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Her.
To love is nothing.
To be loved is something.
To be loved by the one you love is everything.
Wednesday, April 29, 2009 / 12:45 AM
p/s: bear with me for this long entry!
"the time now 1pm and you may begin writing your paper," said Prof Ong - my real estate finance prof. once i opened up the exam booklet, it really sucks big time. it just reminds me of my statistics paper last semester. super hard. it really makes my mind goes cramp all the way for 2.5hrs.
exam format? answer all 3 questions from section a & choose 1 out of 2 questions from section b.
section a (answer all questions)
question 1 (30 marks)
mrs low is a 62 year old retiree who lives in a 3-rm hdb flat. her husband passed away a few years ago & she is living off his pension & savings. although mrs low has 2 children, she lives alone as her children are living with their own families.
mrs low has been considering mortgaging her flat under a reserve mortgage, but she recently learnt about the hdb lease buyback scheme (lbs) introduced in mar 09. she is uncertain whether to take up a reverse mortgage or the lbs. mrs low has approached you for advice.
from your discussions with mrs low, you ascertain the following facts:
* the 3-rm hdb flat is located in bedok south ave 1 & was built in 1976.
* the flat is currently mortgage-free.
* mrs low receives a monthly allowance of $500, comprising her husband's pension & allowance from her children.
* mrs low monthly utilities amount to $80 & pays $40 in s&cc fees. she estimates she requires about $300 for her daily subsistence.
* mrs low suffers from high blood pressure & diabetes. her monthly subsidizes treatment at the nkf amounts to about $130/session & she requires 4 treatments per month.
* she does not wish to impose a financial burden on her children who have their own challenges under the current economic circumstances.
you searched the resale price of hdb flats in bedok south from the hdb e-services website & estimated that the average transaction is about $240,000. a quick desktop valuation check provided confirmation.
(a) suppose hdb is willing to provide a reserve mortgage (rm) loan at 5% p.a. for 20 years up to 80% of the current valuation. ignoring upfront fees, calculate the maximum monthly amount that mrs low would receive under the rm loan. (6 marks)
(b) under the lbs, hdb will buy the balance of lease so that owner is left with 30-year lease. the remaining term of the lease on mrs low's flat is 66 years, which means that under the lbs, hdb wil buy back 36 years. in addition, the government will provide a top-up of $10,000 in subsidy, of which part is paid to the owner upfront & the remainder will be used to purchase an immediate annuity from cpf. you estimate that hdb will pay $98,000 for the remaining 36-yr lease. how much will mrs low receive upfront? (4 marks)
(c) for a female owner aged 62, cpf pays an annuity for life that is equivalent to 5.6% of the lump sum paid upfront. what is the expected monthly annuity under the lbs? [hint: treat the annuity as payment received in perpetuity.] (6 marks)
(d) would the 2 schemes be able to meet mrs low's current needs? (4 marks)
(e) how would you advise mrs low on the risks associated with the two schemes? (6 marks)
(f) which scheme would you advice mrs low to take up? subtantiate your answer. (4 marks).
question 2 (40 marks)
the real esate development company you work for has received an investment proposal to buy a distressed residential development. the development comprises 120 units, each with a built-up area of 1,000 sq ft. the project is still under construction & is expected to complete only in 12 months' time.
the seller is experiencing cash flow difficulties & is willing to sell the uncompleted development subject to a non-negotiable term that the buyer assumes all outstanding liabilities amounting to $8.5m. the bulk of the outstanding liability is in the form of construction cost paybale. in return, the buyer will asume full control over the project account, into which the deposits from unit buyers have been paid into, as well as all revenues due.
the balance in the project account is currently $2.5m, being proceeds from the first lanch 6 months ago. the seller was able to sell 50 units at an average price of $500 psf. 10% of the sale proceeds were paid into the project account & the balance 90% will be due on completion (month 12). however, it is anticipated that the existing monet in the project account will e used to offset the outstanding construction liability once the necessary paper work is completed.
