This is a fixed-term instrument that provides investors both yield and capital gains play. One may expect any potential PPS exercise for the 48 apartments to be fashioned as a securitisation of the present and future cashflow from the apartments - just as CDL did for its maiden PPS in December 2014 for its Quayside Collection assets in Sentosa Cove (comprising unsold apartments of The Residences at W Singapore, a hotel and some retail space on the island) .
The vital thing to note is that under the PPS structure, there is no change in the properties' ownership, which remains with CDL for the duration of the structure; CDL also continues to manage the assets (including the leasing). Typically, the issuer will join its co-investors in the PPS structure; together, they hold the securities which have a five-year tenor and come with a fixed coupon, and stand to reap capital gains by divesting the properties if their value appreciates sufficiently at any point during the five-year duration of the securities.
If CDL were to divest the 48 apartments outright in the current market, it would not get the price it desires. Essentially, PPS allows the issuer to buy some time in the hope that prices will rise within the five-year period. Thus PPS provides a good solution for owners of prime residential assets to tide over the current soft market assuming one is confident the market will recover.
At entry point, the draw to investors of the PPS is that since there is no change in ownership of the apartments, the 3 per cent buyer's stamp duty and the 15 per cent additional buyer's stamp duty (ABSD) would not be payable on the PPS transaction price for the apartments. This would be especially appealing to foreign and corporate buyers, who have been put off from investing in the Singapore residential property sector as they have to pay the maximum 15 per cent ABSD rate on their purchase price.
