Archives for category: property

Are we on the brink of a global pandemic or is the virus under control? Only time will tell. Meanwhile, your job as an investor is to ignore the noise and focus on what matters.

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The Actual Dividend Millionaires Of America (The Compound Investor)

Good example of when correlation doesn’t equal causation. However, the correlation between lack of dependents and getting rich isn’t exactly zero.

Income inequality in Singapore at lowest in almost two decades: SingStat (CNA)

Of course the stats don’t lie but the I don’t know why anyone hasn’t pointed out the biggest elephant in the room.

The median monthly household income which is close to $10,000 per month is high relative to many other countries, but at what cost? How many households would be able to reach the median if there was only one person working in the household?

No wonder Singaporeans aren’t reproducing.

The Biggest Problem in Finance? (A Wealth of Common Sense)

US example but broader points apply to Singapore as well.

Linkfest alert! Somehow lots of good stuff to read this week.

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Millennials agree on the best way to invest—but they’re wrong (CNBC)

Never thought it’d be the same in the U.S. but real estate is probably most Singaporeans’ favourite investment vehicle as well. So much so that the government has to intervene in the property market in a HUGE way – something like 90% of Singaporeans stay in public housing and the government has slapped all sorts of taxes on buying and selling property for investment purposes.

I think it was Shiller that did a study showing that in the long-run, real estate price gains return roughly the same rate as real GDP growth which in a developed economy is probably 2-3% p.a.

The whole “I like it because it’s tangible” is a cop-out. The real reason is leverage and due to the fact that most people don’t understand opportunity cost.

“HE’S FULL OF SHIT”: HOW ELON MUSK FOOLED INVESTORS, BILKED TAXPAYERS, AND GAMBLED TESLA TO SAVE SOLARCITY (Vanity Fair)

I’ve never been a fan of Elon Musk. Too much self-promotion and hype.

Modern Monetary Theory (MMT) Has An Argentina Problem (Global Macro Monitor)

That’s right. The problem with MMT is when people lose faith in your currency. However, the U.S. case for efficacy might be more akin to Japan’s experience rather than Argentina’s.

Gold (in real terms) (The Big Picture)

Once again, a good reminder that many people don’t understand real rates of return and opportunity cost. I know of a senior colleague who held most of his assets in gold since the 90s and sold out during the GFC to rotate into REITs.

He wasn’t prescient of all-knowing. He just acted on the advice of another colleague. The funny thing is that he never compared how holding much of his wealth in gold compared to holding his wealth in equities for much of the 90s and 00s.

Lucky for him, he’s made more than enough to retire comfortably.

Financial Horror Stories (The Wealthy Accountant)

Extremely good read. Underscores the importance of understanding accounting as an investor. Seriously makes me think of learning accounting at a more in-depth level.

The Trump Narrative and the Next Recession (Project Syndicate)

Sometimes I wonder if Trump is trying to get the economy into a recession so that he loses the election. The article by Shiller gives a behavioural/psychological take on how a recession would cause Trump to lose the election.

We’re halfway through the year! Time really flies, doesn’t it?

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The Fecundity of Endowments (Northwood Family Office)

A paper on safe withdrawal rates for long-horizon portfolios. The paper proposes a safe, simple, and dynamic approach to the safe withdrawal rate. Totally makes sense and I can’t imagine why no one thought of this before. (h/tip to Investment Moats for this)

Go read the entire paper. It’s only 8 pages long and not very technical.

Georgetown study: ‘To succeed in America, it’s better to be born rich than smart’ (CNBC)

I can’t say that I’m surprised at this finding.

I wonder if we’ll find similar results in Singapore or will we find that our much-vaunted education system is really a social leveller?

Some Good News For Retirement Savers For Once (A Wealth of Common Sense)

Ben Carlson breaks down the findings from a Vanguard paper and notes how stark the difference is between voluntary enrolment and automatic enrolment in 401(K) plans.

