23yo bought 40yo HDB flat and worried.

Reader:

I am currently 23years old & married. My husband and I purchased a resale flat last year.

Back then we did not read nor have knowledge about financial planning. 

We purchased what we want and our desired location...

Our resale flat is actually quite old. I think is 40 years old this year...

Many people called us stupid for buying resale flat instead of BTO ones. 

And since we didn't have proper financial planning, we exhausted our entire CPF to pay for the flat.

So, our CPF is 0 now. 

We also took a loan of 25 years...

I am beginning to learn how to invest and starting small. May I ask how can I actually do better in planning my finance? 

Thank you for taking your time to read my email. Hope to see your reply.

AK:
How do you start doing better in your finances? That is a very broad question. It is very difficult for me to answer with specifics. 

Here are a few blogs you might want to read:

1. http://singaporeanstocksinvestor.blogspot.sg/2014/03/graduating-soon-take-steps-towards.html

2. http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html

3. http://singaporeanstocksinvestor.blogspot.sg/2017/04/hdb-flat-is-37-years-old-and-son-is.html


4. http://singaporeanstocksinvestor.blogspot.sg/2017/07/buying-properties-with-short-remaining.html


There are many other relevant links in my blog. 

Go to the right sidebar of my blog and read those suggested especially those listed under "WEALTH CREATION".
-----------------------------
If we to learn from mistakes, we will avoid them and make better decisions in future.

Don't beat ourselves up.

This reader has the right attitude. Gambatte!

Healthy cash flow is most important.

Reader says:

Time flies and I'm glad to have taken your advise previously to do well in studies. 

I am currently reaping what I've sow for my study & career.

Good news is that i have gotten a job that pay me well compared to my first job 3 years ago; i got close to 50% pay increment!

However, my life had been quite a drama due to conflicts at home. 


So, i end up moving out, renting a room to keep myself in peace. 





With that, expenses increased and i am having difficulty sustaining it.

As i am single (28 years old) and I have to wait to reach 35years old to be eligible for a hdb bto 2 room flat (considering the waiting time for BTO or higher price of resale flat). 

I am currently thinking of getting private property (studio) which if possible, i would like to save enough downpayment before committing to own one.

i calcluated at least 3-4 years of saving to reach that goal. 

Do share with me your opinions too to handle my current situation






AK says:

Whether to buy or rent a property, especially if buying a property is going to strain your finances, the Rule of 15 helps you to stay grounded.

http://singaporeanstocksinvestor.blogspot.sg/2017/05/to-rent-or-to-buy-rule-of-15-revisited.html

Think carefully what is the financially most prudent thing to do when it comes to housing for you now.





Reader says:

That is a interesting rule to use as a guide, but does other factors affect the outcome if we factor in the inflation, demand & supply of housing and uncertainty of the house value in future?


AK says:

It is about cash flow.

How can we tell what the demand and supply situation is going to be like in future?

The Japanese didn't know they were going to suffer 2 decades of decline in housing prices.

The Americans didn't know they were going to suffer a huge crash in housing prices that wiped out 10 years worth of wealth.

If cash flow is going to be an issue, forcing ourselves into buying a private property because we fear prices are going up higher in future is silly.

Too many people have too much of their wealth stuck in their homes. 

This is why so many people in a wealthy nation like Singapore must work till the day they die.





Reader says:
I see, thats is a very good insight for me to learn. 
i trust your experience in this.

AK says:
Alamak. 

Don't trust me. 

I don't have a crystal ball. 

I cannot see what the future is going to be like.

I am just saying that we should stay prudent especially if cash flow is tight.

If you have plenty of money lying around and cash flow is not an issue, then, if you want to take a bet on property, go ahead.

Having healthy cash flow is always important.





Related posts:
1. Property market.
2. Slaving to stay in a condominium.
If to stay in a condominium, we are forced to live like paupers, the price is too high.

Investment philosophy and property market.

After my blog about nibbling at Tuan Sing Holdings, a reader commented that I seem to be building up a position in property counters and asked if I am waiting for a rebound in property prices. 

At the same time, a couple of readers shared that DBS is expecting residential property prices in Singapore to recover by up to 10% in the next two years.




Here is what I have to say:

I know some analysts are positive that residential property prices have bottomed and are going to rise next year or the year after. 

Is this going to happen? 

Your guess is as good as mine (or the analysts'). The best anyone could do in such an instance is to make an educated guess. 

