W15_FELIX_PROPERTY VS GOLD INVESTMENT ANALYSIS

1.      Problem Recognition, Definition and Evaluation

Period 2000 to 2012 was a period of investment. Communities in droves for saving and invest. But as the prices of goods go up each year in accordance with inflation then the public should be smart looking for variety of investment or savings.

Based on the statistical data obtained from Bank Indonesia, inflation in Indonesia has 6-8% per year in the last 10 years. This means that every year all goods in Indonesia increased about 6-8%.

If you put your money below the pillow or at the jar, the money will growth 0%.   

If you put at the bank, your money will have bank interest between 2-4% per year.

If you put at Bank deposit, it will growth about 4-6% per year.

It means the savings that we know it (bank saving or bank deposit) less rapidly with the rise of inflation rate each year. Simple conclusion is that saving in the old method will not make you richer but instead will become increasingly poor.

Investment can simply be described as a smart save with the ultimate goal to beat the inflation rate. Investments that are best known are the gold, silver, real estate, stocks and mutual funds. The growth each year can be shown at below table.

 

Generally, property investment is preferred because in addition to the property price increases each year also benefited from rents.                                  

In 2008, my friend bought an apartment at Jakarta central city in the hope of property price increase beside rents profit. After 4 years (2012), this year, my friend asks me how much the percent rate growth each year (IRR) of his investment compare with the gold investment rate.

2.      Development analysis

There are two alternative:

a.       Apartment growing rate between 2008-2012

b.      Analyze if the cash flow is invest to gold between 2008-2012

3.      The cash flow for each analysis

a.       Analyze Apartment cash flow between 2008-2012

My friend shows me the actual cash flow during 2008 (when he start buys an apartment) until 2012. He bought the apartment using bank loan, and down payment can be paid in 6 month.

b.      Analyze if the cash flow is invest to gold

Based from above my friend cash flow, we can make yearly cost investment as follow:

 

 During 2008 until 2012, the gold was increase as below:

 

 

Using both tables we can make gold buying at below table:

 

4.      Selection of the acceptable criteria.

The purpose of this analyze is to evaluate which one is giving higher profit using IRR method, gold investment or property investment.

5.      Analysis for the alternatives

a.       Apartment growing rate (IRR) between 2008-2012

To find the IRR of apartment we need to find out how much the property value at the year 2012.

Based on to Property index rate from the Frank Prime Global Cities Index, Jakarta property growth 14.3% each year.

 

The property price at 2008 is Rp. 280.000.000 or equivalent to USD 29,474.

The property market value can be shown at below table:

Meanwhile since my friend using Bank Loan with total loan Rp.200.000.000 or equivalent to USD 21,053 and  Interest rate 10.75%, start on April 2010, we can calculate that monthly installment will be Rp. 2.750.000 or equivalent to USD. 289.

If the market property can be sold with minimum price same with market value USD 50,305 than my friend should pay the rest of bank principle = Rp. 164,279,974.76 or USD 17,293.

The cash flow can be shown below: 

  b.      IRR if the cash invest to Gold from 2008-2012

As above calculation before, if we use our apartment cash out for buying gold, than we will have 690 gram gold. And if we sell it on the end of year 2012, we will collect Rp 358.800.000, or equivalent USD 37,768. ( 1 gram gold selling price = Rp. 520.000 or equivalent USD 55)

The IRR can be calculate at below table.

6.      Select the preferred alternative

Based from above data we can conclude that the Property investment will receive 10.32% whilst compare with gold can be gain 17.046%.

7.      Performance Monitoring & Post Evaluation of Result

This calculate already approve with exact data during 2008-2012. The property at Jakarta indeed can give interest rate 14.3% (average). In 2008, one bed apartment was sold at  USD 29,474 and today 2012, the market value can be achieved USD 50,305.  However gold increase is more profitable, with increase rate 17.05% almost the same with Kitco historical database i.e 17.46%.

8.      Reference:

·         William G.Sullivan, and Elin M.Wicks (2012)  Engineering Economics-Fifteen Edition, chapter 8, Price Changes and exchange rates. London Pearson Education Ltd.

·         Charts & data of Gold in Kitco Gold Index. Retrieved from http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

·         Hartono Andreas, Emas, Saham, Reksadana atau Properti : Mana Yang Paling Menguntungkan ? Retrieved http://ekonomi.kompasiana.com/moneter/2012/10/08/

·         Knight Frank, (2012) Residential Research Prime Global Cities Index.  Retrieved from http://www.knightfrank.com.hk/en