1. Presented by Ishak Chandra
101
PROPERTY
INVESTMENT
Sinar Mas Land Financial Workshop

2. 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

4. 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

5. What is
investing?
A process of sacrificing NOW
for the prospect of Gaining
something later
TIME TODAY
SACRIFICE
PROSPECTIVE
GAIN

6.  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

7.  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

8.  Dividend (Stock)
 Interest Income (Bank Saving / Private
Lending, Bond)
 Rental Income (Property)
 Capital Gain (Stock)
 Capital Appreciation (Property)

9. Inflation & Saving

11. 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.

12. • Persistent INCREASE in the COST of GOODS & SERVICES
• Persistent DECREASE in BUYING POWER of Money

13. 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% +=

14. Your value of Money is
reduced if you are
putting your money in
the bank with current
inflation rate

15. SO WE HAVE ANOTHER
REASON WHY WE NEED
TO DO INVESTING NOT
ONLY DO SAVING

16. Power of
Compounding…

17. 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..

18. Power of Compounding it works…
Year Inflation
Bank
Saving
Inv. 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

19. Investment Alternatives

20. A. Paper Assets:
• Stocks
• Bank Account
• Certificates of deposit
• Bonds
B. Tangible Assets:
• Gold & Silver
• Art
• Real Estate
• Land

21.  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.

22. 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, Rental
Income, 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

23. 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

24. 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.

25. Risk Taker
Risk Adverse

26. RETURN RISK
LowHigh
Low High
Gov.
Bond
Corp.
Bond
CD Gold
MF
Fixed
Inc.
Property
MF
Mix
MF
Equity
Equity
DON’T INVEST HERE

27. 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

29. 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

31. A. Paper Assets:
• Stocks
• Bank Account
• Certificates of deposit
• Bonds
The ALTERNATIVE Investment..
B. Tangible Assets:
• Gold & Silver
• Art
• Real Estate
• Land

32.  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

33. Why Property is the IDEAL
Investment ?

34.  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

35. 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

36. PRICE =
Property value 1,000,000,000
Net Rental Yield 3%
Gross Rental 30,000,000 3%

37. 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

38. 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

39. 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

40. 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

41. 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

42. 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

43. 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

44. How to Start
Investing in
Property ?

45. 1. Clear Goal & Strategy
 Target Return & Risk
 Managed or Direct Investment
 Cash Flow or Buy & Hold
 Financing Plan
2. Research…Research…. Research
3. Shortlisted, Hunting, Selection &
quick DD

46. Managed or Direct Investment
 Managed (Through listed / unlisted
property Trusts)
 Direct Investment (You are in
control)
1

47. 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

48. 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

49.  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

50.  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

51. Tidak peduli seberapa banyak uang yang kamu
dapatkan, selalu ingat untuk membagi
uangmu ke dalam 5 bagian yang proporsional.
Selalu membuat dirimu berguna. – Li Ka-Shing

52. What is the
Solution
In our lifetime there has never been
a better time to buy real estate…

53. … but it still needs to be
the right real estate

56. Source: Cushman & Wakefield

64. 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