When it comes to buying a property, if I am looking at a possible capital gain, I am probably speculating unless I am pretty sure I am buying it undervalued which gives me a margin of safety and probably an arbitrage opportunity. 

The decision should be guided by valuation which should logically be guided by rental yield.




To have an idea of my philosophy when it comes to property investment, recall my relatively large investment in Saizen REIT. 

It was trading at a big discount to valuation although its assets were generating steady and meaningful rental income which, together, offered an attractive yield of about 10% based on my entry price. 

Even if the sale of assets a few years later to another investor at a slight premium to valuation did not happen, it would not have mattered to me. Why? 

Because it was a good investment, not a speculation.





Bombarded by invitations to "invest" in properties, we have to be at least discerning enough to know if these are invitations to "invest" in properties or are they really invitations to "speculate" in properties. 

There is a difference and one that vested interests will not take pains to highlight even if they are aware of it.

I remember a family friend bought a property here during the Gulf War. 

Property prices here plunged back then. 

He went and bought a landed property at a bombed out price. Pardon the pun. 




The observation was that although property prices plunged, rental income was relatively resilient. 

That gave rental yield an uplift. 

For sure, he made a good investment.

Some might remember that I blogged about why I stay in a condo and some might remember that I bought my first condo during SARS. 

Why during SARS? 




Mr. Market was suffering from a severe bout of pessimism and I got a good deal. 

Based on the price I paid, potential rental yield was about 5%. 

This increased to almost 9% by the time I sold. There was a robust growth in rental demand in those years. 

Based on my selling price, however, the rental yield would have been just shy of 4%. 

Prices rose and they rose a bigger percentage than the growth in rental income.

Today, that same property's rental yield is barely 3% based on my selling price but based on the recent selling price of a unit in the same stack, the rental yield is not even 2.7% now. 




Market price of the property is about 10% higher but rental income is more than 20% lower than when I sold the property. 

To any investor for income, this combination should be an alarm bell.

To continue along the same line, I bought my current home during a lull in market activity after all the rounds of cooling measures were implemented a few years ago. 

Back then, the potential rental yield was 6% and I verified this. 




Today, based on my purchase price, the yield has come down to 4.6%. Based on the current market price which is quite a bit higher than my purchase price, it would be less than 4%. 

Again, market price has gone up but rental income has reduced.

So, lowering rental income does not mean that property prices in Singapore could not increase in future. It just means that the property market is simply one that doesn't make sense to the rational investor in me now.

However, Mr. Market can stay irrational for a long time. 

Look at Hong Kong for an example of sky rocketing property prices and miserable rental yields. 

Invest in Hong Kong properties? Not me.





My nibbles in property counters do not represent any belief that property prices will rebound in future.

Instead, they are pretty consistent with my philosophy to buy at bargain prices which make sense to me. 

Being able to own a bit of Tanjong Pagar Centre, OUE Downtown and Robinson Tower at a big discount to valuation is pretty attractive to me.




I emphasize that I will not tell anyone if they should or should not buy anything.

I am only sharing my philosophy and experience in my blog. I am not here to make a decision for you. 

What you do is up to you.

Related posts:
1. Invested in Tuan Sing Holdings.
2. Ask 2 questions before buying.

Bought more VIVA Industrial Trust and worried.

Reader:
I learn of your blog from reading an article you wrote about Viva Industrial Trust for a magazine. 

I am very concerned now because I just bought more after reading research provided by my broker. 

The dividend is expected to increase. 

Is the land lease situation really bad?







60 years land lease from 1961.
Expiring in 2020, no extension is allowed.

AK:
I don't remember writing for any magazine or maybe I did but I just don't remember.

Whether an investment is good or not depends in part on the motivation of the investor. 

If you are invested in Viva Industrial Trust for income, you have to question not only how high the yield is, you have to question how sustainable it is going to be?





Can there be any other motivations for investing in Viva Industrial Trust? 

The belief that, perhaps, the manager could increase asset value and to sell assets to an unsuspecting (or gullible) party at a higher price before the land leases end? 

Of course, this would make the decision more a speculation than an investment.

I know what I have said does not sit well with everybody and I can even prove it. ;p

Hey, I am only a blogger and I anyhow talk to myself in my blog lah. 






Don't care me hor.

Listen to John Lim better. 

Who is John Lim? Who else?

In an interview, John Lim said there is an issue with the structure of the Singapore industrial property market. The land tenures are relatively short and valuations will fall because they are aligned to tenure. 

Not I say. 

John Lim say hor.