Ladies and Gentlemen, this is why CPF is forced upon you.

Unfortunately, along the way, the usefulness of CPF gets diminished by letting people use it for (overpriced) housing. Those who need CPF for retirement will have spent it on housing and those don’t…well, CPF is a drag on compounding wealth.

All the Benjamins (or Yusof Ishaks if you’re Singaporean) in the world wouldn’t be any good unless you’re the only one with it

Lately, I’ve been doing some research on property investment and as a result, my Facebook and instagram feed has been flooded with sponsored ads which promise to teach you how to get rich through property investment with little to no money down.

Obviously, such ads are targeted at the mass-market investor because a common feature of such ads is how a couple with less than average household income in Singapore can afford a second property. A variant would be how “average Singaporeans” can own multiple properties with little to no cash down.

Personally, I’ve not attended any of these workshops but from what I’ve heard, the thing that they’re selling is co-owning multiple properties with numerous other owners or by leveraging up to your eyeballs (within the legal limits, of course) to afford the second mortgage.

Goodhart’s Law explains why the workshops are stupid

If you grew up in Singapore during the 90s, a popular idea at that time was that success meant having the 5Cs – Cash, Credit Card, Condo, Car, and Country Club membership.

Today, the aspirational quality of the credit card and country club membership has fallen by the wayside simple because it’s no longer difficult to obtain one.

I can’t say exactly when this happened but it has become a whole lot easier to get a credit card issued by a bank in Singapore. Although the credit limit wasn’t high, I remember getting two cards in the mail from my bank upon graduating from University. I didn’t even need to fill in an application or have a job. Ditto for the country clubs when NTUC and SAFRA* decided to get in the business and lower the barriers to entry for a membership.

These days, no one talks about getting credit cards or a country club membership because basically everyone has one. If we apply our imagination to cars, we can also conclude that once everyone has a car, it stops becoming an aspiration. After all, if everyone has a car, we would just end up with worse traffic and the rich would have then progressed to helicopters. Jakarta’s a perfect example of this.

In a twisted way, this is a version of Goodhart’s Law where the measure becomes useless when the measure itself becomes the target.

If having a car is a sign that one is rich, we would all work towards having a car to signal that we’re rich. However, that would eventually make having a car a terrible measure of wealth.

So, back to the property workshops that cater to the masses. The same logic means that if the masses could get rich through investing in property, they’ll quickly find themselves back in the middle if most people are able to invest in private property as well.

How to get ahead

Now, I have nothing about attaining material goods or getting wealthy. However, what most people need to recognise is that really wealthy people don’t buy stuff if it’s going to strain them financially.

A rich person wouldn’t own 39 properties on the maximum loan tenure in his/her own name with the solvency dependent on the rental income. If they can’t get tenants, they would still be able to pay off the mortgage and put food on the table.

Similarly, if you drive a fancy car but you have to hustle 14-16 hours a day and take on side gigs just to pay off the car loan and petrol, then owning a car isn’t exactly a sign of wealth.

So getting ahead shouldn’t be measured by something determined by others. You shouldn’t be getting a fancy car or apartment just because others think that’s what it takes to be a successful person.

Your success needs to defined by you.
On your own terms.
At your own pace.

So please, don’t be stupid.

Notes:
*NTUC is the co-operative that is the de-factor labour union in Singapore while SAFRA is basically the leisure and lifestyle arm of the Singapore Armed Forces. In short, these two organisations are about as mass-market as it gets because they represent the workers and the armed forces service staff.

I’m really sorry that I neglected my blog. No “Best Reads” last week because I was busy with something.

But back to regular programming this week.

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From making waves to drowning in red ink: Hyflux, Tuaspring and how a business giant came undone (CNA)

A brief story of how Hyflux came undone. Maybe they’ll rise from the grave. Who knows? But the basic lesson is that regular folks who plonked a whole lot of cash into their bonds and subsequently lost it all kind of deserve to.

