Investment in shares vs commercial real estate

Rajesh Sharma

My answer to Nepali@pardesh regarding investment in share market vs real estate commercial property.

I have copied and posted his post and two other post also for reference.


Nepali@Pardesh - I know the saying that “Expect no good thing free from anyone” but I have been seeing many contributors in this forum who have been providing genuine advises free of costs time and again. I know they have not been receiving anything measurable in cash but the respect, trust which are more than any other thing from the members. I have always been silently saluting those genuine contributors.

I have a situation and want genuine advise from members of this forum, please if you allow. I have been investing in stock market since last 16 years but living abroad since last few years. One of my family members has been making transactions with the outstanding support from the broker house. Total value of the stock that I have in Nepal (as of today) is around 3.8 crore and I am required to make a decision as soon as possible whether to keep them or de-invest (full or part of it) it to buy a commercial house in Kathmandu in order to ensure regular monthly income. I have been maintaining spreadsheet, other members might have been doing the same thing, and announced divided for this year has been around 5,000 kitta of Bonus Share and around 360,000 of cash so far. There are still few companies that have not yet announced dividend this year which will, I hope, make around 5,600 BS and around 450,000 cash dividend in total for this year. I am in a cross road now and need expert advise from generous members of this forum, if it is a good idea for me to de-invest stocks and invest in commercial real estate (estimated price is Nrs. 365,00,000) with the estimated monthly income 170,000 in Kathmandu or stay holding (probably adding good scrips and selling less performing scrips) them for few years.

I know the question that I am putting in the forum is not that easy but good contributor like Rajesh Ji, FrEaK_MoNeYji, Nirbal BabaJi, Genuine NewsJi, Keshavji, Berkshire HathwayJi, SlingJi, FightforCauseji, 50 weeks Lowji, MacBethji and others many genuine contributors can help me with their view so that I can make a wise determination as I, personally, am not in a position to make a concrete decision as I used to do in past.

I would sincerely appreciate advise from friends that is not because they are free but because they are priceless for me which will eventually help me to make a wise decision and thank you all for your time reading this story and contributions.

Thank you all.

Nepali@Pardesh

Keshav - In Nepali culture, owning a home for living is essential from psychological, future security view point. However, I do not think it is a good idea of buying commercial house by selling shares. Of course, there could be capital gain if there will be real estate boom but the regular return from real estate is not justified. In your example, you will earn 5.5% return (annual 2 million from 3.8 crore). You also need to pay tax on your rent income.

To me, being choosy and retaining high returning shares and sell low performing ones will be right strategy. You can easily make at least 20% return with good shares.

Big Bull - i agree with keshav ji....

stocks can never be compared to a rent giving residential property...this is not monaco where u get millions for a room....
stocks are easy to liquidate not house...
people only think about the rent but they forget the add the cost that they need to buy the house...
properties have to be maintained regularly....problems arise time and again etc etc....additional costs....etc etc...

u are talking about rent....guess what:-- u will get more money as interest if u keep it in a deposit..problem free, maintainence free...always liquid...

stocks are even better....just portfolio should be good and well diversified and have to be trimmed time and again....
if i had a house i would sell it and invest in stocks instead.....

and mr. Hajurbau....3.8 crores might seem a big sum but it can be acquired easily....just keep on investing, saving , accumulating...million $ is not very far.....

Always
BiG BuLL.....

My Answer:

1. You asked questions not to an analyst but to all of us, active investors. We see opportunity in investment, so we are here and, by nature, we advise you to stay in share business.
2. The money you are talking is quite small if not used as equity together with bank loan, for real estate or commercial real state property. But, for share market, it is handsome amount. Some people like being king of hell rather than being slave in heaven. BE KING AND STAY IN SHARE BUSINESS.
3. Rental income comes with several complications. The tenant could be a problem, maintenance cost may be high, hazards like fire, earthquake are there as by our attitude, we see insurance as additional burden.
4. Generally speaking, you will never retire mentally if you are in share business. It will keep you always alert as the market moves like a octopus - any side, any time. You need to keep your eyes open and brain alert. In rental income, you have to keep yourself ready just to see your deposits in the bank account and if that is not added to be ready to talk tough with your tenant. I agree with BigBull ji as this is not Macao.
5. Most of the time, investment in share gives you better return than investment in real state. I had purchased Chilime shares at 1100 around two years ago. I got 30% and 20% bonus shares and some cash dividend too. Its price is 1515 now. You could calculate the return and this happened when everybody is crying for falling market. Once its price had reached 2700.
6. Finally, I cast my vote in favor of the same strategy as Keshav ji has stated above. Change stocks according to their performance and growth prospect and if you are away and could not keep close watch, please get help by hiring part time professionals or fund management agencies.

