Property investment-for-media
-
Upload
unggul-sagena -
Category
Investor Relations
-
view
150 -
download
0
Transcript of Property investment-for-media
Presented by Ishak Chandra
101
PROPERTYINVESTMENT
Sinar Mas Land Financial Workshop
Q &
A
Investment Alternatives
Return vs RiskHighlight
WHAT YOU WILL GET TODAY • Understand Alternative of
Investment• Understand what is Risk and
why we need to consider Investment Risk beside the Return
• Understand why Property is one of the Best Alternative for Investment
What is
investing?
Investing is a method of purchasing
assets to gain profit in the form of
reasonably predictable income (dividend, interest or rentals) and / or
appreciation over the long term
Burton G Malkiel – A Random Walk Down
Wall Street
What is investing?
A process of sacrificing NOWfor the prospect of Gaining
something later
TIME TODAY SACRIFICE
PROSPECTIVE GAIN
Preparing for a Career, such for going to College
Saving for major Purchase (first Home, Car, etc)
Preparing a “Rainy Day” fund for EMERGENCY (job lay off, etc)
Developing Personal Financial / Investment Plan
Starting Saving and Investment Program
Expected Return: the profit you think you will receive from an investment, in the form of Income from interest or dividends Increased value (capital gains)
Risk: the amount of uncertainty about the expected return, including the possibility that the investment may lose money or value, or become worthless
Liquidity: the ability to sell the investment quickly and at a fair price
Dividend (Stock)
Interest Income (Bank Saving / Private Lending, Bond)
Rental Income (Property)
Capital Gain (Stock)
Capital Appreciation (Property)
Inflation & Saving
INFLATION make your Value of the money
DECREASE over the year
WHICH ONE YOU PREFER ?
US$ 120 now Us$ 10 per month for 12 month
1.
US$ 1,000 now US$ 1,100 Next Year
2.
• Persistent INCREASE in the COST of GOODS & SERVICES• Persistent DECREASE in BUYING POWER of Money
Interest rate from saving usually is higher
than Inflation Rate
Interest Rate Inflation + Premium Risk =
4% 1%Big & Good Bank.
5% +=
Medium class bank
4% 2.5%6.5% +=
Small bank
4% 4%8% +=
Your value of Money is reduced if you are putting your money in the bank with current inflation rate
SO WE HAVE ANOTHER REASON WHY WE NEED TO DO INVESTING NOT ONLY DO SAVING
Power of
Compounding…
Power of Compounding?
• Your MONEY INVESTED will get RETURN
• Your RETURN will GAIN RETURN
• MORE MONEY you INVEST, the MORE you will get
An amount of Rp 1,000,000 which compounds @
15% after 30 years is worth, …………….. ????
The power of compounding can be expressed using the
following time value of money expression
FV= (PV) *(1+k)^n
Investing ….
FV = future value
PV = present value
K = rate of compounding
n = no. of years
Guess for Prize..
Power of Compounding it works…
Year InflationBank
SavingInv. A Inv. B Inv. C Inv. D
Return 5% 6% 9% 15% 20% 25%
0 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
1 1,050,000 1,060,000 1,090,000 1,150,000 1,200,000 1,250,000
2 1,102,500 1,123,600 1,188,100 1,322,500 1,440,000 1,562,500
3 1,157,625 1,191,016 1,295,029 1,520,875 1,728,000 1,953,125
4 1,215,506 1,262,477 1,411,582 1,749,006 2,073,600 2,441,406
5 1,276,282 1,338,226 1,538,624 2,011,357 2,488,320 3,051,758
10 1,628,895 1,790,848 2,367,364 4,045,558 6,191,736 9,313,226
15 2,078,928 2,396,558 3,642,482 8,137,062 15,407,022 28,421,709
20 2,653,298 3,207,135 5,604,411 16,366,537 38,337,600 86,736,174
25 3,386,355 4,291,871 8,623,081 32,918,953 95,396,217 264,697,796
30 4,321,942 5,743,491 13,267,678 66,211,772 237,376,314 807,793,567
An amount of Rp 1,000,000 which compounds @ 15% after 30 years
is worth Rp. 66,211,772
Investment Alternatives
A. Paper Assets:• Stocks
• Bank Account
• Certificates of deposit
• Bonds
B. Tangible Assets:• Gold & Silver
• Art
• Real Estate
• Land
Cash Equivalent Saving (Saving Account, CD) – Safe & Liquid
Equity (Stocks) - offer dividend & capital appreciation.
Fixed Income Bonds -offer safe return.
