Why you should consider buying oil palm land now?

Recovery of food prices and agricultural commodities
Last year many investors hoped that the inexorable rise in the global population and demand for food would bolster agricultural raw materials’ prices in a global economy downturn. But this slowdown has shown that while everyone must eat, “they can eat less or more cheaply”, says David Fuller on Fullermoney.com.
However, many agricultural commodities are trading at major discounts to their long-term average in real terms.

After slumping by more than 50% last year, agricultural commodities like corn, wheat and soybeans have rebounded by 20%-25% from their December lows. Investors have been looking forward to smaller harvests later this year. Drought-stricken Argentina, a key exporter, is on track for its lowest soy production in at least five years, reckons Pablo Adreani of Agripac.

This may cause the demand of palm oil to increase later this year since palm oil is always the primary substitute of soy oil in edible oil industry.

Also, recent drought in China is expected to push the crude palm oil price to recover faster from its 70% drop last year. Although the current price of RM1900/ton is still more than 50% lower then its peak of RM4300/ton in March 2008, the price has recovered by 46% from its low of RM1300/ton in October last year.

2008-2009-palm-oil-chart

The weather remains a “wildcard”, and smaller harvests could bolster prices later this year. But for now supplies don’t look too stretched, given last season’s record harvest.

Even so, demand of palm oil is set to rise…

Why now?
Despite the recent recovery sign in agricultural commodities, palm oil price has been depressed by the concern of recession for more than half a year. In the second half of last year, we still remember while crude palm oil price was already on its downturn slope, we still saw most sellers of oil palm land unwilling to lower their price. We believe it was because these sellers were less in touch or ignorant with the global economy situation.

Until end of last year, their attitude became softened after they have been selling their harvests at lower and lower prices for months. Now at this juncture, almost everyone in Malaysia is aware of the slowdown in economy. We are surprised to see pessimism comes with such a slow pace in the country.

We believe now is a good time for you to start looking for oil palm land. In the coming months, you may be able to get prices much lower than what you might have been offered last year. For example, smaller plot of land (less than 15 acres) with 10 years old oil palm trees was asking for up to RM80, 000 per acre in some area of Johor last year. Now you may consider bargaining for RM55, 000 to RM65, 000. You may even offer RM35, 000 to RM45, 000 in some area for larger acreage (above 30 acres).

If you intend to operate the oil palm land yourself, however, bear in mind that most of these lands are not investments that worth borrowing or financing, yet, though worth investing. (Read our previous articles How to know if a property investment is worth investing? and Why you want to take up a loan for your real estate investment? to learn how to know if a real estate investment is worth investing or borrowing.)

The average operating cost per acre is about RM150 per month right now. With the current palm fruit price (around RM320/ton), you may only get 3.7% of annual return from the operation of a 10-year-tree oil palm land with the purchase price of RM55, 000 per acre.

With our special property investment evaluation spreadsheet (which is only available to PropertyMethod.com members), we estimated only when the crude palm oil price reaches RM2600/ton (palm fruit price RM430/ ton equivalent), the oil palm land will become worth borrowing at the purchase price of RM55, 000 per acre, assuming same operating cost.

If you intend to invest for long-term return or be a land-player, take your position this year and you may expect to see significant return for the next 2 years with a ride on the return of inflation.

Crude palm oil price charts
Daily crude palm oil quote
Oil Palm Land for Sale in Malaysia

 

About The Author

ongkl

Coming from a humble little town named Tangkak in north Johor state of Malaysia, I am so lucky to have chances to learn and work both in Johor Bahru and Singapore - a conurbation with 6.49 million still fast growing population - since year 1996. Hope now I can have a chance to contribute back to the community by sharing what I see, what I know and what I learn in this wonderful place.

26 Comments

  • KCLau

    Reply Reply February 16, 2009

    Hi KL,

    I’ve got many question regarding the CHGS (country height grower scheme). What’s your opinion about it.

    I wrote about the scheme here:
    http://kclau.com/investment/chg/

    • ongkl

      Reply Reply February 24, 2009

      Hi KC,

      Like you explained in your post why you didn’t invest in the CHGS, we also believe that we should invest in some thing that we have control over it, besides understanding what it is. CHGS has limited disclosure about its portfolio (land bank area) and management. Subscribers may also face difficulty in liquidating the investment.