After all, we’ve seen this story before with the GFC, the dot-com boom and bust, the Asian Financial Crisis. To be more specific, Singaporeans should have learned something from the minibonds saga, NOL’s fall from grace, Chartered Semiconductors, and even further back, the Pan Electric Crisis.

Clemens on minimum wage (The Grumpy Economist)

Doesn’t matter which side of the minimum-wage argument you stand on. You will want to read this post to gain some clarity on the issue.

Fortune Analysis: The Tech Superstars Never Went Through Cash Like Today’s Big Burners (Fortune)

Great piece of research. Not the most academic but it does raise a lot of doubts on whether Tesla, Uber, Lyft, and Snap (basically representing the new-age tech) can be the next Google, Apple, Amazon, and Microsoft.

The short answer is no.

By the way, we have our own nonsense versions of the new-age techs here in Singapore in the form of Carousell, Grab, Honestbee (which seems to have one foot in the grave) as well as a host of others which have a much smaller user base (think: eatigo, Chope etc.)

Stop the Financial Pornography! (Of Dollars and Data)

Great, great piece!

Also, in Singapore, we have a proliferation of “how to get rich by buying properties with little or no cash down” kind of schemes being advertised (horror of horrors, our local paper even featured the people behind this scheme in an article, thereby giving them some legitimacy).

Read the article above and be aware that people who claim to have achieved some form of return, especially those in a short period of time with little capital, are not telling you the entire picture.

How To “Lie” With Personal Finance (Early Retirement Now)

Basic financial literacy stuff. Don’t skip it this unless you have had some sort of training in finance.

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A Definitive Guide to CAP Rates, Net Property Income Yield in Property Investing (Investment Moats)

If you can get past Kyith’s longform posts and his sometimes awkward phrasing, he provides very well-researched and in-depth articles. In this case, he has produced a piece that’s likely to be of interest to many Singaporeans.

Are financial literacy programs a waste of time? (Quartz)

Financial Literacy is one area of knowledge that many people could benefit from and as an educator, it’s begun to trickle into schools. This semester, I’m forced to make my students go through a financial literacy module but I’m not sure that the people who designed the module ever questioned how effective it might be.

Thankfully, I’ve found the wonderful Allison Schrager who is an economist by training and her area of research happens to be the economics of retirement. I’m also halfway through her book, “An Economist Walks into a Brothel” which is an interesting read. Not the best or most definitive on financial economics but Schrager tries pretty hard to show how basic financial economic concepts are applied through some interesting stories.

Podcast Ep#26: Lies Behind Property Ads In Social Media (Property Soul)

Another property-related piece and this one is interesting to me because we’ve been getting flooded with advertisements from property agents inquiring about our desire to sell our property given that it is reaching the minimum occupation period stipulated by the government agency that sold us our public housing flat.

The Proper Geoarbitrage Strategy: First Your City, Then Your Country, Then The World (Financial Samurai)

The idea isn’t something new. I must have heard of this at least 2-3 years ago from those people who call themselves “Digital Nomads”. Basically, the idea is to take advantage of the fact that some jobs can be done remotely and that some places are far cheaper to live in than others.

What many of these people end up doing is living in a place like Chiang Mai while doing remote, freelance digital skills-based jobs that allow them to charge US dollars for.

In short, arbitrage by earning USD and having expenses in THB. I like Financial Samurai, Sam Dogen’s idea of doing the same arbitrage in your own city.

I certainly think this is doable in Singapore, certain neighbourhoods are much cheaper to live in than others. Housing is much cheaper in estates like Woodlands and food costs tend to be cheaper in older estates with a large proportion of older folks.

Unfortunately, Singaporeans are a snobbish bunch. They sneer when they hear you live in Yishun. Also, some think the sky of going to brand-name primary schools and therefore try to live within 1km of those schools to gain priority for entry.