This is why Cache Logistics Trust is diversifying into Australia. 

Incidentally, so has AIMS AMP Capital Industrial REIT. 

Of course, we also have a new comer, Frasers Logistics and Industrial Trust which is a pure Australian play.

Related posts:
1. VIVA Industrial Trust's 9% yield.
2. AA, Soilbuild and VIVA REITs. 

HDB Lease Buyback Scheme and you.

Reader:

Parents in late 60s considering whether to go for lease buy back on their HDB flat (42 yr old flat) or leave it to children. 

Lease buy back so that parents can increase current monthly pocket money and thus lessen burden. 

Parents are more inclined to stay in flat.

Though selling entire flat can fully monetise the value of the flat, but given that it is already 42 yr old flat, waiting another 10 to 15 year likely will see a drop in property price in the current peak market condition. 

Plus Singapore is a developed n aging economy, gone are the days of more 200% price increase in property prices. 

Lease buy back or wait later to sell? 

Your very honest self talk would be much appreciated here, please. 

Watch this video on Lease Buyback Scheme.

AK:
Most old folks don't like moving house. It is quite normal.

If they need some extra pocket money, selling the tail end of their lease (30 years, perhaps) to HDB is a good idea instead of selling the flat outright and moving out.






Don't do this and keep the flat as a legacy for their children? 

Well, it would mean tightening their belts and burdening their children in the meantime. 

All for leaving behind a property with a very much shorter remaining lease?





If we are cash rich, no issues. 

If we are cash poor, cash comes first. 

Asset? That takes a back seat, especially when it is one that is suffering from accelerated lease decay.





Related post:
My HDB flat is 37 years old.

Home loses $23,000 yearly to house antiques?

Inspired by several past conversations.

From a financial perspective, should a single buy a one bedroom HDB apartment for $100,000 or a three bedroom HDB apartment for $500,000? 

The former seems less demanding financially. However, in the latter, he could rent out two bedrooms and that could conservatively net him around $15,000 a year. 

The apartment could generate $450,000 in 30 years and, in his golden years, his apartment is almost free of charge.

If we are the sociable type and do not mind dealing with tenants, then, buying the bigger apartment which has the option of income generation makes sense. 

For any income investor, having such a temperament is fortunate.

If we are not the sociable type and if we value privacy highly, the one bedroom apartment is probably sufficient unless we are an antique collector and need more room to house our collection.

If we are not prepared to rent out two bedrooms, then, we are not only losing out on $15,000 a year in rental income but we are also paying 5x more for a home. 

Spread $400,000 over 50 years (assuming that is the length of our remaining life on earth) is $8,000 a year. 

OK, if we have a pretty pricey antique collection to house, maybe paying $23,000 a year is peanuts.

If we want our very own place to call home till the day we say farewell to this world, ask how much space do we need and could the price tag be smaller?

What is the topic of this blog?

Well, it is not about affordability.

Related posts:
1. Housing and CPF.
2. A big loan and CPF not enough.
3. Affordability and value for money.

You are not successful in Singapore unless you do this.

In retirement, I have become totally slothful. 

I go to bed late. I wake up late. 

I spend time getting my hands dirty in my planter and also staring into my aquarium.

Make simple meals. 

Do some housework. 

Watch some TV and do lots of online gaming. 

Of course, I still blog and interact with readers but everything is OTOT lah. 

Don't know what is OTOT? 

Ask anyone who has done NS. 

Don't know what NS is? 

Never mind.

Oh, did I say I also take a nap whenever I want in the day?

What about my social life? 

Very little because I rather prefer my own company.

It should come as no surprise that I have avoided going to large gatherings for a while.

(Did someone say Singapore's doors are always open to welcome the rich in the video?)

C:

I just moved into a bigger condo recently. 
I am going to keep my old condo for rental income.

B:
We are thinking of upgrading too.

C:
Your condo is nice and big. 
Why must upgrade?

B:
You know where I stay, right? 
We thought of moving somewhere central.

C:
Central will cost a lot more for the same size




B:

With our combined income, we can just about make it. Now, still looking.

C:
AK, what about you?

AK:
Me? 
I stay in a shoebox apartment.

C:
OMG! 
Why such a small apartment?

B:
It is OK lah. 
Can always upgrade.

AK:
I cannot because no bank would lend me any money...

When I mentioned this incident to my banker, he gave me some advice.

Banker:
Didn't you tell them you have retired?

AK:
I usually tell people I am unemployed.