Good luck and all the best.

http://www.nepalsharemarket.com/jambforum/Default.aspx?postid=103932#103932

NEPSE Index falling further

Rajesh Sharma

NEPSE index has come down significantly (866/16//11/2014). It may make things different for many people and areas. Many small traders might have disappeared already from the scene or will follow soon. Their holding capacity may be not so strong to resist such scenario. The insurance companies and Mutual Funds may suffer in areas of their investment as banking stocks as their major investment avenue have come down tremendously. If the insurance and hydro sector shares would fall big, banking sector would get more and more loss as the banks including other BFIs have invested in insurance and hydro-power companies. Though by a smaller fraction, their investment income would decrease. The liquidity scenario has not improved radically, there is added obligation due to bonus/rights shares issues and political environment not still so conducive for investment, this falling trend of share market would add salt to their injuries.

Due to uncertainties created by half hearted implementation of CDS, complication in getting loan against demated shares, pressure on clearing BT and negative mass market psychology together with unstable and unpredictable political situation; we are in this situation.
Hence, NEPSE should implement CDS in full as soon as possible and change in date from Magh 2 would further erode investor confidence. The Rastra Bank should issue directive as soon as possible to flow bank loan against demated shares. Book closer date coming to end by next month for a large number of popular companies certainly that would clear the BT store. And, if at least these three factors would be in place, the mass market psychology of investors may turn to positive. The political course, we do not know and may be if other micro-level initiatives would be in place, the effect of political instability could be minimized.
For me and friends like my background who have seen NEPSE sliding to 290 from 1175; this is not a terror. We had flourished, got nearly bankrupt, became nervous and humiliated by none other than oneself, stood some how in fragile state, got some light, recreated hope, built some confidence, slowly started to stand firm, saw the darkness gradually thinning and once saw an orchestra creating wonderful waves of lovely music when NEPSE reached to 1083.
Therefore, I believe, this fall is nothing new for us and would not fall flat. But, other friends also who are particularly new, my advice is to hold firm and live life as normal as possible. Days are dark; days are sunny. In such situation, harvesting happiness is what we should concentrate on. Today, all my companies are going down except one. I am proud of that one particular company. For other companies too, I have sympathy. Without any fault of theirs, they have been suffering. Cure is there and they would start jumping one day when the environment would help them to flourish. May be, I am a diehard optimist, I am not sure.

Use of facebook

Rajesh Sharma

My comment on Ramesh Poudel ji's post on using facebook.

It is difficult to define the term 'productive'. An unproductive act for one person could be very productive for another person. Hence, generalization makes the term ambiguous. If you ask me, gathering information, filtering and processing them and utilizing those information while making decisions is also a productive activity and social networking sites such as facebook are useful sources of information and good platform for debate, dialogue and sharing. However, I agree with Ramesh Poudel ji it will not add value if we have problems in setting objectives for use of such platform. The objectives could be simply building relationships/friendships or networking for businesses or making and strengthening access to power.

Market astrologers, Company vulnarability

Rajesh Sharma

I like to share 2 points.

1. Now, we could see several share market astrologers, who are busy predicting the NEPSE index for immediate future. They do not provide any supporting facts, data, credible logic or technical analysis. Simply they say the index will go down or up to xx figures such as 650, 700, 900, 950 etc. These predictions are simply their wishful thinking. Let's leave them happy and throw such predictions not supported by any technical analysis, into a dustbin.

