Seminars Attraction – From Time Share to Wine
Land banking - this is a pretty new investment product now
available in Singapore. Personally, I never heard of land banking until the recent Invest Fair 2007. It was there that I met two friends who are consultants of Walton International. On 22 Sep 07, I was invited to attend a seminar conducted by Walton International at Le Meridien Hotel. Unlike other seminars, I was keen in this. The reason was because I really like to know more about land banking even though I may not invest right away. Knowledge equals to power. And I was invited by a friend who does not resort to hard sales tactics. Lately I received a call from a stranger who wanted to “confirm my attendance on wine seminar”. Before he goes on with his machine-gun, I held his horse. I was annoyed and asked him what he meant by “confirm my attendance” since I never heard of his company and I never apply for any wine investment seminar. I asked him how he got my number (actually this is a stupid question. Every time you filled in a lucky draw coupon, there is a price even though you may not get the prize!). He replied that his marketing department gave him the list. By acting blur, I told him that his marketing department had screwed up. I hanged up before his took the opportunity to continue with his machine-gun.
To me, this is one of lousiest method to sell, even if it comes with a lucky draw worth a million dollar. Time Share tried it many times few years ago; didn’t work on me. The time share caller continue to “up his lucky draw prizes” when I rejected his invitation. So much for the ethics and professionalism. If a product is genuinely good, the product will sell. No carrot is needed.
Land BankingBack to land banking. This is something more interesting because, as an accounting graduate, I know that generally, land does not depreciate or we do not depreciate land. I also know a bit about hot property market and the fundamental that “万丈高楼平地起”. So I wanted to learn more. Outside the conference room, there was quite a crowd with coats and jackets. My friend and I were on simple tees and jeans. And then I saw another lady from Walton International who was the very first one to share with me on land banking. But I accepted my friend’s invitation instead so there could be potential conflict (Walton’s code of conducts for the consultants). So I tried to avoid her. The seminar was conducted by an “ang moh” (can’t remember his name and title). But he actually answered most of my questions in his presentation. I was satisfied with his presentation. The presentation was short and straight to the point.
Land banking is about buying a piece of raw land, totally undeveloped agricultural land and wait for future development. Of course, the land banking company doesn’t goes around to buy land blindly. While land is extremely scarce and expensive in Singapore, it is not that scarce in big countries like Canada or China. So a land banking company conducts thorough research before deciding to buy a plot of land. According to the “ang moh” speaker, Walton International has experts in land and property, weather and geographic plus someone with “political influence”. He said that “Preston Manning”, an ex-Canada politician, sits in their management team. I fully agree that, just like investing in China, you need helps from people with political influence. We knew many Singaporeans failed in the 90s when they launched into the untapped territory – China. Many came back without “pants” due to problems with local culture, business practices, local governors, red taps, bureaucracy etc. SM Lee who spearheaded the Su Zhou Industrial Estate also faced challenges such that he had to travel to China a few times to get it fix up. And now, finally after so many years, Su Zhou Industrial Estate is bearing food. Without helps from people with political influence, business venture in an untapped territory is no different from walking across land mines.
After the land banking company identifies a potential land, it will buy the land and offer it to the investors. My understanding is that many years ago, land banking was only available to big institution investors or high net worth individuals. But today, many companies including Walton International packaged it for retail investors. But, it is still quite costly. Investment in an acre will cost slightly below S$20,000. Investors will be issued with a title deed and enjoyed an undivided interest in a big plot of land. This is because the company can’t just sell “your acre”. It make economic and commercial sense to sell a big plot of land owned by numerous investors and spread the returns equally. The investors must have a long-term view in this type of product and wait patiently until someone to make an offer on that piece of land.
The selling opportunity arises when a private developer had the “concept plan” approved by the government. According to the speaker, from a piece of raw land to commercial or residential buildings, the profit starts from the selling of land. Property development involved additional risk and cost. So usually a land banking company does not venture into the development phase. A developer will approach the land banking company to buy over the land and the company will determine if the price quoted is attractive. If yes, then the land banking company will revert to the investors for a decision. A 60% majority vote is required to authorize the company to proceed with the selling. And then the money will be distributed back to the investors. I remember the “ang moh” speaker mentioned that Walton International will also keep less than 20% of the profit after the disposal. From his presentation, Walton International’s projects gave average annual returns of 10% to 20%.
