A good counter argument to the post before

I mentioned a reply from Project senso site on the pitfalls of Walton Land Banking. Here is a counter argument to xLawyer’s view:

Since we are here to discuss and learn from each others, I'll share my own insight. 

xlawyer provided his views, which is valid for a man on street learning about land-banking for the first time.
However, to an educated investor, all the concern can be managed and are part of the risk taken by an investor.

Walton already made huge profits by selling 90% of the land they acquired to the investors. Land that’s worth only $1000 may be sold for $20000. We have no idea what is the actual value of the land.

A pair of nike cost less than US$2 to be produced in Vietnam. Yet local retailer will pay S$40-50 to buy them in bulk and consumer pay $150-200.
If you have not done any background research,...yes, you won't know the actual value of the land.  However, market research info is readily availabile, try CB Richard's website and you will know how much the land cost. Be an educated investor.

- Walton also earns from installment plans taken up by investors. I was baffled when the consultant insisted that an installment plan at 11.95% is a better option compared to lump sum investment.. Citing reasons being .. high profit goes into high tax bracket.

Don't take the loan lor.  Financial management is a personal responsibility.
There are many Singaporeans with huge credit card debt and paying 21% compunded interest, yet signing a credit card is preceive as a cool thing!
If the total payment is less than 10% your desposible cash, pay full.  Else, take the loan and pay up as soon as you have the liquidity.

- If freak happens and proposal for development doesn't get through, Walton loses that 10% while investors 90%, But refer to point 1. Walton doesn't really make any loss since they have already earned from the initial deal by selling the land to investors.

You'll need to make sure you invest in land that are already zone for development.  For those that are not, what's the growth in the region and what the projection.  You can check with the city council for their plans.
Just like in Singapore,  even Pl Ubin & tekong have initial plan for residential development and it will develop sooner or later, but will you invest ....on the other hand, land around Potong Pasir was schedule to be developed 20 yrs ago but did not happen due to you know what....will you invest now that old chiam may be too ripe....so, do you homework and don't simply listen to the company.

- Investors are exposed to exchange rate risks, as it's traded in C$, they might have ended up paying more and getting less than expected due to rates fluctuations. There is no guarantee to currency stability when time is involved, past performance is no indication for subsequent similar results.

Every heard of hedging?  Then again, if you are investing in 1-2 units, the 10-20% current exchange risk is managable.
Just like when you buy a car, you are taking on the 30-40% oil price risk to keep you car operational and of any use.  Even with that, it's value is going down everyday.

- Their theory of low risk (or no risk as claimed) but high returns is much against all investment principles. It could be no risk to Walton since they earn at the head start, but a different story for investors.

If you go by this principle, you should not buy a HDB flat because HDB earn a lot of money right from the start.  You should not also invest in any private land properties because URA made huge amount of money right from the start.  The developer also earn money by makring up 40-60%.

Low risk is relative to how else you will invest that money that you have.
Compare to stock, is it more risky?
Compare to funds, is it more risky?
Compare to US$, it it more risky?

- Investors may own the deed to the land, but it does not represent what they have paid for and will get in return. The piece of land which they paid $20000 for might just worth $1000 and that's what you get in return.

Check CB Richards website about the land value.  Don't speculate.

- Great examples quoted in their presentation based on past performance could be during the good years of Canada's real estate history, it could be blooming at the instant, but doesn’t guarantee the same for the next decade or two.

The same when you invest in anything else.  Stock, fund, sg properties....US$...
Basically 2 countries in my portfolio will continue to achieve stable growth. Australia & canada.  Why?  Small population releative to their large mineral deposit.  With China, Japan & US fight for the minerals.  You decide.

- There is also no guarantee that Walton's proposal for development will be accepted by the Canadian govt. Investors are investing in a hope that it will happen, a piece of land that’s rejected for development is worthless.

Do research on the founder of the company and the management team.  When you know them, research on their link with the Govt.   Then invest like an educated investor.

Similiarly, will you buy Capitalland's stock with the apporval for 2 IRs?  Will NCS or SCS get part of the IT contract with the recent increase govt IT budget?

- There may be a money back guarantee or the sell-back option, but will there be a penalty fee or admin charge for that? It can't be as good as 100% cash back business. And just how easy is it to get back one’s money?

Will you invest hoping to just get back your principle?  If you make an un-educated investment, a speculative investment yes, you need such guarantee.  
When you make an educated investment, sell-back option are useless papers.  They only provide such options to silly Asians investors.  It's call fake security...totally useless. if you believe it's profitable investment.
Many silly investors will resell their units when the price goes up 20-30%.  Smart investors will keep buying the resale units as the waiting timeframe are shorter.
Think about it and decide what kind of investors you wanna be.

