[Investment] Top 5 Things to Consider before Investing in Student Accommodation

While the stocks markets are not doing too good and the fixed deposit in the bank does not yield the expected return, people are always on the look for better alternatives to park their Moola $$ for better return. 

There are growing trend of investment in UK/ Australia student accommodation property being extensively marketing in Malaysia. I will just call it a student pod here since it is typically a single room (without hall & kitchen) just sufficient for a bed and study desk, nothing more. 

1. Typical Marketing Pitches

Selling price from £45,000

>8% net yield p.a.

3-5 years rental guarantee

NO stamp duty, rental income tax and capital gain tax

Few units left!!!!!

Does this sound familiar?

Student pods are usually marketed with attractive pitches such as high return and guaranteed yield to attract investors.  Questions to be pondered: (1.) If the entry cost is low and the return is so attractive, why are the local investors not buying it? Why do they even need to market the student accommodation property to overseas investors so far from home? Doesn’t it sound fishy? (2.) Do you even need to advertise so badly with more than quarter page of the newspaper or organise a seminar/ expo if just few units are left?

2. Abandon projects

According to various sources, there have been various cases that abandoned projects and developers failed to deliver the promises guaranteed yield. Always remember - the profile, financial and credibility of the property developer and the track record of its past projects are important to evaluate the worthiness of the investment in student accommodation.

3. Do the maths!

The selling price may seems to be low by itself, but don’t forget you are investing in a student pod which the general size range from 120 sqft – 200 sqft. Doing the maths itself by dividing the selling price over the floor area, the price you are paying are most likely higher than the apartment/ condo in your neighborhood. It’s overpriced! Guess what, most of the time, investors are actually subsidising the guaranteed rent by paying an inflated price for the unit they secure.

4. What happens after the guaranteed period?

How can you sell something if it is sold overpriced to you? Most likely you will just sell it at a loss. Also, the real market rental return are usually much lower than the guaranteed return after the guaranteed period. Besides, there are limited exit strategy as resale value usually fall after the guarantee return run out and student pod typically difficult in attracting buyers. So what if you can’t find a buyer? Guess, you will just need to hold for more than 10 years to break-even. Worst case, what if the student pod you owned is vacant?

5. Financing

The salesperson will tell you that the investment amount is so low that the banks usually do not offer loan for investment in student pod. Think about it, is the risk of the investment in student pod too high that the bank will not like to offer financing? What’s next? You must either be cash rich or the salesperson may suggest you to take up a personal finance or borrow from your family & friends dan lain-lain. This sounds so silly, personal financing interest rate will cost you more than 10% which is above the guaranteed return of 9%. Furthermore, relationships with family & friends are priceless. Does it worth the risk of breaking the relationship bond?

Please note over here, I’m talking about student pod also known as Asrama to Malaysian. There are of course people making money with student accommodation by investing in apartments and renting out the bedrooms, but managing it will be troublesome.

Investment that look and sound attractive, with smooth-talking salespeople, slick websites or sophisticated brochures and prospectuses, can still be a scam or crappy deals. The return may always seems attractive but may not commensurate the risk.

Be a smart investor, don’t be impulsive. THINK before you invest, don't let GREED lure you into investment scams or crappy deals!

If you or your family & friends do have some experiences in any investment scheme either genuine, scam or abandoned projects, I would like to hear from you! You are most welcome to comment (which will be moderated) or message me through the contact form at the bottom of my page, I will try my very best to reply every message. 

Sharing is caring, let us learn from each other~ 

[Investment] Quality of earnings per share (EPS)

It is usually assumed that EPS is a widely used indicator for investors’ ratio – price earning ratio (P/E ratio). P/E ratio is often used to value of investment decisions, such as buying/ selling shares, mergers & acquisitions and public listing exercises. Somehow, there are significant limitations imposed on EPS quality and usefulness.

Creative Accounting/ Impression Management

EPS is only considered high quality when it is “relatively true representation of what the company actually earned.” -- Rick Wayman. There are many strict standards and regulations about how to report the earnings of a company in its financial statements. However, there are ways that easily distort the reported EPS by simply applying various measuring standards (e.g income recognition, depreciation method, off-balance sheet financing, etc) that fits the purposes of the company with the effect of any creative accounting. Unethical companies may use EPS information to influence the investors and market expectation by smoothing out EPS trends.

