Management in the Built Environment Lesson 7 – Inherent Relationships

1. Management in the Built EnvironmentLesson 7 – Inherent Relationships

2. Aim of this lecture Understand the relationship between Economy, construction and the firm/individual Factors affecting these relationships Risks involved in Real Estate investments REIT and how it works

3. Difference between Real Estate, Developer and the Construction Industry Generally, real estate firms deal in land and finished construction, whether it be commercial or residential. Developer is usually the owner of the land , may or may not be the building contractor, built with intend to sell / lease. Generally, a construction firm does not deal in land dealings or buying and selling of "real" assets, instead they build for clients on the client's property. ... homes to sell through an in-house realtor or external property agents

4. Inherent Relations between Economy, Construction and firm

5. Factors affecting the Inherent Relationship

7. REALITY ON GDP VS CONSTRUCTION INDUSTRY

8. Under normal circumstances, construction of economy should go hand in hand with the country’s GDP What is happening in Singapore ? What are the macro factors ? What are the micro factors ?

9. Latest Development in Singapore Construction Industry and Property Sector Ministry of Trade and Industry (MTI) on Friday (Jul 13 2018) showed the industry shrunk by 4.4 per cent year-on-year in the second quarter, as weakness in private sector construction activities persisted While this marked the sector’s eighth straight quarter of contraction, the decline eased from the previous quarter’s negative 5.2 per cent On Jul 5 2018, Government surprised the industry with the more surprise property curbs.  Aimed at cooling the market and keeping “price increases in line with economic fundamentals”, the Government hiked the Additional Buyer's Stamp Duty (ABSD) rates and tightened loan-to-value (LTV) limits on residential property purchases Developers were also slapped with a non-remissible five per cent ABSD when they purchase en bloc properties for redevelopment, alongside a 10-percentage-point increase in the waivable ABSD to 25 per cent

10. CHANGES in ADDITIONAL BUYER’S STAMP DUTY RATES

11. Latest LTV Limits on Housing Loans Granted by Financial Institutions

13. 8 types of Real Estate investors Risk

14. 8 risks of the Real Estate Investors

15. 8 risks of the Real Estate Investors

16. What is REIT ? A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate held in trust ,with investors (individual/ firm investors) each holding a unit of interest of the group of assets. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centres, hotels and timberlands. Some REITs engage in financing real estate. REITs can be publicly traded on major exchanges, public but non-listed, or private. The two main types of REITs are equity REITs and mortgage REITs (mREITs).

17. REITs

18. REIT CYCLE

19. REITS in SINGAPORE Commonly referred to as S-REITs, there are 31 REITs listed on the Singapore Exchange, with the latest REIT, Cromwell European REIT, listed on 30 November 2017. The first one to be set up being CapitaMall Trust in July 2002. They represent a range of property sectors including retail, office, industrial, hospitality and residential. S-REITs hold a variety of properties in countries including Japan, China, Indonesia and Hong Kong, in addition to local properties Some of the regulations that S-REITs have to adhere to includes: • Maximum gearing ratio of 35% • Annual valuation of its properties • Restriction to certain types of investments the S-REITs can make • Distribution of at least 90% of its taxable income S-REITs benefit from tax advantaged status where the tax is payable only at the investor level and not at the REITs level. The total market capitalisation of the listed Trust on Singapore Exchange approximate SGD 100 billion (as at 30 Nov 17).

20. Risk with REITs Potential Tax Consequences • Not properly explained to prospective investors. • Income distributions that occur from current or accumulated earnings are usually taxed as ordinary income. • These taxation rates change when the dividends are taxed, which can carry a tax rate of 15-20% depending on income bracket. • Higher risk if the assets are located overseas Non-Traded REITs Can Have Inconsistent Value • Many REITs are not publically traded, • Inconsistency in valuation of property and market value Restrictions & Excessive Costs Regarding Early Redemption • Potential hidden terms within REIT investments where there is a limit on the number of shares that can be redeemed prior to liquidation. • Excessive fees might be charged.

21. Risk with REITs Excessive Fees • Expensive and excessive Management fees. • Fees can occur related to selling compensation and expenses along with “issuer costs,” which are also paid from the proceeds of the initial offering. Unspecified Properties • Full portfolio of an REIT might not have specified properties. • When this happens, investors have an enormous risk because they are not guaranteed reliable investment properties. • Look at the percentage of the REIT that has specified properties to determine whether the investment is worthwhile. Lack of Diversification • REITs can lead to lack of diversification in portfolios.eg too much investment in hotel subjected to seasonal demand

22. Key takeaways in Lesson 7 • What are the keys words that you have learnt in this lesson • Under what circumstances would you investment directly in real estate and or REITS ?