RunningStream International Pte Ltd Issue No. 2013/3 - June 2013

Issue No. 2013/3 - June 2013

If you are one of those skeptics out there, you might have a bit of fun googling “Market Crash 2013” to see what the doomsayers are rambling about these days. Even if you are not, it might pay to just have a peek nevertheless.

I did. Not that I love bad news. But given that the GFC, the US meltdown and the Europe crisis, are somewhat behind us (not resolved, but rather becoming old news), the time seems right for another challenge to come along... sadistically speaking.

About a month ago, we started talking about how a recovering US market and a slow down in China will impact investors. On May 23 (2013), NIKKEI plunged 7% on news that US Federal Reserve may start switching off its dollar printers sooner than expected and China reported weak economic number. Naturally, the other Asian and Europe markets followed suit as well.

Everyone knows that at some point the Feds and central banks around will have to turn off the tap, before we all drown in liquidity. Yet everyone still hopes that they will keep the life

support machine going. If anyone thinks that the markets are now stronger you might want to think again. To me, the world is walking on very thin ice, at the moment.

Truth be told, whether turning off the tap is going to do us good or bad, is as good as anybody’s guess. That is why, the folks are bailing. Investors hate unknowns. The financial market today has become such a huge and complex black box that it has become rather unpredictable. Some might be argue that astrologists are just as good if not better than economists these days.

But what has that got to do with us as property investors? Nothing much actually. If you bought right. And probably good news if you bought better.

History has shown that in right markets where demand is strong and supply is well managed, the big bad economic wolf can howl all it wants and all it does is to drive more interests.

As the western economies start to look attractive at its low (even Greece is starting to

be touted as a good buy these days) we are certainly expecting a major shift in the flow of monies. As to how that will impact the markets, your guess is as good as mine. But a few things are for sure - Monies will start to flow westward. Interest rates will start rising. Currencies will fluctuate.

All this spells changes that will impact property markets worldwide especially in places where - liquidity is high, interest rate is low, currency is strong. No prizes for guessing where...

Throw in record high house prices and a pinch of political instability and you have the perfect recipe for some major price movements especially if demand is not matching supply.

The trick here is to invest intelligently. Lean on real demand and real developments to grow your portfolio. Think hard about your strategies and throw luck and hope out the window. Build what we call, a defensible portfolio.

There are hay, sticks and bricks. Some are constructed expecting perpetual sunshine. Others stand through the test of time.

A B I -MO N T H LY NE W S L E T T E R FO R I N T E R N AT I O N A L PR O P E RT Y IN V E S TO R S

C O N T E N T H I G H L I G H T S

tributariesIn The Eye Of The Financial StormCometh 2013 and we are potentially staring at another tectonic scale market shift

Cover Story : In The Eye Of The Financial Storm... Pg 2

Area Insight : The Quiet Booming Of South Brisbane... Pg 4

Knowledge Base : Bubbles - What Is It & Is It A Bad Thing?... Pg 2

M A R K E T U P D A T E S

If you have never invested overseas and are wondering what the hype is all about, join us for a short introduction to investing in overseas real estate and learn about how its done. Topics to be covered includes:

• How to examine oversea projects• Common investment concepts• Markets around the world

• Different products and projects• Investment strategies and approaches

To be kept informed of our upcoming events and courses, email to marketing@runningstream.com indicating that you like to be on our mailing list.

Alternatively, stay updated through facebook at www.facebook.com/RunningStream.International.

U P C O M I N G E V E N T S

Wondering if overseas is your cup of tea?

K N O W L E D G E B A S E

Issue No. 2013/3 - June 2013

C E O ’ s N O T EGreetings from us all at RunningStream!

We are very excited to be launching our inaugural issue of Tributaries - a bi-monthly newsletter through to keep you informed about markets, strategies and opportunities.

Even more exciting, we are lining up a whole series of upgrades for you. Seminars, workshops and courses are all in the works.

The reasons behind all these efforts? Well, we believe that knowledge precedes success, and your successes precedes ours. After all, we have mentioned many a times that our relationship with you can only be seen as a partnership. It therefore make logical sense that when our partner (that’s you) is better informed and equipped, we can go further together.

Many of you have heard about our Portfolio Service that we started to help our clients plan their investment journey. Well, we have taken time to add a few nuts and bolts. Clearer engagement processes, service delivery system, performance management system etc. While most are at the of the office, it all contributes to a more consistent and disciplined customer experience.

As for the markets, well, we are in an age of financial turbulence. The financial market is basically on life support. It doesn’t take much for it to start convulsing as demonstrated in the recent stock market collapse. The so-call recovery is about as delicate as thin ice - cracking at any pressure.