Banker:
No, no. You mustn't tell people that. 
They will look down on you. 
You must always show people you are successful.

AK:
Really? How do you do that?




Banker:

They are usually impressed by how I have a luxury condo and a luxury car at such a young age. 

You must have visible signs of success and don't be afraid to flaunt it.

I have been so wrong for so long. 

Alamak.

How liddat? 

I so cham liddat.

Related post:

If we are not rich...

Shoebox apartments in Singapore need planters?

Reader:
I have been thinking of getting a shoebox apartment for a while and your blogs on tiny living resonate with me. I have been looking around and I have two options now. Both are about the same size but one of them have a planter that is about 3 meters long by 1 meter wide while the other one does not have a planter nor balcony. I know you have a planter in your apartment and wonder if you would have preferred more indoor space instead.

AK:
Welcome to tiny living! To be honest, before I bought this place, I thought planters and balconies were a waste of space, especially in a tiny apartment.

Hey, less than 500 square feet of space and almost 10% of that that is outside (and the percentage could be even higher for some other projects which is just the developers taking buyers for a ride, I feel)?

Alamak. Singapore so hot and humid. I rather switch on the AC and stay indoors, right?

Anyway, that was before I actually moved in.

After moving in, I realised just how important that outdoor space is.

From a pragmatic angle, it gives me a space to dry my laundry. I get a folding rack and place it in the planter when I need it. After use, rack gets folded flat and stored indoors. 

I could use the dryer function in my washer/dryer but that consumes a lot of electricity and it feels like evaporating money together with the moisture. Don't like that.

From a recreational angle, having some outdoor space is a good idea especially if you are at home a lot like I am. My planter gives me a place to do some gardening and to spend some time outside without leaving home especially on breezier and cooler evenings. 

I have to say that it helps that I am on a high floor and unblocked from all angles. If I could clearly look into my neighbour's home from my outdoor space, I am less likely to use the space. If we can see other people means other people can see us too.

OMG!

You have to remember what a planter in a condo means here. URA wants us to help green Singapore vertically and that is what planters are for. 

Installing some decking over the planter that makes it the same height as the floor of the indoor space is illegal. I know many do it but I don't want to do anything illegal. 

My solution?

I got these from IKEA and lay them on the floor of the planter. It probably costs 5% of what an illegal decking job would have cost too. Cheap and practical just like me. 

Bad AK! Bad AK!

Anyway, whether having a planter makes sense or not for a tiny apartment probably depends on your lifestyle. 

If you go out a lot and are hardly home, maybe, it is not as essential.

Related posts:
1. Shoebox apartment living.
2. Saving on outdoor lights.

Financial security in Singapore plain and simple.

Singapore retrenchment: Will Malaysia share the same fate?






Reader:

I found your blog over the past week, and I have been looking your posts when I have the time.  

I don’t want to be a slave to my job when I am in my late 40s or 50s. 

I know that being an average salaried employee, it is quite difficult to ever be financially free.

Some facts about me:

• Working since 2013, earning $5.7k a month
• 
  
• Save about $900/month in cash
• 
  
• Invest $300/month in STI ETF (I read blogs for beginner investors that said STI ETF as a low risk, simple, long term investment that seemed to be ideal for young investors without much capital)

I have just bought a 3 room BTO for my mom and myself. 

Hence, I have emptied out my OA for house payment and spent my cash savings for renovation. 

In a way, I am starting over from scratch again, with $0 in CPF OA and very little in cash savings.

I understand that since my loan interest rate is much higher than the OA interest rate of 2.5%, I should look to repay the loan as soon as possible (assuming I don't re-finance with a bank loan).
(Parts of the email omitted.)

For only $300, you gain instant diversification.

AK:
What you do depends on what you want to achieve but what you do should also depend on the resources available and your ability to stomach volatility and some risk.

Investing through an STI ETF is good for someone who does not have the inclination nor time to research into specific stocks. 

It is a long term strategy that should yield decent results over a 20 to 30 years period. 

This is your exposure to the local stock market.
http://singaporeanstocksinvestor.blogspot.sg/2013/07/tea-with-matthew-seah-posb-invest-saver.html







You can think of the CPF as your exposure to an investment grade sovereign bond. 

In this respect, you might want to use less of your CPF money for housing loan repayment and use more cash instead. 

This will give you better returns than leaving your savings in the bank right away. 

Remember, this is a long term savings tool and you won't be able to access the money till you are 55 and, later, 65.
http://singaporeanstocksinvestor.blogspot.sg/2015/11/retire-with-investment-grade-bond-and.html







Of course, please ensure that you have an emergency fund first. 

