YES -
OR
YOU can apply for a shareholding in the development and operating company giving
you a stake in all company-
Option 2 -
THE BENEFICIAL owner, Smiling Hill Holdings Limited, is now offering an opportunity
for a limited number of new investors to join the venture as it enters its Expansion
Phase. The company is seeking new capital to fund further property acquisitions,
renovations and upgrading of company properties into 2010 and 2011. The funding is
being sought as direct investment or through the issue of interest-
Batam, with a population of about one million, has been designated a Special Economic
Zone and Free Trade Zone. It is the fastest growing region in Indonesia and one of
the fastest growing economic regions in South-
The Indonesian subsidiary of Smiling Hill Holdings has aggressively purchased, at very favourable prices, many of the houses in Palm Hill Bungalows, a neglected residential estate located at Bukit Senyum (the Indonesian location name translates as Smiling Hill).
The properties are being redeveloped and finished to Western standards and then being held as a pooled managed investment.
THE PROJECT is yielding strong and reliable returns from rents, property sales, property management and hospitality operations. Directors are forecasting net operational yields (EBIT) rising to 25% per annum after the Start Up phase is completed.
However, the principal longer term benefit for investors is expected to be the capital
gains resulting from the “forced” upgrading (gentrification) of the total estate
and the impact of the on-
Smiling therefore is aiming at acquiring some 80% or more of the 54 houses in the estate. It is buying individual properties at low prices and collectively renovating and upgrading them. It also has upgraded the infrastructure (pool, clubhouse, guesthouse, security etc) and common public spaces. This is sharply lifting values.
Target Market
THE RAPID expansion of key fabrication and manufacturing industries is bringing increasing numbers of Western specialists and supervisors to Batam on contracts, typically of 6 months to 2 years.
Because there is minimal Western standard accommodation available, many expatriates (or their employers) are paying high tariffs for less than satisfactory accommodation in hotel rooms or in small apartments or houses designed primarily for locals (and offering very limited facilities). Smiling Hill is targeting this market.
Smiling also is targeting both Western retirees and independent consultants relocating to Batam, attracted by its low costs and proximity to Singapore. No other developer or accommodation provider in Batam is specifically targeting the Western Expatriate rental market.
THE SMILING Hill project is effectively owned and controlled by Smiling Hill Holdings
Limited (domiciled in Hong Kong) through a 98% holding in the Indonesian foreign
investment (PMA) company PT Smiling Hill Investments which owns and manages all company-
Smiling Hill Holdings Limited holds a similar interest in a second PMA company PT Smiling Hill Hospitality which is the operating entity for pool, restaurant and bar facilities. A domestic Indonesian company (PT Bukit Senyum Community Services) provides manpower services under contractual arrangements with PT Smiling Hill Investments and PT Smiling Hill Hospitality. This structure protects shareholder assets and provides administrative and tax minimisation benefits.
Investors are issued shares in Smiling Hill Holdings Limited. The company currently has 21 shareholders who have subscribed some SGD$2.6 million.
Acquisitions and most renovations work to date have been financed from shareholder
funds and are free of debt apart from limited short-
THE PROJECT is being managed and operated by three Australians and an American who also are shareholders. Two are foundation investors who each have had four to eight year’s experience working and operating within Indonesia, speak Indonesian and are familiar with Indonesia’s sometimes difficult business, cultural, legal, government and bureaucratic framework.
Together the management team brings a background of experience in property development,
property management, building construction, business development and management,
marketing, management accounting, business start-
THE CURRENT Smiling Hill syndicated venture commenced in January 2006. Renovation works completed to date include a guesthouse, apartments, houses, a joinery workshop and a pool and recreation complex including a restaurant and bar.
Rental returns are exceeding original projections and Directors believe the results already being achieved demonstrate a potential for high future earnings and cashflows together with strong asset growth.