      If one is interested in palm oil investment but doesn’t have much fund or time to buy a plot of oil palm land and operate it, he/she may consider to invest in plantation stocks like IOI Corp or KL Kepong, which gives investor more flexibility in the liquidation of fund and more transparency in the management of fund/business.

      Cheers

    • MHH

      Reply Reply September 4, 2012

      Hello,

      If you are interested in buying 2000 acre of land for Palm Oil plantation.

      Please do not hesitate to call, 0178677738

  • fathersez

    Reply Reply March 2, 2009

    I have about 100 acres of 50 years leasehold land in Sabah. The land is currently secondary jungle and is surrounded by oil palm. I am looking for someone to buy over the land or otherwise work out a JV. Any ideas on how I should go about this?

    REgards

    • ongkl

      Reply Reply March 5, 2009

      Hi Fathersez,

      If you can find a team with experience in oil palm plantation, we would suggest you to JV with the team to operate the land for oil palm plantation. Normally it may take 2 years time before the first harvest. And you may break even at the 3rd year. After that you can harvest for at least 20 years. With oil palm trees on it, the value of the land will increase compared to its existing value if you sell it as a vacant land.

      Within the first 2 years, you can profit from other short-term plants while waiting for the oil palm to harvest, such as banana. Some JV is to outsource the plantation of young oil palm trees for the first 2 years. That means you don’t need to bear any cost for the first 2 years but in return your land will be used by the contractors to plant other things while they help you grow the oil palm trees.

      We always believe we should increase the value of a property before we sell it. What we have to do is to find some creative ways to generate cash flow from the property while increasing its value.

      Cheers

  • shauming Lo

    Reply Reply March 8, 2009

    What do you think if we can lease lands for 30years in planting oil palm at the rate of RM300 per hactare per year and 10%up every 5 years?

    • ongkl

      Reply Reply March 9, 2009

      Hi ShauMing,

      If we estimate the oil palm plantation will break even after 5 years from now by taking inflation into consideration, your cost for the first 5 years will be RM600 per acre (1 hectare ~ 2.5 acre) only if you subcontract these 5 years of oil palm planting to a contractor. That means you only pay the lease of the first 5 years as your start-up capital for this investment.

      After the first 5 years, we estimate per acre production will bring you 0.8 ton of fruit per month and your monthly operating cost may be around RM200 per acre assuming inflation rate 7%. Monthly lease cost will be insignificant at RM11 per acre (after 10% increase for the first 5 years). Total monthly cost per acre will be RM211. With current palm fruit price of RM320 per ton you will be making RM45 per acre gross income every month! Compared to the RM600 per acre starting capital, you can get back your capital within the 6th or 7th year of investment. After that, every month the production will constanly give you cash flow from the operation for more than 15 years.

      However, we conservatively assume the palm oil price will not be lower than the current price after 5 years. If things happen otherwise, you have to revise the calculation accordingly.

      Cheers

  • PF

    Reply Reply April 5, 2009

    Greetings OngKL,

    I have a plantation of 15acres of 67 years leasehold land in Beaufort, Sabah.
    The land is currently planted with 3 to 4 years oil palm. Thinking of selling the land initially, after read your article : Why you should consider buying oil palm land now? on February 16, 2009

    Would like to know what is the current selling price in Sabah & what will be the potential selling price if converted into commercial land?

    Best Regards,
    PF

    • ongkl

      Reply Reply April 5, 2009

      Hi PF,

      We have no data of the current selling price in Sabah.
      In Johor now a piece of 15 acres oil plam land (free hold) with 3 to 4 years trees should be able to sell at RM45k-60k per acre, depending on the location.
      If it’s converted into commercial land, the selling price will be above RM100k per acre.

      As we know, Johor’s land is more expensive than Sabah’s. We believe you can give a 30%-50% discount on Johor’s price as a reference.

      Cheers

  • Pelm

    Reply Reply June 4, 2009

    Hi OngKl,
    is it possible to know the average price to buy 1000 hectares of 3-4years old palm plantation in Johor Bahru region? Are there agronomical productivity data sheet for oil palm in this region?
    Thanks in advance
    Pelm

    • ongkl

      Reply Reply June 6, 2009

      Hi Pelm,

      You may check with property agents who are specialising in plantation land to have an idea of the current average price per hectare. From our few records, it should be around RM75k-RM100k per hectare in end of last year.

      Sorry that we don’t know where you can find this agronomical productivity data sheet for oil palm in this region.