And in such times there lies a greater need to invest sensibly with knowledge. A recent quote from a guru I know goes “Guaranteed Success is the result of executing a well thought out process. Not dumb luck.”

That’s what we believe. And that’s what you should too. So if you have not thought through things. Get started soon.

Of course help is only a phone call/email away.

Yours truly,

Dan TohCEO

One of the biggest question on any potential investor’s mind when looking overseas is how should an opportunity be scrutinized to know if it is worth investing in?

Here is where we like to tell the story of the elephant and the blind men. Now for those who have not heard this old Indian fable before you might want to google the story online rather than we repeat it here. But the essence of the story is that while the blind men were all right, and yet they all came to the wrong conclusion.

You see, the issue here is not untruths, but partial truths. The key here is to understand the factors involve, weigh the pros and cons (no, there are no perfect opportunities) and thereafter make an informed call. In this very short article, we will attempt to share what goes through our mind, and what should go through yours as well.

Let’s start with fundamentals. And here’s our version of the “elephant” when evaluating markets and opportunities.

Each of the factor helps to piece together the complete picture. For example, a high growth market such as Myanmar might demonstrate strong economic and demand conditions but without legal framework or financing it is a playing field only for a selected few and definitely not for the faint hearted.

Australia on the other hand has a strong market, stable economy and well regulated practices. That means your investment performs like a blue-chip stock - well protected and stable but limited growth and returns, relatively speaking that is.

Never judge an opportunity based on a a single factor. Such as calling it bad simply because the regulations are tight, or good because the growth potential is high. It all depends on the weight of the factors and more importantly, goal of your investment.

For example, investors often question an investment’s affordability, based on the notion that cheaper is better. Let us dive a little deeper, via the following chart which shows affordability for Australia, NZ, US, UK and Canada.

Australian Housing Chartbook / 9 July 2012 / 3 of 13

VALUATION MEASURES

AUSTRALIAN HOUSE PRICE SOFTNESS REFLECTS BETTER VALUE WITHOUT ECONOMIC STRESS

x A combination of lower interest rates, falling house prices and rising household incomes has driven Australian house purchase affordability to better than long-run average levels. In contrast to many other developed economies, this has happened in the absence of a significant economic downturn and the associated stress on household finances.

x ANZ analysis of long-run trends in house prices, household income and interest rates (ignoring other drivers of house price growth, including housing market balance and mortgage lending criteria) shows the recent softness in Australian house prices has been mainly driven by weak household sentiment rather than economic fundamentals, with prices continuing to fall below expected house prices at current household income levels and mortgage rates.

x Cross-country comparisons using partial valuation measures - often used to contend the case of overvaluation of Australian house prices - continue to reflect broader economic and housing market differences, while revealing little about the future direction of house prices. These measures, including house price to income ratios and rental yields, do not address ‘other drivers’ of house prices, including economic growth and unemployment, population growth, housing stock, net household wealth, household financial stability, government policy, housing credit risk and mortgage lending standards.

House prices and house purchasing power*

$542,404

-$100,000

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

87 89 91 93 95 97 99 01 03 05 07 09 11

Interest rate contribution to simulated house price**Income growth contribution to simulated house price***Actual house prices

* Represents the average households purchasing power over the median priced home** Calculated using trend discounted variable bank mortgage rate*** Calculated using average household disposable income

House price to purchasing power*

-80

-60

-40

-20

0

20

40

60

Mar 84 Mar 87 Mar 90 Mar 93 Mar 96 Mar 99 Mar 02 Mar 05 Mar 08 Mar 11

Hou

se p

rice

dev

iatio

n fr

om h

ouse

pur

chas

ing

pow

er

(% o

f ac

tual

hou

se p

rice

)

Australia US UK NZ Canada

* Represents the average households purchasing power over the median priced home

International house prices

50

70

90

110

130

150

170

190

210

230

Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11

Hou

se p

rice

inde

x (M

arch

200

2=10

0)

Australia US UK NZ Canada China Singapore Hong Kong

House price to income ratios

2

3

4

5

6

7

Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12

Hou

se p

rice

to

aver

age

hous

ehol

d di

spos

able

inco

me

ratio

Australia US UK NZ Canada

Housing affordability

10

15

20

25

30

35

40

45

50

Jan 92 Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12

Mor

tgag

e co

sts

as %

of m

ean

hous

ehol

d di

spos

able

inco

me

Australia US UK NZ Canada

International rental yield

2

4

6

8

10

12

14

16

Mar 96 Mar 98 Mar 00 Mar 02 Mar 04 Mar 06 Mar 08 Mar 10 Mar 12

Ren

tal y

ield

(%

)

Aust US UK

Sources: ABS, RBA, RP Data-Rismark, S&P/Case-Shiller, Nationwide, RBNZ, Teranet National Bank, Global Property Guide, ANZ

Now is this chart a relevant consideration for house prices in the named countries? Yes largely. How about for Asia? Probably not. Why? Basically price to income ratio becomes irrelevant when the monies to support the prices are not necessary “income” as what many deem “income” to be - such as profit from asset appreciations, business income, inheritance, gift etc. Especially where places where the tax policies are somewhat loose and the income disparity is wide.

