Land banking used to be reserved for large institutions or corporations, but now, it is made available to smaller investors. The minimum amount to get in is US$10000. When I saw one of the projects, Her Majesty the Queen is one of the investors. Of course, she is not the actual person doing the investment, but the portfolio is managed by the experts.

First of all, a land banking company will do a thorough research on various plots of land. They will send their teams in for 2 to 3 years before going through with the deal. The acquisition team will only end up with 2 to 3 possible plots out of 50 that they initially looked into.

They will look at various categories, such as the politics and economy, the growth statistics and other legislation. Then they will look at the official plan and the approval process. If there are no plans for the state to expand, then it’s not viable. Then, they will start looking at the ownership of these lands. The areas should be near major transportation infrastructures and booming towns. The cost of entry should be low as well. They will tend find the receptive sellers and check their title deeds. After everything is done, they will swoop in and give them little time to consider.

What the company will do next is to come up with a master plan to propose to the state government and then ask for rezoning of land. The land will be subdivided for commercial, housing, parks, and schools and other needs. The land banking investor does not need to worry about the particular lot that he or she receives, because each investor holds equal weightage.

When developers come into the picture, the company will look at the prices and the process becomes similar to enbloc. They need more than 60% agreement. By then, the prices should have doubled. Some properties may earn more than others. According to the sales consultant I met with, her company’s worst project received only 8% per annum. The best projects received 45% or more per annum, but the usual projection is 12-15% p.a.

Of course, there are risks and other considerations to land banking. I’ll address them again. 
 

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Some Common Filing Mistakes
1. Declare all income. Winnings from Toto and 4D are not considered income as they are windfalls. I wonder whether this is true or not, but apparently for those who want to cheat on income tax buy winning tickets from people to claim the winnings, and then pay them the winnings, just so that the money becomes legitimate. When I bought oil and gas investments recently, I was asked to declare the money I was using to be free from money laundering. It seems that not just illegal businesses need to do money laundering. Tax evaders have to do that as well.
2. If you are a sole proprietor, it is better that you engage a professional accountant to do your taxes. For hawkers, you can refer to guides in 4 official languages. Remember they come down hard on tax evasion hawkers. Business income is taxable on the sole-proprietor’s name.
3. For rental of homes, do check out what you need to pay. An annual exemption of up to $150,000 is allowed to the NAV of one property, which is occupied by the owner. Any excess above $150,000 is taxable.
4. Royalties are taxable but if yours stem from A local publisher; or A branch in Singapore of a foreign publisher, you will only be taxed on 10% of the gross royalties received if they are received for any literary, dramatic, musical or artistic work.
5. If you are a Singaporean citizen or PR, your dividends from local shares need not be filed because the companies will automatically declare for you, unless you are joint account holders. 

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Source: Adapted from ST Mar 15 2008

Some of the increases in the commodities could be due to the emergence of biofuel, which aren’t really environmentally friendly to produce, as large areas of vegetation are removed in order to plant cash crops such as corn. The increasing popularity of biofuel is due in part response to the increase in prices of oil, and the fear of dwindling supplies.

However, that has led to pressure on the prices of crops for food and animal feed. With increase in prices of wheat, now that fewer farmers are growing it as one possible reason, animal feed increases, and the price of meat will increase eventually.

This will lead to increase in food prices and growing inflation. For the poor to average consumers, they will be badly hit.

What does this mean for investors like us? Buy into oil, precious metals and commodities. There are plenty of gold certificates, unit trusts that focus on precious metals and commodities and other instruments such as direct oil and gas investment that allow you to capitalise on the increase.

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Anyway, I feel when you have negative views all the time, you will attract negative results. Hence, I decided to think positively, and I got the answer I wanted. I’ll give the go ahead to my father, who was originally very keen just like me, until I did some googling. If he invests in this, he will have a steady source of income until 75 or more. That’s better than the CPF annuities which he will miss getting.

So, what I’m doing here is just to share my research. You should still weigh your own options.  

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First of all, on one hand, there is a currency risk. You invest US$10000. Currently, with the weakening of the US currency, you don’t need to fork out that much money compared to 4 years ago. Having said that, if the US currency continues to fall further, which until recently, it was unthinkable that it would breach the US$1=S$1.4 barrier, the returns you get will be lower when it is converted to SGD. If there is a huge drop, then your investment gains will be negated by the losses through foreign exchange.

On the other hand, if the US dollar continues to weaken, then the price of oil will continue to climb, since the value of oil is somewhat stable. Hence, the losses in currency exchange may be covered by the increases in oil prices. The higher the oil prices, the faster you get back your original investment.

Second, there is an environmental risk. If a hurricane strikes your oil field you have a share in, production will be halted. If an earthquake happens, I’m not sure how they can resolve the problem easily. According to the sales rep, payments may stop for a few months, before production continues. This is because the oil company has a 75% share in this, so they cannot afford not to resume production quickly. In addition, since oil is underground, the structures that may be destroyed in a natural disaster will be quickly rebuilt. For other physical risks, such as fires, insurance will cover that.