Real estate, Land - offers rent & capital appreciation.
Precious metals (Gold, Silver) -appreciate over time and are a hedge against uncertainties.
Art work - appreciate over time.
Insurance - used as security against risk of uncertainties.
Saving Investment
OBJECTIVE Short Term need or Emergencies
Long Term growth
PRODUCTS Saving account, CD Stock, Bond, Mutual Fund, Gold, Property.
RISKS None as long as guaranteed by Government
Varies, depending on Investment product
SOURCE OF RETURN Interest income Interest, Dividend, RentalIncome, Capital Gain, Capital Value Appreciation
KEY BENEFITS Safe, accessible & Liquid Return > Inflation over the long term
KEY DRAWBACK Low rate of Return Risk of losing money the investment decline in value
Investment returns
The rate of return on an investment can be calculated as follows:
(Amount received – Amount invested)
Return = _________________________________
Amount invested
For example, if US$ 1,000 is invested and US$ 1,100 is returned after one year, the rate of return for this investment is:
(1,100 – 1,000) / 1,000 = 10%.
In case if we adjust the return obtained from above for inflation we arrive at the real return in the investment
What is investment risk?
Investment risk is related to the
probability of earning a low or
negative actual return.
The greater the chance of lower
than expected or negative returns,
the riskier the investment.
Risk Taker
Risk Adverse
RET
UR
NRISK
Low
Hig
h
Low High
Gov. Bond
Corp. Bond
CD Gold
MFFixed Inc.
Property
MFMix
MF Equity
Equity
DON’T INVEST HERE
Annual Compounded
Return
Years to Double
Risk
Fixed Deposit 4-5 % 14.5 years Low
Gold 7-8% 9.5 years Low
Bonds 6.4% 11.25 years Medium
Property 15% 4.8 years Medium
Jakarta Stock (15 year history)
17.67% 4.07 years High
Do your own exercise… !! Long term or short term
Liquid or non liquid
Expected Return vs Risk can be managed
Risk Taker or Risk Adverse
Cash Flow vs Capital Appreciation
Investment product knowledge & skill level
Available fund and expected future fund
A. Paper Assets:• Stocks
• Bank Account
• Certificates of deposit
• Bonds
The ALTERNATIVE Investment..
B. Tangible Assets:• Gold & Silver
• Art
• Real Estate
• Land
Residential Landed house (Land & House)
Vertical (condominium)
Commercial & Industrial Shop house (Include Rukan, Business loft)
Strata office (include SOHO)
Warehouse
Industrial (Land, Standard Factory Building /SFB, Factory)
Retail Strata Retail (Trade Center)
Rural Land – Farm Land
Timesharing is not property Investment
Why Property is the IDEAL Investment ?
Property is one asset class that does both, rising in value and generating income It is often referred to as the “IDEAL”
investment
“IDEAL” is a simple acronym that highlights
just some of the key benefits of owning real estate
Benefit #1:
Income
Ability to generate passive income
When investing in property the key thing is to focus on net income
Many real estate agents will quote gross yield figures i.e. the
annual rent as a percentage of the property price
Potential return on investment, to focus on net yield or net
income
Absolutely must have net positive cash-flow otherwise you haven’t
got an investment on your hands but a burdensome liability
The challenge in property investment is to minimise the down
payment (which will maximise your mortgage) whilst at the same time
generating positive cash flow each month
PRICE =
Property value 1,000,000,000
Net Rental Yield 3%
Gross Rental 30,000,000 3%
Benefit #2:
Depreciation
A rental home is seen as a depreciable asset just like a car or
piece of factory machinery
Rental properties with positive cash flow can show an
accounting loss, granting the owner a tax deduction,
Depreciation is an accounting loss and only shows up on paper
It can result in you being able to turn a small economic profit
into a small tax loss
Property value 1,000,000,000
Depreciation rate 5%
Net Rental Yield 3%
P&L Cash Flow
Gross Rental 30,000,000 3%
Cash In from Rental
Income 30,000,000 3%
Depreciation 50,000,000 5% Depreciation - 5%
Net profit (Loss) (20,000,000) -2% Net Cash Flow 30,000,000 3%
Even though we could be “loosing” money on paper we could actually be making a monthly cash profit
Benefit #3:
Equity Build Up & Expenses
As you pay down the principle of the mortgage loan you are
gradually building up your equity stake in the property
So, even if there is no increase in the value of the property over
the term of the loan you still end up with an asset with 100%
equity at the end of the mortgage loan term
Expenses such as property management fees, maintenance,