Cash (from operation) is KING, not profit

The best way to evaluate quality is to compare operating cash flow per share to reported EPS, because cash is “king” not profit. The excess cash from operation can be utilised to purchase new fixed assets or to reward shareholders in the form of dividends. If operating cash flow per share is less than EPS, it means that the company is generating less cash than reported EPS. In this case, EPS is of low quality because it does not reflect the negative operating results of the company and overstates what cash operating results. 

Comparability

EPS of one entity cannot be compared with another entity because the denominator of the number of shares is not comparable. Any attempt to make inter-entity comparisons will necessarily involve the risk of erroneous conclusion to be drawn. EPS may not be comparable over time because of changes in owners’ equity structure (e.g shares placement, shares buyback, shares dividend and shares split). While the addition of diluted EPS provides partial mitigation, considerable care is needed when comparing EPS numbers of an entity over time. 

Non-financial consideration

The other sources of information used to analyze quality of EPS for investment decision making are management's strategic plan, business projects plan, production capacity information, sales and marketing information. Management could also indicate the course of action that the company has taken or proposes to take remedy on material deficiency EPS. Investor should have kept a watchful eye on its financial performance and management's strength, in order to make a good investment decision.

Macro view

The investors should also have a general view of market conditions and the overall business environment. A negative cash flow and EPS may not necessarily be illegitimate, investors should analyze the EPS trend in relation to industry trends. Investors can also compare the unfavourable performance of the company within the same industry to identify business cyclical. 

To conclude, EPS as a sole indicator itself does not indicate much information for investor. Making investment decisions requires not just figure of EPS but all types of information include past, present and future information as well as evaluating the cash flow. General view of market conditions, overall business industry environment, current business and world economics events play an important role in the process. However, the difficulty is getting all the information is a timely, costly and concise manner between those who have it and those who need it for investment decision making.

[Investment] Your biggest investment - HEALTH!

(Source: The Star cover page as at 27 Feb 2014)

Overweight, obesity, hypertension, diabetes, high cholesterol...
Are you one of these group above? 

Sadly, we are all busy chasing for money at the expense of our health.

Trust me, insurance agents will be going all out there with this cover story by instilling fear of the breadwinner to promote insurance policy.

Come on guys, buying insurance won’t solve the problems.

But seriously, the biggest investment in your life should be your own health.

Nobody but you alone are responsible for you own health.

Being healthy need not spending more money, just invest a little more effort will make your body feel better.
Healthy lifestyle start now not tomorrow.

Investment tips for the day:

THE GREATEST WEALTH IS HEALTH.

(Winners of unhealthy lifestyle culture: Life insurance and healthcare sector;
Biggest losers: You & your loved one)

GLCs to STOP Foreign Assets Buying?

To contain the strong capital outflow and depreciating of Ringgit, MOF had finally taken some actions.

Malaysian government-linked firms asked to stop buying foreign assets

6 Jan 2015

"KUALA LUMPUR (Jan 6): Malaysia's finance ministry has asked government-linked companies (GLCs) and statutory bodies to temporarily halt purchases of foreign assets, in response to falling commodity prices and in a bid to contain capital outflows. The ministry confirmed that a circular signed by the treasury's secretary-general on Dec. 26 was a move to boost domestic consumption. In an email response to Reuters, the ministry said that the entities were "requested to give priority to domestic investment activity and postpone or put on hold, purchase of assets or investment abroad" "

On the other hand....

EPF to raise overseas exposure to 26% in 3 years

10 Feb 2015

"KUALA LUMPUR: To generate more consistent returns in the long term, the Employees Provident Fund (EPF) is looking to increase its overseas exposure to 26% of the fund’s total investment assets within the next three years, according to chief executive officer Datuk Shahril Ridza Ridzuan.  “At 23% [present], we plan to move [it up] to 26% over the next three years. So we are looking at adding on about 1% every year,” he told a briefing on the EPF’s 2014 investment results yesterday. The growth in foreign assets, added Shahril, will come from fixed income, equities and real estate."

*Click on the news headlines for full story

(Source: Financial Daily The Edge)

Doubt if GLCs are taking the orders seriously.