Smiling Hill has so far acquired 20 of the 51 available properties in the Palm Hill
Bungalows Estate plus a strategic 1,000 sq m building site (14 houses are owned outright
or are being purchased with delayed settlements and six houses are being held under
long-
Two properties have been remodelled as a clubhouse/guesthouse, four have been remodelled or are being remodelled as 15 rental apartments and studios and a seventh has been upgraded as a rental house. The swimming pool/recreation complex, bar and restaurant have been completed and are operating very successfully.
New investor funds will be used mainly to complete purchases of properties now held under lease and to purchase for the company some of an additional 22 targeted acquisition houses. Funds also will be applied to renovations of stockpiled company owned properties.
Longer term planning for the Smiling Hill Project provides for a total of up to 100
apartments plus the renovation of a further 10 or more properties as houses by 2014.
About half of the apartments will be held by Owner-
1) Strong operational earnings and cashflows -
2) Increasing asset values – The upgrading of the total Estate, higher yield property configurations and rapid growth in the wider Batam economy will strongly accelerate property values. (Batam is already one of the fastest growing regions in South East Asia and has now been designated a Special Economic Zone with pending Free Trade status).
3) Security of tenure – All company assets are being acquired and held through a
properly constituted and wholly Western-
4) Effective protection of investor equity – A three-
5) Exit provisions – Equitable, pre-
6) Life-
7) Tax Savings – The corporate structure offers opportunities for minimizing potential shareholder tax liabilities overseas.
8) Confidentiality – non-
9) Expert local knowledge – Operational control and management primarily by qualified Western foundation Investors who speak Indonesian and understand compliance with Indonesian laws, regulations and procedures covering property ownership, company formation and administration, foreign investment, immigration rules and taxation.
10) Established contacts – Established relationships with reliable Indonesian-
11) Work team and suppliers – An established team of Indonesian building workers,
skilled trades people and sub-
12) Passive investment income – Opportunities to generate enough on-
A section of downtown Nagoya, Batam’s main business district.
The sprawling J Ray McDermott fabrication yard -
Building by the acre -
Click on photos to enlarge
Two views of a major new shopping centre which opened at Harbour Bay t in March 2010. An anchor tenant is the giant international chain Carrefour, ranked as the world’s second largest retailer.
Offices of the Batam Post at Batam Centre opened in 2007. The Post and its associated newspapers and TV station is one of Batam’s main media groups.
Shophouses built en-
THE ORIGINAL owners typically paid from SGD$120,000 to $160,000 for houses at Palm Hill Estate finished like the one above when they were first offered around 1992.
BY AROUND 2002 most of the houses in the Estate were like this -
TYPICAL houses at Smiling Hill -
THE HOUSE above is the mirror image of and is in similar condition to that of the
house below before its renovation as four 2-
HOUSE TRANSFORMED into four comfortable and well appointed apartments. All were fully let to Western expatriates within less than a month after completion.
This completed property is now FOR SALE to an Owner-
(SEE BELOW)
- Guaranteed 11% rental returns indexed for inflation
- POSITIVE cashflow with 100% gearing (at current Western bank interest rates)
- Established Western developer and operator with long term project planning
- Minimum 10-
year leaseback with further options up to 20 years - Rents paid quarterly IN ADVANCE
- No vacancies -
ever! - Rent cashflow from completion (from Day 1 for completed properties)
- Low common area and services contributions
- Secure, clear title
- Professional WESTERN management
- On-
going Estate and property maintenance programs - No hassles with furniture and decorating -
we handle it - Security protection
- Defined minimum sell-
back terms for easy, profitable exit
EXPERIENCED PROPERTY INVESTORS will recognise that an 11 per cent rate of return
on residential property is VERY good. At current bank interest rates in most Western
countries (July 2010), you will enjoy positive cash-
By way of comparison residential property investments in Australia typically yield less than 5% and often as little as 3 to 4%. Investors there rely on tax breaks and capital gains to make residential property investment worthwhile.
In Indonesia Jakarta residential property yields are typically around 6% (regarded as "good") and in Bali the typical offer is about 8%.
You will need to pay a rentals tax (similar to VAT) amounting to 10% of your GROSS rental income.