insurance, mortgage interest and so on are deductible from the
rental income, thereby reducing your tax liability
Interest rate = 9%Property Value
Loan Principle
(Liabilities)
Asset recorded in
Balance Sheet
Additional
Equity
Increase 15%
End of Year 0 1,000,000,000 1,000,000,000 1,000,000,000 -
End of Year 1 1,150,000,000 834,000,000 1,000,000,000 166,000,000
End of Year 2 1,322,500,000 652,700,000 1,000,000,000 347,300,000
End of Year 3 1,520,875,000 454,300,000 1,000,000,000 545,700,000
End of Year 4 1,749,006,250 237,300,000 1,000,000,000 762,700,000
End of Year 5 2,011,357,188 - 1,000,000,000 1,000,000,000
As you pay down the principle of the mortgage loan you are gradually
building up your equity stake in the property
So, even if there is no increase in the value of the property over the
term of the loan you still end up with an asset with 100% equity at the
end of the mortgage loan term
Expenses such as property management fees, maintenance, insurance,
mortgage interest and so on are deductible from the rental income,
thereby reducing your tax liability
Benefit #3: Equity Build Up & Expenses
Benefit #4: Appreciation
Your asset should appreciate in value over time
Often the largest part of a return on an investment in
real estate is in the appreciation in the value of the asset
and the resultant gain in equity
Property prices can sometimes reduce in the short term
due to changes in demand, access to finance and so on,
but over the long-term you will benefit from
appreciation
Benefit #5: Leverage
Leverage is the principle of using a small amount of
your own money to control a large value asset
One of the unique aspects of real estate over other
investment classes is your ability to borrow up to 80% or
90% of the purchase price of the asset
This is leverage i.e. using Other People’s Money (OPM)
By fully understanding and utilising these characteristics of
property investing you can take advantage of this
powerful investment asset to build wealth quickly and
get rich fast
Rental Yield Capital Appreciaton
Total Expected Return
Land 2-5% 15-25% 17-30%
House 2-5% +/- 15% 17-20%
Condominium 6-10% 5-15% 11-25%
Shop House 2-4% 18-20% 20-24%
Strata Office 6-10% 10-25% 16-35%
Warehouse 2- 5% 15-20% 17-25%
SFB 2-5% 15% 17-20%
Strata Retail 3-10% 0-25% 3-35%
Rural Land Based on negotiation
Based on negotiation
Based on negotiation
* Based on standard condition, not super-ordinary condition, average for 15 years
How to Start Investing in Property ?
1. Clear Goal & Strategy Target Return & Risk Managed or Direct Investment Cash Flow or Buy & Hold Financing Plan
2. Research…Research…. Research3. Shortlisted, Hunting, Selection &
quick DD
Managed or Direct Investment
Managed (Through listed / unlisted property Trusts)
Direct Investment (You are in control)
1
Buy and Hold• Land• Your personal home
PURPOSE of the Investment
Cash Flow or Buy & Hold?
Cash Flow• Rental producing
properties• Parking lots• Car washes
1
Financing Plan Exercise your Financial Status
Disposable Income available
Leverage or Un-leveraged Property value vs Financing given by bank (usually about
70% of the property value the loan amount will be given)
Monthly Installment (usually 25-30% of Total Income)
Amount of Down Payment (30-50% of property value)
Loan period Property Value Adjustment
1
Growing Area (city development, GDP per capita, Population)
Historical value & Investment Return of the property
Location and accessibility (Distance vs Time)
Developer name & reputation (late handover, portfolio, financial background, etc)
Main facilities & infrastructure (current & future)
Land banking available in the estate
2
Shortlisted (based on Research)
Hunting (available property with bargain price)
Available property
Primary vs Secondary
Ready property vs buying Off the Plan
Via Mediator or Direct
Payment scheme
Selection & DD Meet the criteria
Clean and Clear
Financing available
3
Tidak peduli seberapa banyak uang yang kamudapatkan, selalu ingat untuk membagiuangmu ke dalam 5 bagian yang proporsional. Selalu membuat dirimu berguna. – Li Ka-Shing
What is the
Solution
In our lifetime there has never beena better time to buy real estate…
… but it still needs to be the right real estate
Source: Cushman & Wakefield
Why bubble ? Criteria for bubble…1. Leveraged Investor > Un-leveraged Investor
2. Investor Expected Return is not achieved
3. Investor fundamental is not strong .. Low holding power
4. Force sale or Default condition
5. Property Loan vs Overall loan, NPL is big
6. Economic Fundamental is bad