Scope

TMA02 tests your ability to:

– Discuss the fundamental concepts of an investment product covering risk and returns, liquidity and basic analysis

– Compare and differentiate the various investment products with the ability to analyse their relative merits and demerits

– Illustrate the investment making decision process with regard to the asset allocation and diversification, risks and returns, time horizon, liquidity needs and investment objectives of the investor amongst the many considerations

– Appraise the assumptions and data presented in an investment product or offering

– Discuss the information from various sources the suitability of investment products and proposals based on the learning concepts and applying the investment tools

– Identify the personal circumstances of an investor and the impact of external considerations in the investment decision making process

CASE STUDY ON Mr. P

Background Information

For many years now, Singapore with its reputation of stability has drawn the attention of many business owners and investors from overseas based on its growth record as well as economic success.

Mr. P, who is one such foreign investor, came across various media reports lately that an increasing number of foreigners have already invested or are showing keen interest in the Singapore real estate sector for a variety of reasons, be it for growth potential, ‘political safety’ purposes and/or for diversification from their home country.

This is in spite of the economic downturn and setbacks faced due to the uncertainties caused by the recent onset of war in the Ukraine and the global slowdown in the aftermath of COVID-19 pandemic As an ultra-high net worth individual (UHNWI) investor himself with an equivalent of at least SGD 850 million in net investible assets, Mr. P has now decided to allocate SGD 17 million in cash to invest in the Singapore real estate sector. However, he is not sure which particular instruments or sectors to choose from the wide array of choices available in the property sector and related real estate investment opportunities here.

As you have studied in your investment learning journey, the various lessons and topics which are directly relevant for Mr. P in his decision making process, your role here is to advise him on what, how and why he is to invest the funds being set aside.

Limits of Investment Choices

As there is a wide range of opportunities in the Singapore real estate sector, Mr. P has finally decided to narrow down his choice to cover ONLY the following 6 investment options:

I. Property stocks listed on SGX comprising MASTER Property Ltd. (MPL) and VISA PROPERTY HOLDINGS Ltd. (VPHL)

II. REITs listed on SGX comprising CROWN Real Estate Investment Trust (CREIT) and ROYAL Real Estate Investment Trust (R-REIT).

III. Real property investments comprising 2 separate properties: a freehold upmarket residential condominium of 1,500 sq. ft. in the Orchard Road District 9 vicinity and a leasehold commercial office unit of 1,600 sq. ft. in the Robinson Road / Shenton Way vicinity.

Both properties have only just recently been completed and are immediately available for occupation. Mr. P has noted that the leasehold property has a balance of some 96 years of lease remaining.

The salient features of the above investment choices are summarized in the table provided above.

(Note: ‘n.g.’ means ‘not given’ or not provided but can be calculated separately; while ‘mn’ stands for ‘million’) Additional details on the above securities that Mr. P can obtain are as follows:

1. MPL – A large cap Singapore-based MNC with global hotel operations and mixed property development projects. It has substantial local real estate operations, and has won numerous awards for its various development projects.

Having recently written off the value of its majority stake in a China-based real estate developer at substantial losses of almost SGD 1.5 billion, it was in the doldrums before recovering to its current level. In spite of these setbacks, it was seen by most market analysts to be on the path to full recovery from this episode.

Despite the COVID-19 pandemic, its locally developed residential projects have sold very well despite not reaching the levels of pre-pandemic years.

Its other major core business of hotel operations is still reeling from the impact of the global slowdown, but preparing for a potential global tourism take-off.

2. VPHL – An up-and-coming mid-sized home-grown developer with a history of aggressive bidding for privately held and government tendered land just before the onset of the COVID-19 pandemic. Although it has diversified aggressively into Malaysia, Indonesia, Cambodia, Vietnam, Australia and the UK over the last 7 years,

not all of these ventures have met with unqualified successes. Its portfolio includes prime office and hotel assets, some of which it has recently identified as non-core assets to be sold to pare down debts as analysts have expressed concerns over its seemingly high levels.

3. C-REIT – Its assets consist of mainly industrial factories and warehouses, purposebuilt storage and data centres, logistics hubs and purpose-built distribution centres and facilities, with the latter having received positive industry and peer reviews. It has always historically traded above its net book value except during the onset and at the height of the COVID-19 pandemic when it dropped to a historical low but has since recovered.

4. R-REIT – Its portfolio comprises of mainly retail malls, Grade A office and commercial space in prime CBD areas. Prior to the onslaught of the COVID-19 pandemic, the assets held under this REIT were thought to consist of some of the most “prized” real estate holdings in Singapore. There appears to be some industry consolidation in the REITs sector of office and retail spaces as a few mergers have been recently announced. It recently reached an all-time low in its share price.

Assignment

Based on your understanding of the investment products and instruments that you have studied thus far, especially those relating to equity, REITs and property investments, discuss, compare, appraise and identify how you can use these tools and concepts in your recommendations to Mr. P. Illustrate how and why Mr. P should or should not invest or allocate his funds, taking into account the full set of information and data provided above, the current state of the local economy, the prevailing sentiments in the stock and property market (including its various sub-sectors), and any other information that is readily available and accessible to you.

You are expected to provide analysis of the relative merits, demerits and risks involved, and the potential outcomes of the specific securities or assets if Mr. P were to take up your recommendations.

For the purpose of this TMA 02 assignment, you can assume an annual inflation rate of 3 – 4 %, local bank fixed deposit rate at around 1 – 2 % p.a., and property mortgage rate of 2.5 – 4 % p.a. for BOTH residential and commercial properties if these are relevant for your presentation to him.