The current Indonesia company tax rate is 25% on net profit but The Government has reduced this to 12.5% for company’s with taxable incomes of less than about SGD$650,000 as an incentive for small and medium enterprises.
The Rentals Tax paid may be offset against your company tax obligation, meaning that your total tax obligation is likely to be about 10% of gross income under the present rules.
Established Long-
RESIDENTIAL APARTMENT and villa projects in Indonesia generally are built and operated by Indonesian developers whose main motive is to get in get out with the maximum profit in the shortest possible time.
The Smiling Hill project is run by Westerners (mainly for Westerners) and we are
here very much for the long-
Our progress so far has been achieved with our own money -
Company planning provides for Smiling to retain, redevelop and let as many as 25
company properties along with those we are offering for lease-
We have an imperative to make the total project work over the longer term for both
the Owner-
Lease-
WE OFFER YOU an initial lease-
You, as the investor, never have to worry about vacancies -
You begin to receive rents from 30 days after the completion of the renovation of
your property -
You pay only very modest "Body Corporate" or “Owners Association” type contributions (the equivalent of 0.75% of your original package price) plus annual land or local authority fees, building insurance and building maintenance. You also pay Rental tax of 10% (See above).
NO FOREIGN INDIVIDUAL or corporation can OWN property in Indonesia in freehold in
the Western sense -
However, much, if not MOST, land in Indonesia for which titles have issued is held in some form of leasehold and non Indonesians CAN READILY obtain secure title to property provided they follow the appropriate procedures.
There is even a special form of limited leasehold title (Hak Pakai) exclusively for foreign buyers. However, the Hak Pakai form of title is regarded as inferior because the purchaser is limited to buying one property with the rights to transfer, bequeath and mortgage the property limited and the lease duration shorter.
Therefore most foreign buyers purchase property through a nominee arrangement or
by establishing an Indonesian corporation which becomes the owner. These procedures
allow non-
HGB is a building rights title and is the form of title typically held by Indonesian
Corporations. The nominal term may vary from province to province but in Batam is
80 years. In effect it is very much like the 99-
We strongly recommend foreign buyers use the incorporation method for the purchase
of Batam properties -
The PMA form of incorporation came into being only a little more than 10 years ago
and this category of company can be WHOLLY foreign owned, though it is required to
offer to sell-
A PMA company must have two shareholders but both can be foreign individuals or entities
(for example you and a company you already have overseas). Foreign nationals may
be appointed as company officers (president director/CEO or Komisaris/Chairman-
Our PMA company was established for the purpose of purchasing, developing and renting/selling
property. However, any PMA company can buy property and it can buy multiple properties.
It incurs the same rights and obligations with respect to the property as any other
Indonesian corporation. Creating such a company can also offer advantages in obtaining
long-
The cost of establishing a PMA company is about US$3,000 but the consequences of not getting security of title right do not bear thinking about. We can introduce you to reliable Western consultants who can handle the incorporation process for you.
Estate Management and Operations
THE SMILING HILL ESTATE and your property will be managed by Western expatriate staff who have professional backgrounds in property management, marketing, property development and construction, project management, hospitality operations and administration and accounting.
This team also is responsible for managing the Smiling Hill guesthouse and company owned and operated apartments and houses (ultimately up to 25 company properties) plus our swimming pool complex and restaurant/bar operations.
Our company is committed to establishing and maintaining the highest standards to
ensure Smiling Hill’s positioning as a premier location for expatriate housing and
accommodation -
The company also will administer maintenance of Owner-
We lease-
In short WE take care of the key areas where most property investors face most of
their problems -
Both Company-
OWNER-
If you wish to sell you must give our Company a first right of refusal. We will pay a price of at least 9 (nine) times the then prevailing annual rental. (The price will rise as rents are adjusted annually for inflation, probably by around 5% a year.)