Risk and ReturnsIn my opinion, the risk of this product comes from the land banking company itself and the land. Unlike stock investment or unit trust, land banking company is not regulated. In stock investment, listed companies are regulated by the SGX and MAS. For example, listed companies must issue annual report audited by external auditor and all shareholders are entitled a copy. But if we invest in an investment product through a private company, then the investors must do their research on that company. The second risk comes from the land and the followings are my FAQs.
1) Although we do not depreciate land, but what will cause a land to become a “waste land”? Perhaps earthquake or volcanoes? But I believe that this should be remote. In any case, nobody can predict such events.
2) What if after many years, still there is no concept plan or nobody wants that land? According to the speaker, their company not only research on a piece of land but secure “information” from authority on their overall planning. I think what he mean was that they buy it when the probability of near future development is very high.
3) The returns sound lucrative, 10% to 20% annual returns. If you are lucky and you get 20%, you are very close to Warren Buffett. Personally, I can’t achieve 20% annual return from stock investment, yet. But I am more interested in worse case scenario than rosy pictures. According to my friend, Walton’s worse record was returns of less than 10%, i.e. historically, their investors NEVER incurred losses from Walton’s projects. WOW!
4) What if, for some reason, an investor falls into financial hardship and need to check out immediately? Can he exit from the investment before the “selling opportunity”? According to the speaker, Walton will help to find another potential buyer. In this case, the first investor is not likely to get any reasonable returns. This is fully acceptable. In fact, if an investor wants to dispose off before the “right time”, it may also be fair that he had to sell at a reasonable discount. This is because it has been made clear that investment in land banking takes a few years. An investor must take full responsibility for pre-matured disposal.
5) I love to “buy low sell high”. So can I invest during a recession? According to my friend, the offering price is always the same, i.e. US$10,000 or C$10,000. My immediate reaction was “how can this be”? I asked my friend to check with Walton’s management on how they determine the selling price. I know how stock market and unit trust determine the selling price at any stage, but what about land banking? This was indeed a good question and my friend will revert to me once he got an answer from his management.
6) Can I study Walton International’s annual report? The objective is to understand their financial health and performance. And who know I should not buy land, I should invest in Walton instead! Unfortunately, Walton International is not listed. They have no obligation to show me their annual report.
ConclusionIn my opinion, the reason for a land banking company to offer its land to the investing public was because of capital limitation. It takes many years for a land to yield positive result and a cash inflow. But a land banking company cannot just sit on a few pieces of land and wait for an offer. By packaging it to the investors, cash will come in immediately after land procurement and then they can go on to source for more potential land. Of course it is fair that investors will share both risk and rewards. With more money, land banking company’s turnover will continue to rise. This concept is similar to mortgage-back security except that, unlike human, there is no default risk with land.
We know that when property market is hot, an investor can earn 100% returns or more within very short time. Here in Singapore, we have many such examples for prime lands. Thus I suspect that land investment can and should be highly profitable. We know that Ng Teng Fong and Lee Kah Shing become super rich by owning land. Although I do not have evident to prove my point, I suspect that the profit and commissions earned by a land banking company and its consultants are quite significant. Otherwise potential returns for the investors could have been even higher. Notwithstanding this aspect, it is indeed wonderful to have such product opening to smaller investors with potentially higher returns. In my opinion, the main research for any investor in this product should be on the reliability of the land banking company and his/her investment horizon. There is a good article on land banking at
asiaone.com. If it is not there anymore, you can get it from me.
(National Association of Securities Dealers Automated Quotations) provided up-to-date bid and ask prices on 2,400 leading over-the-counter (OTC) stocks. Prior to Nasdaq, quotations for these unlisted stocks were submitted by the principal trader or by brokerage houses that carried an inventory. Now Nasdaq linked the terminals of more than 500 market makers nationwide to a centralized computer system. The Nasdaq Index is owned and operated by The Nasdaq Stock Market, which list mainly the technology stocks.
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Analysis of the Dow trend since 1885 shows an annual compounding gain of 1.85%, excluding inflation. The Dow Jones Industrial Average, like most other popular averages, does not include dividends, so the change in the index greatly understates the total return on Dow stocks. I do mean greatly-- as with about 4.6% annual dividends reinvested since 1896, the Dow would be somewhere around 700,000 today!.JPG)
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Revenue – since 2004, Darco water’s revenue has been growing at approximately 16.6% a year. Unfortunately, the net profit has been fluctuating. Consequently, the company’s profit margin and Returns on Equity (ROE) have also been fluctuating. With the exception of 2005, company’s ROE has not been attractive. The ROE for 2006 was only a pathetic 4.9%. My annual returns is more than 10%..JPG)