In other words, the ratio is hardly relevant to Asia where excessive liquidity has created situations where someone earning SGD4,000 a month can potentially have 2 private properties and millions in the bank thanks to escalating asset value.

Another major point that an investor should note is that most oversea projects do come with some form of structured protection and returns. Most deem that to be a positive providing stress free returns without the hassle.

More often than not, these guarantees do have a knack for turning into nightmares when developers collapse, management agents default and so on.

The key here is to always know your recourse. If the rental guarantee fails you, would the current market support the yield? If the structure fails you, would the asset still be assured under your name? If the management company fails you, would you have recourse to reappoint another quickly and easily?

We would love it if the answers can be a straight “yes” or “no” to all the above questions and more. However, in most situations the answers tend to be much more convoluted.

Venturing oversea can be a very rewarding experience. But it certainly takes courage and knowledge to do so profitably. At RunningStream we do conduct a beginner course providing very practical training for investors keen to explore further. Our Portfolio Partners are always at hand to help you understand the challenges and rewards of investing overseas, and help you define why and how you can build a sustainable portfolio over a cup of coffee.

On us of course.

What should you consider when looking at investing in properties

P R O J E C T H I G H L I G H T S

Issue No. 2013/3 - June 2013

Be a developer in this unique opportunity that gives 20+ pa. over a 3 years period. Take part in the upcoming development of a world class housing estate in the fastest growing region in Australia through a secured and assured structure.

This is essentially a joint venture investment where our investors will collectively acquire interest in one of the land in the estate. The developer (LDA) will hence execute the master planning, engineering and sales activity thereafter provide the returns back our investors.

We have painstakingly taken the time to craft the proper legal structure together with our legal partner - Harry Elias & Partners - to ensure that our investors are well protected and secured not only legally, but also by interest in the asset and representation on the board of the developer.

The project is undertaken by some of the most prominent names in Australia in terms of planning, engineering and design. Many of which has done work in Singapore as well including the Thomson MRT line and the Garden by the Bay.

Located in the no.1 investment suburb in Australia by our favorite developer.Austin is the latest and greatest project by Aria in the heart of the South Brisbane precinct. The location is a rare find and the opportunity a fantastic one by any means.

The combination of the best developer we have worked with to date and projects in Australia’s no.1 investment suburb presents our investors with an excellent project right in the heart of South Brisbane.

Many of you may not have been informed about Brisbane but as far as Australia goes it is where we are encouraging our clients to take strong positions at the moment. Yields of 7% and vacancy at sub 2% coupled with strong growth history (20% in the last 5 years) make this location a definite blue chip suburb.

Austin has a total of 140 and 95% sold within the first weekend by local investors. There are still interesting units remaining and developer is looking to launch their next project in same vicinity soon so if you are keen, register your interest with us soon.

Calling all oversea investors.Whether you have already got a portfolio of properties oversea or looking to build one, our Portfolio Partners are here to help.

Many of our clients have tried and attested to that this free diagnosis session has not only help them understand how they are able to better optimize their returns, but also obtain a clearer understanding of their goals and personal profile, therefore how they should invest to their strength.The session takes no more than just an hour and after which you will be provided with a short assessment report.

The service is provided at no charge. To book your session now, simply email to portfolio@runningstream.com with the following details:

• Name• Contact Details (Email, Mobile/Contact No)• Preferred Date/Time

Our Portfolio Partners will be more than happy to sit down with you to discuss on a non obligatory basis.

DEVELOPERLand Development Australia

PRICE RANGEA$55,000 per share

MORE INFORMATIONhttp://runningstream.com/projects/project.aspx?id=17

DEVELOPERAria Property Group

PRICE RANGEPriced from A$320,000 to A$740,000

MORE INFORMATIONhttp://runningstream.com/projects/project.aspx?id=20

S E R V I C E P R O M O T I O N

An unique low entry product with a 10 years 8% rental guarantee by yours truly.Railway House consist of 29 units of micro apartments designed for student and short term accommodation right in the heart of Liverpool’s commercial district.

The Railway House is an unique opportunity for investors looking for long term stable yield in the UK short term and student accommodation market - the highest performing asset class in UK.