2. In Nepali share market, we simply focus on operational factors including company's tangible performance. However, most of the time, looking at intangibles offers useful insights. Among such intangible factors, one is vulnerability assessment. The companies are many, particularly in banking sector that includes commercial banks, development banks, finance companies and micro finance companies. Many among them are either run by business houses or retire business/banking professionals/elites. We have only few public limited companies of real meaning of the phrase. We have good business houses and notorious business houses running the show. Similarly, we have companies that have no spinal chord, and if there is any, that is diseased.
For next year, if the situation does not change dramatically, we may see a good number of companies in red zone. The excessive or unsustainable bonus share or rights shares may increase their obligations and they may fail to meet share holders expectations. For this reason, we should see the vulnerability factors of any company before making investment for long time. Seeing anarchic environment in Nepal, this is absolutely necessary for the long term investors. Gone are the days when courage, luck and gut feelings were enough to make investment decisions.

Subdued NEPSE and BT

Rajesh Sharma

May be, I am a bit off the track of facts, I don't know. But, I still strongly believe that the decrease in NEPSE is primarily due to BT. Till the big traders including such brokers will clean their store, the market would be in subdued state. They may even push further the implementation of CDS by another 3 months if they need to do that. We are living in an anarchic environment and such thing could happen quite often. Hence, we have to plan accordingly.

Bonus/Rights shares

Rajesh Sharma

Slowly, there is increasing awareness about the impact of bonus share/right shares. Traders still think that the higher the better. But, slowly the investors have started to see the impact for next year. Hence, there is growing realization that the higher percentage of bonus/right shares without any solid growth plan/environment may play highly negatively over the performance of the company.

CHCL's right share and Sabidhan and Market

Rajesh Sharma

My comment on Gautamraj Rai ji's post about Chilime's rights share and further discussions on it.
I have two points to share.
1. CHCL rights share: I am not so hopeful. However, CHCL could stand on its firm footing without making additional attractions like rights shares. Hence, neither I believe that all of the sudden it will jump up or fall down. My expectation is that it would move up gradually from this price level.

2. Sambidhan and market: The effects is there when the result is not out. Hence, we may have still some turmoil but that would be before Magh 8. Those who could not take further risk will sell when there is enough time for them to sell. Those who will retain fully being aware that there may not be constitution they will hold even after Magh 8. The institutional investors will hold large part of their holding anyway as that would be only a better option for them. A few undecided ones may not create that much impact. Immunity and resistance will keep market continuing rather than falling down. Only, getting bankrupt macro economic factors and heavily deteriorated company's performance could bring disaster in the market other than the situation of war. That is not the case at all.
Hence, my understanding is that we have two more difficult months remaining due to uncertainties of the political course and anticipation of CDS implementation. By Magh 8, such uncertainties would be cleared positively or negatively or the status quo would continue. Therefore, the market will go on as usual - some high or some low, even if there would not be a constitution by Magh 8.

NEPSE Index in the last six months

Rajesh Sharma

NEPSE Index

Six month
2014.5.4 830.71
2014. 11.3 904.03
Change: 73.32

Highest
2014. 7. 21 1083.55

Yes, the index has come down quite heavily; however, it is not that bad as it has been perceived. In six months, the index has moved up by 8.83%.

Moreover, it has absorbed the effect of bonus share of many companies. which had book closure.

Chilime's falling share price

Rajesh Sharma

My comment on Haku Cha ji's post about CHCL's price fall
All major hydro-power companies are in growth mode. These companies are not banks and they have two models - individual company or conglomerate. Chilime, BPCL, AHPC etc are following the second model. Many other companies also may move to this model when they grow or enter into smaller projects too. These companies need time to perform hence are for long-term investment.
CHLC, BPCL or AHPC all three companies have come down in share price. The factors could be many and different. For CHCL, Ghising factor added to its speed in climb down. Our market is too sensitive even to not so important factors.

Hence, CHCL, BPCL and AHPC are going through a lean phase due to peripheral factors and their fundamentals are still sound. When the market would start moving up, these companies could be in first line to book the ticket to climb up.
Note: This is my opinion and you please analyze yourself.