Third, even though this company has been marketing such oil and gas investments since 2002, little else is known about them. I always have this fear that companies will fail and my money will be gone. That is why whenever I purchase packages for all sorts of beauty-related sessions, I wonder whether my money is safe. Perhaps this risk is always there, and we have to weigh the risks carefully. One good thing is the main company, Powder River, is traded on OTCBB in the US under the symbol PWDR. The only thing I know about OTCBB is that it is for microcaps.

Forth, oil and gas production has its own risks. It might not be that easy to continue production for a long period of time as it may be commercially unviable. If the oil well dries up, then income will fall. Hopefully with 25 fields spread out at different locations, the chances of all of them failing in the short term will be negligible.

Fifth, I can’t find much information from people who have invested with them. The sales rep at the fair showed me his earnings because he also invested with them. However, he has vested interest, so it is hard to say. At least two people with some authority, Mr Tan Kin Lian, and Mr Dennis Wee, had come out to say they will not invest in such schemes. Other people at forums think it might be the making of a Ponzi scheme. When I was listening to the sales rep, he mentioned right from the start that it was not a Ponzi scheme. That means this must have been a concern raised by many would-be investors for him to say that. Basically, it means that money from later subscribers is used to pay the earlier subscribers, instead of real money that is made. This point cannot be substantiated though. There are other threads that discuss Oilpods.

By googling Oilpods, I only come across some consultants that mention similar things that I had mentioned in my earlier posts, but they do not mention the risks. When some consultants who post in forums were questioned by other forum members, they were unable to fully explain. Some people mentioned that there was insider selling, but when I checked, somebody from the company bought the shares twice.

For more news, you can check the press releases over at Yahoo Finance.

Hence, I am still thinking hard whether I should invest in this. Whatever it is, caveat emptor – buyers beware.

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First of all, they offer a cash flow (business model) investment. After investing a sum of money (minimum US$10000) to buy assets, you wait for six months before you recover your capital over a span of 3-4 years. You will be paid monthly, and every three months, they will pay you another sum of money.

After the breakeven point in a few years, you get to generate a cash flow which may fluctuate depending on how the business is doing or how the oil prices are. This is being compared to a capital gain investment, where you get a one-time profit when you sell and not get any more money.

Once you get your money back, you can choose to invest in subsequent projects, and repeat the process. Then you will have multiple streams of passive income. According to the sales rep, the oil fields in US are estimated to last another 12 years after you have recovered your capital. Based on a conservative estimate by them, you will get 10-14 percent Internal Rate of Return p.a. The oil and gas fields that are chosen are known to be producing. That means these fields are not at the exploratory stage or at the final stage.

You get to own part of the lease. It will be registered at the U.S. State’s County Office.  This is known as Working Interest. This is supposed to work as a hedge against inflation. What Oilpods does is to market the shares of projects to people. Currently, they are at the 8th project, and they started since 2002. The company collaborates with Powder River Petroleum International Inc, which is involved in the production, acquisition and marketing of crude oil development of crude oil and natural gas properties in US.

With oil and gas prices remaining high, the demand should be there. Unlike stocks which require constant monitoring, you will get a sum of money monthly. The cash flow is derived from daily production.

It sounds rather exciting to have such a high return scheme. Of course, any investment carries risk. I’ll discuss some of the risks in my next posting. In addition, some forum goers have expressed concern regarding the company’s operations, so you can find out more before jumping onto this bandwagon. Since I’m doing research on this company, please let me know if you have heard of the company or invested with it.

Sarah Tan

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Muslims are prohibited from engaging in any form of investment related to interest-bearing financial services such as banks and insurers, haram (forbidden) things such as alcohol, tobacco, gambling, pornography, production of military weapons, trading of gold and silver as cash on a deferred basis, and others such as advertising and media. So, what is there that is left to invest in?

Plenty, actually. So long as the securities and investment tools do not go against the Islamic philosophy and laws, they are allowed. These include stocks in the energy, technology, oil and gas as well as infrastructure sectors. These sectors have done extremely well in recent years. Perhaps this is one reason why you hear of oil sheiks more often than not, because this is one sector they can totally invest in.

Despite the recent volatility due to subprime losses in the US markets, Shari’ah-based investments have been protected since they do not engage in the financial markets.

One such fund that you can get locally is the DBS Mendaki Global Fund. These are the companies that it invests in. Apple is a great stock they are holding on to. In addition, the annual management fee is extremely low at 0.5%, which they attributed to corporate social responsibility. It has gained 33.5% in a year, which is extremely decent.

Companies they invested in
APPLE COMPUTER INC
ISHARES-MSCI JAPAN INDEX FUND
TRANSOCEAN SEDCO FOREX INC
SUEZ
OIL SERVICE HOLDRS TRUST
MIDAS HOLDINGS LTD
NVIDIA CORP
PHILIPS ELECTRONICS NV
NEW ORIENTAL EDUCATIO-SP ADR
SINGAPORE PETROLEUM CO

Research: Fundsupermart: Investing, A La Shari’ah by Wallace Goh.

Sarah Tan – SingaporeProfit

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