'Shoe boxes' here to stay

		Wed, Jan 19, 2011 The Business Times
By Ven Sreenivasan THE demand for 'shoe-box' apartment is here to stay, says Ching Chiat Kwong, controlling shareholder and chief executive officer of Oxley Holdings. 'If you look at the way Singapore is developing - high economic growth, rising home-owning aspirations, more local and expatriate singles, young couples who prefer dogs rather than kids - you can see a very clear demand pattern emerging,' he noted. 'There is a market for good-quality, affordable private homes in good locations.' And it is a demand which Catalist-quoted Oxley hopes to capitalise on. The company specialises in building private apartments sized at around 350-400 sq ft, with a living room, one bedroom and fully fitted kitchenettes. In just three months following its October 2010 listing, the company has sold out five of its 'shoebox' apartment projects. Its Loft@Holland sold out within two hours of launch last week. This year it will launch at least nine more, and at least two commercial projects. Mr Ching says the buyers of his apartments are not just singles and young couples, but also investors. 'The rental yields from these properties tend to be good, so they make attractive investments as well,' he said. The market may have started noticing Oxley's potential, judging by the recent stirring of its stock price. The company launched its IPO in October 2010 at 38 cents to raise gross proceeds of about $85 million. But the shares soon slumped to as low as 31 cents. In recent weeks, the stock has rallied past the 40 cents level on strong buying interest, and remained there despite property market curbs unveiled last week. Mr Ching does not appear to be overly concerned about the curbs. 'The key is affordability, and this becomes even more important under the new rules,' he said. 'The projects we will launch this year are in prime locations, and more importantly, they are affordable. We will also launch several major commercial developments which are not impacted by the residential property curbs.' Oxley's business model is simple: Gear up to the maximum to acquire land, quickly launch units off the plans, maximise plot ratio, keep prices affordable, and keep project turnover short at around 7-9 months. The company has used some $35 million of its IPO proceeds to date. But its gearing is some 300 per cent. Analysts note that this model is similar to that of SC Global, at least in the latter's early days. Mr Ching acknowledges this, but added that Oxley occupies a different position on the private property spectrum. 'They are high-end luxury, but we are affordable luxury,' he quipped. The company's five projects launched last year raked in sales of some $260 million. Given its 40 to 50 per cent margin, analysts reckon the profit from these could come up to over $100 million. This year it will bring to market almost $2.5 billion worth of projects. These include nine apartment projects at prime urban and sub-urban locations like Holland Village (last week), Stevens Road, Devonshire, Telok Kurau, River Valley Road and Braddell Road. It is also planning to launch its 35-storey office-cum-commercial centre on the 16,000 sq ft plot at 138 Robinson Road which it bought from City Developments for $215 million recently. The project has a saleable area of more than 200,000 sq feet, potentially worth over $600 million. It is also building a one million sq ft high-tech industrial building at Ubi whose market value could be almost $700 million. Another commercial project in the pipeline is 144 Robinson Road, which Oxley bought last week from City Developments for some $57 million. Kevin Scully of NetResearch Asia reckons that if Oxley sells all the projects, excluding 144 Robinson Road, it could generate a profit stream of almost $1 billion over the next four to five years. 'The company only recognises profit on progressive completion,' he said. 'We are looking at a future RNAV of $900 million or about 62 cents per share. If we discount this future income to the present day using a discount rate of 8 per cent, we get a present value RNAV of 51 cents.' Mr Ching says Oxley's business model can be sustained as Singapore's population increases towards the six million mark. 'As long as the HDB market is not breached (ie liberalised), we will always find a ready market,' he said. Not bad for a company set up in 2009 by Mr Ching, who is an ex-police officer, and his two partners. Mr Ching controls 38 per cent of Oxley, while Eric Low, who owns building materials firm Hafary, has 27 per cent. A third partner, Tee Wee Sien, has 12 per cent. This article was first published in The Business Times.