Monday, December 7, 2009
December 4th 2009 will always be remembered by me as the last day of employment in Deloitte Malaysia. Although I've made my speech during the lovely farewell dinner organized by my audit team I would like to express my heartfelt gratitude once again. Thank you for being great colleagues!
I have now started my new job as a business development associate for a private security/law enforcement practice and so far, everything has been going smooth. I've also got my agency license from the Federation of Investment Managers Malaysia and will be dealing in Unit Trusts. So, if you ever want to know more about unit trusts and how it may work for you, do not hesitate to contact me. Likewise, if you need any private security services you know who to call =).
Shaun Ng, Signing Off. =)
PS: I'm now working on a financial model pertaining to the compounded cash value over time so tune in for more updates!
Wednesday, December 2, 2009
I'm pretty sure everyone has gotten the hype of investing in real estate. I'm also quite sure that some of us had been in this situation: We run home to check out potential purchases after hearing about how 'easy' it is to earn money from buying and selling properties only to be discouraged by the initial start up costs (downpayment, monthly instalments, lawyer fees etc.). The point is, good deals are everywhere, places like Ara Damansara and DesaPark City all promise good returns because they are well planned townships and have reputable developers. But how many of us can actually afford them? Allow me to illustrate briefly on what it takes to own a piece of HOT property.
Assuming your piece of property is RM470,000.00 and you plan to pay a 10% downpayment (RM47,000.00). For ease of calculation I will not include the lawyer and other miscellaneous fees. Also note that you will be paying off this loan for the maximum duration: 30 years and your interest rate imposed by the bank is 5%^ (this is hardly even close to what they're normally charging). This means, for 30 years, you will be paying RM2,271.00. Now tell me, who has an initial start up of RM47,000.00 and RM2,271.00 every month to spare? Not a whole lot of people, I say. Furthermore, investing in properties this way will not yield returns because of the borrowing costs - I will get to this in a different article in the not so distant future =).
If you want to jump into the real estate market but do not have the high initial start up capital there is actually an alternative. That alternative is REIT. REIT is the acronym for [R]eal [E]state [I]nvestment [T]rust. REITs were created because large corporations were aware that most of us do not have large initial capital. They are also aware of the risks involved should an individual investor decide to gobble up a piece of property by himself/herself only to end up having indigestion. However, when a few individual investors decide to pool their funds together, risk is spread out thinner. In summary, REIT is a fund pooled by a large amount of investors with a common goal in mind - to invest in properties. REITs invest not only in properties for capital gain but also for rental purposes eg: Starhill, The Curve and Various serviced residences.
Thanks to REIT managers, we can enjoy a low initial start up capital and increased savings via economies of scale. Cost benefits include a reduced tax rate on returns (assuming you have a property rented, rental income is taxed normally whereas most REIT returns are completely tax exempt or taxed at a maximum rate of 15%*) and stamp duty exemptions. Borrowing costs are also reduced because REITs are only allowed a maximum of 50% gearing (most REITs do not even have borrowings!).
We also gain an emotional advantage where we no longer need to deal with that obnoxious tenant that calls us 3am in the morning complaining about a plumbing problem! We also do not need to worry about liquidity because REITs can be bought or sold with only a day of delay** whereas properties may take a few months to sell.
In summary, when investing in REITs, we may:-
- Enjoy a peace of mind - no more calls from that tenant complaining about toilet problems
- Enjoy lower risk - giving members of the public a chance to invest in properties without taking an individual risk
- Enjoy lower tax rates - Returns earned are predominantly tax exempt
- Potentially enjoy higher returns - Due to the large amount of the fund, quality buildings can be invested in***
- Enjoy better liquidity - as REIT funds can be disposed easily and quickly in times of urgency
Shaun Ng, Signing Off. =)
^Based on the average borrowing rate of major banks in Malaysia for a 30 year housing loan
**Depends on the engaged fund manager, may vary
***Axis REIT paid an annual dividend of 10.36% for the year ended 31.12.2006