The project is right in the heart of Liverpool’s commercial district along Tithebarn St. and with that location the demand for rental will undoubtly be high. Hence RunningStream is taking on the entire project ourselves and upon buying, we will lease back the unit from you for a period of 10 years at 8% of the price yearly. This means that we will be your tenant with the right to sublet essentially.

Such an arrangement will remove the headaches of liaising with oversea parties and provide greater comfort and security.

The project is approved for letting to both students and general short term leases.

DEVELOPERRunningStream International Pte Ltd

PRICE RANGEGBP50,000 - GBP58,000

MORE INFORMATIONhttp://runningstream.com/projects/project.aspx?id=11

Is Your Portfolio Healthy & Performing?

A R E A I N S I G H T

Issue No. 2013/3 - June 2013

A B O U T U S

In RunningStream, we believe in leveraging real estate assets in places with social, economic and political stability to grow the wealth of our clients. We are highly investment centric, engaging ourselves in rigorous research and structuring creative financial strategies to help our clients build a real estate portfolio that can withstand market cycles thereby creating sustainable wealth.

Tributaries is our bi-monthly publication to help our clients stay informed about property markets around the world. We

welcome you to provide a copy of this to anyone who might be interested. Should you prefer to have a copy delivered to you regularly, please drop us your name and email to marketing@runningstream.com indicating that you will like to be included in the mailing list.

We certainly welcome any feedback and suggestions that you might have. In appreciation, you will receive a token gift from us when you share with us your thoughts. Simply send us your opinions via email to marketing@runningstream.com.

Unknown to most, South Brisbane is the oldest suburb in Brisbane today and was once the so-called CBD of Brisbane in the 1840s. The name deriving from the fact that where the CBD is now used to be called - no prize for guessing - North Brisbane.

Today, the precinct is now the epitome of prosperity, winning recognition as the no.1 suburb for investment in Australia and the Brisbane Convention and Exhibition Centre named as the world best by the leading international publication “Conference and Incentive Travel”

Apart from a world class convention center, the unique culture of the precinct is shaped by the presence of the the State Library, Queensland Art Gallery, Queensland Museum, Gallery Of Modern Arts, Queensland Performing Art Centre, a slew of some of the city’s best restaurants, over 30,000sqm of commercial offices, hotels and the education campuses.

A short walk northwards across the bridge and you will be at the heart of the Brisbane city. Pop southward and it’s West End - the cafe and chill street of Brisbane. And to the east is Kangaroo

point - arguably the most well-heeled suburb of Brisbane.The reason why it is the no. 1 suburb to invest in Australia - high demand and low supply with solid economic fundamentals. Over half of the

residents rent and the demand has taken the yield to over 7%. Office workers swelled from 17,000 in 2007 with only 900 apartments available to over 30,000 workers but only 1,100 apartments available as of 2012. And the bad (or

good for investors) news is, there is only so much land due to the meandering Brisbane River and the heavily heritage nature of the West End precinct.

Units and apartments are not only more affordable than houses in South Brisbane, they’re also more highly sought-after by tenants. As such over the last 5 years we have seen a solid 20% growth for units versus 10% for houses. All indicators are pointing to strong fundamentals for a solid price growth in the medium term.

The precinct has also been affectionately named as “Brisbane’s Greenwich Village” as the cultural hub of Brisbane.

As a guide, the best buys for investors at the moment would be two-bedroom apartments which provides a wider appeal to students, young professionals, executives and small families alike.

Prices of new developments range from mid A$500,00s to low A$700,000s for a 2 bedders with sizes above 80sqm. One bedders range from low A$300,000s to mid A$400,000s.

Distance from Brisbane: .......2kmPopulation:............................. 4,300Median Price:................. $475,000 12-month growth: ...................-1%Rental yield: ..........................7.08%Market type: ...........................Units

Why Buy?! Proximity to CBD! Low supply, high demand! Population growth! Solid infrastructure and diverse

employment nodes

10%20%

5-year growth

HOUSES

UNITS

56%21%

17%

Fully owned

Mortgage holders

Renters

Demographics

Quarterly growth for 2-bedroom unit

Source: realestateinvestar.com.au

Q12010

-1%

0% 0% 0% 0% 0%

-1% -1%

-0.5%

-0.5%

-1%

-1.5%

2011 2012Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

AVG. RENTAL YIELD

7%VERY LOW STOCK

“Without doubt, the rents in South Brisbane are the best

for a blue chip suburb located anywhere in

Australia”

Australia Property Investor Magazine 2012Top 100 Suburb Guide

TIGHT RENTAL MARKET1.29%VACANCY RATE

South BrisbaneTop Suburb In The Top 100 Suburbs In Australia