Banking On Overseas Land

Source : The Sunday Times, September 23, 2007

Thousands of Singaporeans have sunk money into undeveloped plots overseas in the hope of getting high returns. Finance Correspondent Lorna Tan talks to three investors who have ventured into this foreign territory.

FOR some, it is not enough to have a roof over their heads. Singaporeans’ love affair with property has extended to owning raw land beyond the Republic’s shores, with more than 10,000 opting for this type of investment.

In the 1990s, there was just one firm marketing such undeveloped land, or raw land.

But now at least five firms are selling land in Britain, Canada, Thailand and the United States. The latest two entrants are Profitable Plots, which offers British land, and Royal Siam Trust, which sells beachfront plots in Thailand.

Investor Helen Tay

FOR Ms Helen Tay, 37, it has been a long wait for her raw land investment to bear fruit, and she is still waiting.

In 1998, the former lawyer turned network marketeer bought two plots of Canadian land for C$50,000 (S$74,485) after visiting a roadshow at a hotel. It was organised by land asset management firm Walton International Group.

Set up here in 1996, Walton markets plots of raw land in the Canadian cities of Calgary and Edmonton, as well as in Texas, in the US. It buys the land, keeps a portion for itself and sells the rest to individual investors, who in turn get a title deed in their name. Each unit of land costs about C$25,000.

Investors are typically advised that there could be a wait of five to seven years before the parcel of land obtains development approvals. When that happens, Walton will sell the land to developers at a higher price, subject to 60 per cent of investors consenting to the sale.

For Ms Tay, the wait to see profits from her plots in Northridge, Calgary, has been longer than expected.

‘I still haven’t seen my money. It’s been a long wait…Back in 1998, I was given a forecast of five years. It’s not a great investment but if the money comes in, it should still be better than putting money in a fixed deposit,’ said Ms Tay.

But her long wait could be coming to an end.

In May, she was informed by Walton that there was an offer to buy the land at a price that worked out to C$130,000 per plot. This would mean a profit of about C$96,000 for Ms Tay, after she coughs up a capital gains tax of 40 per cent to the Canadian government, plus transfer fees.

If she had bought one plot of land, the tax would be a lower 25 per cent.

Investor John Khoo

UNLIKE Ms Tay, another raw land investor, Mr John Khoo, 50, made sure he saw his plot of land before purchasing it. Mr Khoo works in a foreign bank here but has been visiting relatives in Edmonton, Canada every year since 1990.

In 2004, he plonked about C$100,000 into two plots of land measuring 700 sq ft each (excluding the garden areas), after visiting the raw land sites to assess their appeal.

Mr Khoo took a loan for 60 per cent of the purchase price at an annual rate of under 2 per cent from a Canadian bank. He was also informed that he need not pay a property gains tax as it was his first property in Canada.

‘Location is the most important factor and that means buying land near a mall, a train station, an oil field, a windmill, biodiesel farmland…If you don’t go there, you don’t really know what kind of site you’ve bought. So unless you are familiar with the area, better go see for yourself,’ said Mr Khoo.

Before investing, he also consulted banker friends who were familiar with the location of his sites.

Mr Khoo added that by the time land banking firms sell their plots to Asian investors, the good ones would have been taken up by local investors, who would have picked the cream of the crop of the raw land sites.

The land that he bought had just received planning permission then, and two two-bedroom houses now sit on his two plots of land. The land is near a university in downtown Edmonton.

The value of his land has since doubled and Mr Khoo expects to pay a legal fee of about C$1,000 when he sells his land. Currently, he enjoys an annual rental yield of 10 per cent.

Investor Dr Chiu Jen Wun

DR CHIU Jen Wun, 45, said that ‘the main bugbear of raw land investing is time’, because you can never be sure when you can cash out.

In recent years, the anaesthesiologist has invested in Canadian and British land, which he purchased from Walton and Profitable Plots. He declined to reveal the amount.

Early this year, he made a net profit of about $20,000 from two plots of Canadian land, which were about half an acre, or 0.202ha, each. He had bought them at $37,000 per plot, 41/2 years ago.

Two years ago, he invested in British land. At that time, Profitable Plots was selling units of land with each ranging between £3,000 (S$9,044) and £28,000. Customers were told to expect returns of 2.5 to 14 times, said Dr Chiu. Profitable Plots has advised him that it may take five years to see results.

A personal friend of financial guru Robert Allen, Dr Chiu was motivated to invest in raw land as part of his overall investments so as to generate multiple streams of income.

‘This is one allocation in my diversified balanced portfolio of investments,’ said Dr Chiu, who aims for a minimum 7 per cent annual return on his investments. He adds that the advantage of buying British land for Singaporeans who do not work or live there, is that they need not pay either capital gains tax or stamp duty to the British government.

To boost the confidence of investors and to make it easier for them to part with their cash, both Walton and Profitable Plots offer some sort of buyback guarantee.

Instead of opting for such a guarantee, Dr Chiu decided to wait it out in the hope of bigger returns.

At Walton, investors can sell the land back to Walton at the original purchase price in five years, based on an agreement. But this is believed to be limited to Canadian land and not US land. In fact, the firm used to offer a financing scheme at a rate of 11.75 per cent a year but it has since been withdrawn.

And Profitable Plots, which has paid up capital of $2.1 million, offers two ways of getting a return. Group operations director Andy Nordmann said: ‘One is where the return is earned when planning permission is given and the land is sold to a developer. The other is a fixed return of 12.5 per cent paid annually. This allows our clients the choice of both a short-term and a medium-term investment strategy.’

The firm provides a warranty to all clients which allows a five-year opt-out with no loss of capital. And it also allows clients the flexibility of switching their plots to ones that have already received development approval, so that they can enjoy faster gains.

Mr Nordmann emphasised that Profitable Plots ensures that all funds are placed in the hands of an independent trust which helps to safeguard the investments no matter what happens to the seller of the land.