to the property market,” the company said in a statement. T.L. Woo, a spokeswoman for OUE, couldn’t be reached on her mobile phone.
OUE is controlled by Chairman Stephen Riady, a son of Mochtar Riady, who controls Indonesia’s Lippo Group with businesses from real estate to financial services across Asia. Charoen’s acquisition is the biggest for a Singapore-based company, according to data compiled by Bloomberg.
CEO Simon Cheong’s S$745 million takeover of SC Global is the biggest privatization of a real estate company in Southeast Asia since 2000, according to data compiled by Bloomberg. The deal faced earlier headwinds from Wheelock Properties, part of the 156-year-old Wheelock & Co. group of real estate companies, which said SC Global’s stock was undervalued and hired Goldman Sachs Group Inc. as its adviser.
Wheelock Properties, which had 16 percent of SC Global, bought more shares in the market at a higher price than Cheong’s offer. Five days after the real estate curbs were announced, it said in a statement it decided to accept Cheong’s offer “in light of recent market developments.” Tammy Kwong, a spokeswoman for Wheelock Properties in Singapore, declined to comment beyond the statement.
“Potential buyers will be most concerned about overpaying for assets and the recent measures will have an impact on the profitability of targets,” said Alvin Lim, head of Singapore advisory for HSBC Holdings Plc. “Hence, buyers will offer less and sellers will have to reset value expectations.”
Both F&N and SC Global shares were trading above their respective offer prices before OUE and Wheelock’s decisions on the deals.
Still, the curbs targeted homes, and may not be enough to hamper deals in Singapore, said Choe Tse Wei, managing director of strategic advisory at DBS Group Holdings Ltd. Most of the city’s developers are diversified with assets including malls and offices, many expanded overseas and aren’t dependent on one segment of the property market or country, he said.
“The measures will affect short-term sentiment and valuations in the residential property sector, but the medium-to-long term economic fundamentals remain strong, as the government continues to invest in infrastructure,” he said.
Singapore announced the property curbs on Jan. 11, adding a 5 percentage-point to 7 percentage-point increase in stamp duties for homebuyers to ease record residential prices. It also imposed an added tax for permanent residents on their first home, and on Singaporeans starting with their second purchase.
In addition, the government tightened the loan-to-value limits for buyers seeking a second mortgage, referring to the amount they are allowed to borrow relative to the value of their properties. The cash down payment will rise to 25 percent from 10 percent starting from the second loan, it said.
“Overall, the latest round of measures should lead to a slowdown in sales volume and lower selling prices,” said Goh Han Peng, an analyst at DMG & Partners Securities Pte. “We could well see the trend of privatization continuing in the current year especially if developers’ share prices are depressed due to policy overhang.”
Singapore isn’t alone in attempting to curb its property market. Since Hong Kong Chief Executive Leung Chun-ying took office in July, his government has introduced three major sets of property measures, including a new tax for home buyers who are not permanent residents in the city. The city continued to attract new investors, with China Vanke Co.’s first purchase of a residential site in Hong Kong this week through its unit.
The Singapore property stock index tracking 39 developers fell the most in seven months the first trading day after the curbs were announced. The gauge has since recovered, rising 1 percent in the past two weeks.
Mizuho Corporate Bank Ltd. and Barclays Plc predicted the first annual decline in home prices after the government measures, which they described as the most “comprehensive” since it started cooling speculation in 2009.
“That would be a consideration for deals going forward,” said Vikrant Pandey, a Singapore-based analyst at UOB Kay Hian Pte. “Deals on the residential side would have to take account of the new measures.”