A reader’s summary of Walton’s Land Banking as an investment

I used to visit Project Senso abit. Now i totally don’t but this guy (xLawyer)  posted back in 2005 did come up with a comprehensive summary of what he would be getting himself into if he invest with Walton:

From my days of reading and scrutinizing this excellent deal

All I can figured from the stack of propaganda by Walton is that

- Walton already made huge profits by selling 90% of the land they acquired to the investors. Land that’s worth only $1000 may be sold for $20000. We have no idea what is the actual value of the land.

- Walton also earns from installment plans taken up by investors. I was baffled when the consultant insisted that an installment plan at 11.95% is a better option compared to lump sum investment.. Citing reasons being .. high profit goes into high tax bracket.

- If freak happens and proposal for development doesn't get through, Walton loses that 10% while investors 90%, But refer to point 1. Walton doesn't really make any loss since they have already earned from the initial deal by selling the land to investors.

- Investors are exposed to exchange rate risks, as it's traded in C$, they might have ended up paying more and getting less than expected due to rates fluctuations. There is no guarantee to currency stability when time is involved, past performance is no indication for subsequent similar results. .  

- Their theory of low risk (or no risk as claimed) but high returns is much against all investment principles. It could be no risk to Walton since they earn at the head start, but a different story for investors.

- Investors may own the deed to the land, but it does not represent what they have paid for and will get in return. The piece of land which they paid $20000 for might just worth $1000 and that's what you get in return.

- Great examples quoted in their presentation based on past performance could be during the good years of Canada's real estate history, it could be blooming at the instant, but doesn’t guarantee the same for the next decade or two.

- There is also no guarantee that Walton's proposal for development will be accepted by the Canadian govt. Investors are investing in a hope that it will happen, a piece of land that’s rejected for development is worthless.

- There may be a money back guarantee or the sell-back option, but will there be a penalty fee or admin charge for that? It can't be as good as 100% cash back business. And just how easy is it to get back one’s money? Selling in the open market is also an option, but just how easy will it be to find a buyer ?
No vested interest .

This plan can only take up 5% of my entire investment portfolio, certainly not for retirement as suggested by Walton.

From the looks of it, investors are taking on more risks then the company, or rather the company ain’t taking much risk of the plan gone bad.

Why invest with Walton for Land Banking?

For Walton, why they are different from other land  banking companies are their experience in managing their investors investment.

Land banks will only increase in value when people want it. And people will want it if it is useful to them now or near term. if people don’t want it, then it is just a piece of useless raw land. Value will not increase.

According to Walton they add value to raw land through their for strategic process: Acquisition, Syndication, Planning and Exit.

What this basically means is that Walton will do in-depth analysis to choose the best location that are likely to interest developers. this would normally be at the outskirts of a city. Walton would also analyze the population trends etc to determine if this is a good area to sell to investors.

Then, after acquiring the land, they will plan and conceptualize what can be develop on this land which will then be presented to government to get approval.

Every step of this, increases the chances and risks that this land will not end up as a barren useless land that the investors will wait god-damn long years to exit, thus mitigating investment risks.

It is through these 4 strategic trusts that Walton aims to differentiates from competitors.

An off beat contact with a Walton Consultant

Its been a while since i met up with X since our university days. Back then he comes across as one of the fun ones that would rather have around given the tremendous stress of school work and all.

Since those days, programming and IS have been the furthest from his mind right now. He was working at DBS and recently he has join Walton International  Group. Walton is essentially one of a few land banking institutions that is on the look out for investors. And perhaps the most well known to me since they have the most consultants thus reaching more people so more news about what they do.

I would rather leave out the details in the next post. But what is land banking. Essentially from  Wiki,

Land banking is the practice of purchasing land with the intent to hold on to it until such a time as it is profitable to sell it on to others for more than was initially paid. Land is becoming increasingly popular as an investment due to the benefit of its being a tangible asset as opposed to Shares or Bonds. This type of investment has gained such popularity it is now possible to land bank worldwide and there are several firms set up to offer opportunities to do so.

Parcels of land desirable for “Land Banking” are those that lie directly in the growth path of rapidly developing cities. The initial goal is to buy undeveloped land that will increase in value because it lies in the path of urban growth. The key is to identify these parcels well in advance of the developers and wait for their values to mature. With diligent research, financing and managing of a land banked property, one may be able to realize a profit upon the final sale.

What are the kind of returns are you looking for?

Based on the track record of Walton, many of their land parcels have been closed with a greater to 10% yield. The yield will depend on the number of years that you have to wait for the land to be  acquired, contracted, syndicated, planned and managed or exited by Walton.

How long will normally a piece of investment gets closed?

Meaning when will you be able to cash this out. This would really depend on whether this piece of development or land gets interest from developers. It could take a short 3 years to over 10 years. That is according to the Walton brochures that i have.

I will continue posting for the subsequent days.