In our third article we wrote about property investments and the meaning of PILC investment strategies. In the following articles we will dig a little deeper in each stages to have better understanding in the process.
For those who are new to the MCM Blog can read the article here: How MCM Invests in Property?
The PILC (Property Investment Life Cycle) consists of the following investment strategies in each stage of the property life cycle.
● Land Acquisition
● Construction/Development
● Management
● Renovation
● Refurbishment
● Redevelopment
This stage would be the most essential part as land is classified as the raw material for any property development. Acquiring the right type of land (agriculture, industrial, residential, commercial, etc.) at the right location (matured, developing, potentially upcoming, etc.), with the right concept (guarded and gated, landed, high-rise, mixed development with commercial components, etc.), the right size (density, plot ratio, unit size, etc.) and most importantly, the right price (below or current market price, or inflated future price) will ultimately decide the sell-ability of the projects subsequently determine the best potential value of the land.
Throughout the years, there have been many attractive and creative land investment opportunities made available, commonly in United Kingdom (UK), North America, and other developing nations. Some are genuine gems, some are outright scams. It is important to consider the long holding period of green belts or brown field lands before it can be converted into commercial use. This is definitely challenging to predict as there are many aspect such as the accessibility to the land title, ownership, land laws that allow for conversion, duration, premium meanwhile there’s several implicit restrictions whereby in Malaysia there are few states that impose 30% of the land usage solely for Bumiputera, and other factors that govern the duration for due diligence. More importantly, the consideration of the huge capital outlay usually required for this type of land banking investment.
Moreover, the land price that inclusive all of the construction, development, marketing and sales with other additional costs involved can be too high to the extent where the final selling price for the completed units would be overpriced, both locally and internationally.
However, when we were first introduced to land acquisition opportunity in Hong Kong (HK), we felt excited to explore more and eventually got involved. This is due to HK properties which are ranked among the most expensive in the world, and with land scarcity it all boils down to capitalizing on demand and supply.
Below are some key indicators that will be used to decide if the stipulated land will be suitable for this strategy. As a rule of thumb: Island with scarcity build-able land and high population density with high PPP or FDI will never goes wrong.
Please keep in mind that the information below is an example to help you understand details on a new level and I would like to remind you that every opportunity is different and you must always make your own research before you commit.
LOCATION
With a land mass of 1,104km2 (426 miles2) and a population of 7 million people, HK is one of the most densely populated areas in the world. As of 2017, HK’s GNI per capita is 64,100 PP dollar and its GDP per capita is USD 46,193.61 according to the World Bank.
POLITICAL SYSTEM
Under the principle of “One Country, Two Systems”, HK has a different political system from mainland China. The law of HK is based on the rule of law and the independence of the judiciary where the constitutional framework is provided by the HK Basic Law.
The Lands Department in HK is practicing British system, which is common law and familiar when we invest, is important as different country have different legal system which some protect owner meanwhile some can be politically influenced.
ECONOMIC OVERVIEW
HK has a free market economy where it highly depend on international trade and finance.
Gross Domestic Product
Chart 1: HK GDP Annual Growth Rate (Trading Economics 2019)
Inflation Rate
Chart 2: HK Inflation Rate (Trading Economics 2019)
Unemployment Rate
Chart 3: HK Unemployment Rate (Trading Economics 2019)
ALTERNATIVES:
One of the alternative proposals to land acquisition is leasing the land from landowners for a certain lease period. Leasing land, may also support sustainable project development since the lands need to be returned to the landowners at the end of the lease period in a condition similar to its original form with out considerable environmental degradation.
When the land is leased then anybody who has to otherwise give up land or livelihood will be compensated for its growing valuation over time. In this model, the landowner lends her land to the government for a steadily-increasing rent, or through an annuity-based system.
As “the best investment on earth is earth”, stay tuned for our next post on Construction / Property Development