Should our Company choose not to purchase you may sell to a third party provided
the buyer agrees to an assignment of our lease-
Subject to Board approval, Owner-
OWN a block of apartments
OWN a stake in the Company
- Company Shares Offer
- Returns and Asset Growth
- Target Market
- Ownership and Structure
- Management Team
- Progress and Targets
Make
money
from
Day 1
Property of FOUR modern and well appointed 2-
- Lease-
back of 10 years with further 2 x 5- year options - Annual Rent US$37,620 (US$9,405 per quarter in advance)
- Quarterly security and common area services fees US$640
- Building Maintenance Reserve withholding per quarter US$640
PRICE US$342,000 (Unfurnished)
SMILING HILL ESTATE is located on the Indonesian island of Batam and is being developed
as a gated community of rental apartments and semi-
The developers are acquiring, transforming, revitalising and ADDING VALUE to a formerly
run-
The project is Batam’s FIRST and ONLY residential community being specifically developed and managed by Westerners mainly for Westerners.
Planning provides for a total of 100 apartments plus the renovation of a further 10 or more properties as houses over the period to 2014. The project is generating high operational rates of return and also promises strong rates of capital growth.
Option 1-
HOW WOULD YOU like to have a safe, secure property investment earning you a guaranteed 11% a year (paid quarterly in advance) and indexed for inflation?
This is what the team at Smiling Hill is offering for up to 15 forward-
Smiling Hill is experiencing a strong and continuing demand from expatriates for quality accommodation and this means we need more renovated properties URGENTLY for conversion and upgrading as modern apartments. Limitations in the Indonesian banking and financial sector mean we need to release capital to fund an expanded building program. Therefore we are selling part of our portfolio.
Under our Owner-
- YOU enter into a purchase agreement at a fixed package price for a block of three
or four unfurnished apartments at Smiling Hill (typically around US$85,000 per 2-
bedroom, 2- bathroom apartment). - WE transfer an un-
renovated house and land to you, your company or your nominee from our property stockpile or source a property for you from a third party. You pay the property purchase price and associated fees, including costs of completing the transfer to your purchasing entity and the cost of establishing the purchasing entity if required (we recommend Owner-investors establish an Indonesian foreign investment company as their purchasing entity to ensure strong security of tenure.) - YOU enter into a construction contract with us for the balance of the total package price and pay a 5% deposit.
- YOU pay five Progress Payments as defined construction benchmarks are passed -
because you own the property you also own the completed work. - WE enter into a minimum 10-
year agreement with you (with options for two further 5- year terms) under which we lease- back the completed unfurnished apartments at an annual rental equivalent to 11% of the total fixed package price. - YOU receive your rent payments quarterly in advance commencing 1 month (30 days) after the renovation construction is completed. Your rent will be inflation adjusted annually as at 30 March by up to 5%.
- WE deduct the equivalent of 0.75% of the fixed package price per year (inflation indexed annually) from your rent payments as quarterly contributions towards the costs of estate security, waste removal, upkeep of common areas etc.
- WE furnish and decorate the premises AT OUR COST so that we can operate the property
as serviced apartments. We are responsible for on-
going repairs, maintenance, upgrading and insurance of all non- NO COST TO YOU.fixed furnishing and finishing contents at - YOU pay for annual property charges (about US$140), building insurance (about US$1,000
to $1,300) and building repairs and maintenance including non-
moveable fixtures and fittings (for example - bathroom fittings, plumbing, electrics, solar hot water systems, air conditioners, kitchens, painting etc). - WE withhold the equivalent of 0.75% of the fixed package price from your rent payments (inflation indexed annually) as a Property Charges and Maintenance Reserve to fund the items described in 9 above. All maintenance and other expenses will be fully acquitted and unexpended funds credited to your account. Your prior approval will be required for expenditures in excess of SGD$1,000.
- IF you wish to sell your property you must give us first right of refusal. We will
pay a price of ay least 9 (nine) times the then prevailing annual rental. We may
exercise this option through a nominee. If we decline and you sell to a third party
you must assign our lease-
back agreement to the new owner as part of your sales contract. - SUBJECT to Board approval, you may elect at any time to exchange your Smiling Hill property for shares in the Smiling Hill holding company at the then prevailing share price.
NOTE: Our contracts are in Singapore dollars. US dollars are used here for clarity at an exchange rate of US$1 = SGD$1.4.