Monthly Archives: March 2012

Investing in Palm Oil Plantations

I was in the KSL Mall a couple weeks ago and one of the temporary pop up displays they often have selling real estate (often to be build condos…) or wedding materials or… was for investing in palm plantations. Since it was the middle of the week and no-one was around I talked to the salespeople a bit. I am a pretty skittish investor. I am willing to take investment risks but I want to understand what the risks are. I can’t see myself actually investing in this now, but it was somewhat interesting.

They, Golden Palm Growers Berhad claim a 6% guaranteed rate of return. I asked who guaranteed it and I couldn’t really get an answer I understood. They did seem to agree the guaranty wouldn’t protect against some natural disaster or if palm oil prices feel below a certain level (I think the equivalent of $40 a barrel for oil). They seem to be able to use guaranteed much more liberally than would be allowed in the USA related to investments.

Palm trees, with rubber trees in the background
Palm oil trees, with rubber trees in the background by John Hunter, in Thailand.

On top of that return there was a “discretionary bonus” that in initial years was based on income earned on excess capital. I still couldn’t really understand the investment totally but it seemed similar to a limited partnership where the company was the general partner (owning the land and managing the care of the palms and selling the palm nuts to processors). I can certainly understand that the general partner may want to take on limited partners. In such situations the general investment market (palm oil) is important but it is also extremely important to trust the competence and reliability of the general partner. Their interest can be somewhat shared with yours but they have an interest in high management fees (to pay themselves) which is exactly counter to all the limited partner investors.

As I understand it, after 6 years the palms should start producing. The scheme is for 23 years (I think palms have a productive life span of about 17 years, so 17 + 6 = 23). During the productive years investors enjoy 100% of net profits with a minimum return of 9% expected, if crude palm oil exceeds RM 1,500 per metric tonne (today close to $US 500) and I believe equivalent to $40 a barrel for crude oil. It looks like the price might be at about RM 2,500 today (but I am not clear if this is

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Wadihana Condo: RM 2,000 to RM 2,500 per month

Wadihana condos are large condos in Johor Bahru CBD with only 6 units on each floor.

The Johor Bahru market continues to favor renters. If you are looking to rent feel free to take your time and compare what options you have. And feel free to bargain for what is most important to you (if you want some improvements made to the unit or furnishings, or a reduced price…).

Most all condos expats are looking at come fully furnished. A few are partially furnished. You should always check, but normally the listing will make it very clear if it isn’t at least, largely furnished.

See our overview of the Wadihana condo.

2, of the 6, penthouse condos are currently for sale, both for RM 1,100,000. They are 2 story condos with over 3,300 square feet. Regular units are about RM 450,000.