If Self-Discipline Feels Difficult, Then You’re Doing It Wrong (Mark Manson)

Totally agree with this. I used to think that people who achieved great feats must have great self-discipline to put in the practice. Then I read James Clears’ Atomic Habits and I learned that it’s far easier to go on auto-pilot.

Simple vs. Complex (A Wealth of Common Sense)

Not posting this for the gist of the post but because of some points made in the post. One, money managers also fall for the Fallacy of Composition and Two, yeah, I totally agree that some portfolios ought to be 90/10 (equity/bond). Having an infinitely long time horizon means that you should not have to worry about drawdowns so much.

The Idea that EC Condo Sure Makes Money. We Explore a Case Study (Investment Moats)

I saw the original rant too and wanted to give my take on it but I think Kyith’s post suffices. Just wanted to add that the property market also moves in cycles and this fella (even though he was buying an EC) was buying at the top of a particularly exuberant cycle.

So, what did he expect?

First “Best Reads” of the year. Hope this year will be another year of working towards your goals.

My 2018 Annual Expenses: $19,665 and Financial Security Musings (Investment Moats)

The OG financial blogger in Singapore’s review of his expenditure in 2018. The details aren’t important. What’s important is the fact that his expenditure only comes up to just under $20,000 in one year.

With that kind of expenditure, it’s very likely that Kyith never has to worry about much about money for the rest of his life. Why? Because he’s playing such good defence that it becomes a part of his habits and in the meantime, his portfolio will continue growing (even more if he continues working and saving) to such a point he will never have to work unless he wants to.

65 million. That’s how many apartments are empty in China. Even as a proportion of the total housing stock (20%), the numbers are staggering. You have to wonder whether the fall in the Chinese stock markets is really due to the Trade War with the U.S. or it’s a sign of a larger problem in the domestic economy.

I’m willing to bet that it’s the latter.

$10 Million Isn’t What it Used to Be (The Wealthy Accountant)

It’s only early days of 2019 but I’ve found another blog to follow.

A musing on how having more money than most people isn’t a life-changing event. It’s a first-hand account of how going from less money to more money doesn’t really change who you are.

And ironically, that’s how people get rich and stay rich.

Just over a week left to Christmas! Happy holidays everyone.

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Despite Salik’s success, concerns remain for welfare of Cambodian children working in tourism (Channel NewsAsia)

Salik, in case you haven’t seen the video, is a Cambodian boy who sells trinkets to tourists around the grounds of the Angkor Wat. He shot to fame when a tourist recorded a video of him being able to speak something like 16 different languages.

No doubt that fame brought him and his family some needed cash but as the article highlights, the whole situation is also going to entice more children to stop schooling and try to earn money from tourists instead.

This is a classic problem of a spillover as a result of innocent or good intentions. I have no problems with people with good intentions but those with good intentions also need to be aware of the impact their actions will/may have on society at large.

Homelessness Rises More Quickly Where Rent Exceeds a Third of Income (Zillow)

Interesting article from the U.S. It appears that spending more than 30% of your income on housing is the threshold for affordability. In Singapore, we probably won’t have the issue of rents exceeding 30% of income since home ownership rates are so high. However, will the same threshold apply for mortgage rates? Is that why in 2013, MAS implemented a Mortgage Servicing Ratio of 30%?

Scientists accidentally create mutant enzyme that eats plastic bottles (The Guardian)

This is so cool. Hopefully, this leads to practical, mass implementation so that we can reduce plastic waste. Wonder if big oil will block this technology though since it breaks the plastic components down to its original raw material.

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So check this out.

CNBC reported that Southern California suffers its worst housing slump in over a decade with home sales and prices much lower than the year before and historical norms. I’m not too surprised that prices are much lower than recent history because you have to remember that the housing boom of the first decade of 2000 caused prices to be inflated.

From the article, what’s more worrisome is this (emphasis mine):

LePage noted that while the median sale price was up 3.6 percent year over year in September, the principal and interest mortgage payment on the median-priced home was up 14.2 percent because mortgage rates increased about 0.8 percentage point over that period.