as the development has yet to be completed, it is estimated that the construction cost to complete the project amounts to $3.5m, payable according to the following schedule:
* mth 1 - $525,000
* mth 2 - $350,000
* mth 3 - $350,000
* mth 4 - $175,000
* mth 5 - $175,000
* mth 6 - $350,000
* mth 7 - $350,000
* mth 8 - $525,000
* mth 9 - $175,000
* mth 10 - $175,000
* mth 11 - $175,000
* mth 12 - $175,000
total = $3,500,000
as the business development manager, you estimate that the earliest date to launch the balance 70 units would be in 6 months' time, at which time, you project the average selling price to be $600 psf. you are optimistic that pent up demand would be good at that time & that the remaining units would sell well.
although the current legislations stipulates 10% of sale price must be paid upon signing of the sale & purchase agreement, the fact that the development is close to completion meants that the revenue inflows are highly dependent on how well units in the 2nd launch sell. you envisage that the revenue from the 2nd launch will be as follows:
* mth 8 - 50%
* mth 10 - 25%
* mth 12 - 25%
(a) excluding the cash flows fromt the 2nd launch, tabulate the monthly cash flows for the next 12 months. (10 marks)
(b) if the relevant discount rate for such projects is 12% p.a., calculate the present value of the cash flows in (a). (5 marks)
(c) suppose the 2nd launch revenue is as projected. what is the present value of the 2nd launch revenue, using the same discount rate of 12%? (8 marks)
(d) what is the maximum price you would advise your company to pay for this development? substantiate your answer. (5 marks)
(e) compute the project IRR if the purchase price is $40m. (7 marks)
(f) suppose your company can secure financing to (i) pay off the oustaning liabilities & (ii) pay the projected construction costs in the next 12 mths. how would the irr of the project change if the cost of financing is 8% p.a.? estimate the levered irr (w/o using cash flows). (5 marks)
-clearly state any assumptions that you make-
question 3 (10 marks)
in feb 09, the 3-month singapore interbank offered rate (sibor), dived to 0.68% bringing it near the all time low of 0.63% reached in june 03. consequently, dbs & ocbc both offer a mortgage rate, under their sibor packages, of 2.43% p.a. & hsbc mortgage rate is 1.93% p.a.
given that the interest rate on cpf funds is 2.5% p.a., how would you advise a potential property buyer as to optimal loan & cpf amounts to utilize?
section b (choose any 1 question)
question 4 (20 marks)
the real estate investment trust (reit) industry in singapore went through a boom period prior to 08 when reits expanded aggressively through their yield accretive strategies & a painful preiod of 08 as the world economy underwent a credit crunch.
(a) using this recent experience, explain why leverage is a double-edged sword for a reit. (10 marks)
(b) how can the absence of asset acquistion by reits in 08 be explained by the credit crunch? (10 marks)
question 5 (20 marks)
private properties purchased after 1 sept 02 were subject to a new regulation that stipulates that the bank loan takes 1st priority in repayment over cpf refund. prior to 1 sept 02, cpf savings withdrawn for purchase must be repaid ahead of the outstanding housing loan.
(a) explain the rationale for this change. (8 marks)
(b) it has been conjectured that the change in regulation should result in lower mortgage loan rates. do you agree or disagree? why? (12 marks)
fuh!
i was like sweating over each & every questions upon asnwering them. i answered questions 1-4. i didn't know what i've written on the booklet were right or wrong. but i'm just hoping for the best. at least a pass please.
lucky that i manage to get 40% saved by having 33 marks. 60% is from this exam paper & i wonder how much marks i need for a pass? after calculated by jiahui, he said is 28.3 marks? is it true? please, put a pass on my grade.
2 more papers to go.
& i'm looking forward for the next 2 papers. gonna strive for the best that i can. even if i can't like what baby told me, "what past is a full stop". thanks baby for making me happy tonight. smooch!
will update you again after my next paper ya. =)
that's her
21 october 1987
libra
rabbit
full time student
part-time sales promoter
tutor
"what's meant to be yours will forever be yours."
looking at the stars
a wonderful husband who can lead
a property at good district
a car
a wonderful job
good salary
happy life with my loved ones
"your dreams will be yours if you try to achieve it not hoping."
adventure out
my baby
my darlings
real estate
golf
snooker/pool
bowling
tennis
driving
novels
chocolates
coffee
red
"happiness is due to your commitment you give in the things you like."
looking forward
my late grandma
rafael nadal
nemanja vidic
"woman is the man's backbone to success & vice versa."