      Cheers

  • Hubert Ong

    Reply Reply June 6, 2009

    Yes, buy oil palm land. I believe in Jim Roger’s prediction.
    2 years ago, I sold my property and bought oil palm land for my retirement’s passive income.

  • henry

    Reply Reply September 25, 2009

    Hi OngKl

    Just a quick one. What is the requirement for a land to be converted to commercial?
    Do you have any idea of what is the price like for a piece of 1arce plantation land near kamunting perak?
    What would the % increment in selling price from plantation to commercial?

    • ongkl

      Reply Reply October 8, 2009

      Hi Henry,

      For a land to be converted to commercial, first thing first the plot of land must be located in the commercial area defined under the urban plan.
      I don’t know the market of kamunting perak. But increment in selling price from plantation to commercial lands sometime can be up to ten times, depends on the location.

      Cheers

  • theng

    Reply Reply September 30, 2009

    I know the land value is appreciating very much even during this time of economy slowdown. It is priced beyond the ability of genuine small holder, especially in Johor. I believe this is all due to the activities of land speculator. At the present price the rate of return is too small for the capital outlay. Imagine, within a year or so, the price can climb from RM55k to RM75k per acre. It is also due to the worry about inflation when the economy picks up next year. Any cheap land?

  • NaiJasmi

    Reply Reply October 13, 2009

    Hi OngKl,
    I want to know issit possible if i can pool money from oversea potential investors and use the money to start buying plantation land in Malaysia and operate it. Does that violate any land code in Malaysia. The operating company is going to be Sdn Bhd but the money will come from oversea investors. Please comment.

  • Richie White

    Reply Reply May 23, 2010

    Hi there,

    I was wondering if you know what the average price per acre per year in Malaysia is to lease palm oil land? Any help would be wonderful, Thank you

  • Karen

    Reply Reply March 22, 2011

    Hi, I m looking for oil palm land ready for harvest in Johor preferably located at layang-layang mukim or bukit batu, land size around 10 acre. Any agent with such land for sale, please email me. Thanks.

  • danny

    Reply Reply August 19, 2011

    hi,i m looking for oil palm land located at beaufort sabah.land size below 50 acre,any agent with such land pls email to me tq.

    • david foo

      Reply Reply November 3, 2015

      Hi danny, my agent friend has a 40.49 acres cl oil palm land at beaufort selling at rm35k pa. If you wanna more details, pls send me your hp no and i whatsapp to you. thanks

  • Mabel Chow

    Reply Reply September 20, 2011

    Dear All,
    I do have a piece of land for sale. Im a real estate agent. This piece of land size is 100 acres. Sitting on it its rubber estate. You can convert it into palm oil. Which estimate income of 40-45k per month. Please contact me at 0123900488 or email me at mabel2199@gmail.com.
    Thanks KL for letting me advertise in your website.

  • Reza

    Reply Reply November 11, 2011

    Hi there,

    I’m interested in buying lands for plantation but to be honest with you I don’t know much about plantation operation. I have around RM50k and would like to ask for guidance. Please do tell me if there’s better idea than buying a land to operate plantation. Thanks so much.

    Regards,
    Reza

  • Benn

    Reply Reply December 13, 2011

    Hi
    Im looking a oil plam plantation land for investment that prefered location in northen region such as perak onwards.I plan to operate/manage by myself however,i do not know the process of this operation and also the detail considerations such as mantenance,market price,harvest period and etc before starting any further steps.Anyone can share and advice?

  • ng kok vui

    Reply Reply March 22, 2012

    hi ,
    good day to everyone, i got a 100acres oil palm land for sale around beaufort, in Sabah. just planted with young oil palm trees. asking price for 36k per acre. interest buyer please call 0168106642. viewing is welcomed. thanks.

  • HARBAJAN SINGH

    Reply Reply September 13, 2012

    WE HAVE 70ACS OF SECONDARY FOREST LAND AND WOULD LIKE TO CONVERT INTO AN OIL PALM SMALL HOLDING – NEED A BANK LOAN. NEED SOME HELP IN WRITING UP A BIZ PLAN FOR THE BANK. ANY HELP, YNX AND RGDS

  • Gerald S. Seet

    Reply Reply November 14, 2012

    Hello Ong K.L,

    Im 27 and planning to workout a family 15 acres land at Kudat, Sabah for palm plantation for own small business.

    Seeing most people are selling their plantation, though the advice is to consider buying these lands despite the down fall of CPO market.

    My question is, does this 15 acre land worth working out?

    On your view on my situation, any advices?

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