It appears that interest rate hikes are beginning to have an impact on the housing market in the U.S.

 

Mortgages in Singapore will get more expensive

In Singapore, things are still pretty ok. I haven’t heard much about homeowners complaining about the interest on their mortgage.* Most homeowners in Singapore are on some form of 25 to 30-year loan with floating rates so interest rate hikes in the U.S. will definitely hit home at some point.

The reason why it hasn’t hit home is probably due to some combination of the fact that we’ve allowed the U.S. dollar to appreciate against the Singapore Dollar (the USD has gone from about 1.31 since the beginning of the year to about 1.38) and the fact that regional currencies (like the IDR) are doing worse than us**.

If the SGD moves in line with the USD, we’ll kill our trade with Indonesia but if we don’t allow a full adjustment of the exchange rates, we’ll have to run our stash of USD in our reserves down. I suspect this is the middle of the road scenario that MAS prefers unless interest rate hikes in the U.S. start to pick up even more. When that happens, we’ll have less choice but to have rates in Singapore follow the path of U.S. interest rates a little more closely. If you want to understand the mechanism, I have a post on that here.

Back to interest rates, our 10-year Singapore Govt Bond yields have been moving up which is great news for the many mom-and-pop investors that love the Singapore Savings Bonds (SSB) but from the yields, you can also see that short-term yields are heading north (see the chart in the post).

 

Back-of-the-envelope Calculations

I’ve said it before. Singaporeans are obsessed with property.

Recently, two close friends of mine bought new properties for their own stay. A reasonable guess is that one of them took a loan of $1m and the other, a loan of $1.5m. This means that a reasonable estimate of their mortgage payments (assuming it’s a 30-year, 2% p.a. loan) comes up to $3,696 and $5,544 per month respectively.

Just picture that. The median household income in Singapore is $9,026 so obviously, my friends are doing much better than most people.

Both their spouses work (albeit one less than the other) but even so, to service the loans from their CPF contributions alone mean that their household monthly incomes must be $16,069.57 and $24,104.34 respectively. That’s certainly possible for two adults working white-collar jobs close to the peak of their careers. However, if their incomes are any less than those numbers, then they will be servicing a decent amount of the loan using cash.

My worry for them is that it doesn’t leave any room for bad luck or errors.

For the next 30 years, they will essentially have to hope that the family doesn’t experience any shortfall in income due to loss of jobs. It will also mean that they have to find a job that either pays as well or better in the event their current work environment is no longer as fulfilling as it once was.

Looking further down the road, if they use their CPF-OA to service the mortgage, then I hope they are putting some of their cash aside for life after work. If they are using cash out of pocket to service some of the loans, then life after retirement becomes a lot harder.

In any case, what my friends have done is ensure that for the next 30 years, they have to play a very strong offensive game. They have to continue to work as hard as they have or even more to find other sources of income.

Oh yes, and they have to hope that interest rates don’t go up much.

 

It all comes down to rate hikes in the U.S.

Which way the markets are going to move will depend heavily on future rate hikes. I’m pretty sure we haven’t seen the end of rate hikes because the U.S. economy has been reporting strong numbers on the employment front. That’s also what the markets seem to expect and the Fed could even throw everyone off by hiking more than expected.

The point is, I’m quite sure I’m not alone when I say that no one is expecting interest rates to get lower in the near future. If anything, we need to expect that interest rates will go up. And if you’re not comfortable seeing the interest rates on your mortgage go up at least a percentage point, then I guess you’re in trouble, my friend.

 

Notes:

*This would apply more to investors that own private property in Singapore. HDB flat owners have the choice of taking the loan from HDB directly which pegs the interest on the loan to the CPF rate + 0.1%. I don’t think CPF rates will move up and cause more pain to flat owners with a mortgage.

**Against the USD, the IDR has depreciated more than it has against the SGD.