How big should it be? Read this:
http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html

Also, you want to be adequately insured because you have to take care of your mom. 

I would suggest buying a term life insurance for yourself.
http://singaporeanstocksinvestor.blogspot.sg/2014/09/term-life-insurance-why-buy-term-how.html







We don't need some magic formula or complicated strategies to be more financially secure in Singapore.

Of course, if you decide to become an active investor or trader, you could make more money but you should know if you have the temperament for this. 

That is all I will say. :)







Related post:
Taking steps towards financial security.

See: PMET took a 30% pay cut but thankful.

Buying properties with short remaining land leases.

Reader:
I was looking to buy a shoebox condo until I read your blog. 

I turned 35 recently and will try to get my own BTO 2 rm HDB flat. 

This will help me achieve financial freedom earlier. :)


However, a friend (same age) just bought a 40 yro HDB flat. 

He didn't think age was important but I told him about the lease decay issue. 

He cannot sell the flat right away because of the MOP. 

Do you have any thoughts on this?




AK:
I will share what I feel are situations when it might make sense to buy properties with relatively short remaining land leases.

1. If we are making it a home with no intention of reselling or leaving a legacy, make sure that the remaining lease is enough to last us till we are 90 years old. 

People are living longer and we are expected to live till almost 90 these days. 




In fact, to be safe, let's make it 95 years old. 

So, if your friend is 35 and bought a resale flat that has 60 years left to the lease, that is not too bad. 

Well, let us hope he doesn't live to be a hundred. 

Alamak. Bad AK! Bad AK!





2. If we are buying a property with a relatively short remaining land lease as an investment, the rental yield should be far higher than a property that has a longer remaining land lease or is sitting on freehold land.

So, if a property has 50 years left to the lease, it should, simplistically, have a rental yield that is way higher than that of a comparable property with a 100 years left to the lease. 

Otherwise, everything else being equal, it would mean offering a significantly lower price for the property with a shorter remaining land lease.





(There is lesser room for error buying a property with a much shorter remaining land lease. A one year vacancy for a property with a 50 year land lease is 2% of its productive life gone while it is 1% for a property with a 99 year land lease.)

Of course, point number 2 should be relevant to someone considering point number 1 as well. 

It will help to ground us in our decision making process and, hopefully, not pay ridiculously high prices for properties.






Guide for Resale Flat Sellers and Buyers.
Related post:
Buy 99 years LH or FH properties?

Which HDB flat to buy?

Reader says:

I have read your posts and have been following you for quite some time. 

Have been reading your posts on purchasing properties and following up on the replies. Really interesting :) 

I would like to seek your advice for choosing a HDB flat. Hope you don’t mind helping me out.





I want to buy a flat that is more accessible and convenient, closer to the central region. 

I plan to sell the unit after 5 years of stay when my financial is ready for an upgrade. 

However the flats in the estate I am interested in are older. 

My agent keeps telling me NE region is newer and have more potential.






I really like the 20 year old resale flat which is closer to town but for the same price, I can get a 5 year old flat in NE Singapore.

I feel that the flat in NE is not so convenient even with the LRT lines and bus service there. 

It is still quite a distance away from central area.

For the amount of money I can afford I know I can’t get both new and centralised HDB flat, 鱼和熊掌不可兼得.. Please teach me how to 取舍..





AK says:

If you are buying a home to stay for the rest of your life, an older flat which has more than 70 years left to the lease is OK.

If you are thinking of selling the flat a few years down the road, an older flat could have issues especially now that more people are aware of what a shorter lease means.

You decide. ;)






Related posts:
1. HDB flat is 37 years old...
2. Buying a 99 years LH property?
3. Buy resale flat or new BTO flat?
Which one would AK choose?

A big loan to buy a condo and CPF not enough.

The focus should be on the CPF but I cannot help but wonder if Kelly has little money, why is she spending it on dogs and cats?
Shouldn't she use the money to better prepare for her old age?
(Credit goes to Raymond Ng for sharing the above with me. )

Reader (not Kelly):
I came to know of your blog recently and find it to be full of useful information.I regret that I did not know what you know and had not done what you've done in terms of CPF voluntary contributions when I first started working.

I've recently bought a condo and borrowed serious money from a bank to do so ,so much so that I can only pay off the housing loan at the age of 65.:(

I've attended trading courses/read up on trading for the past few years and through my experience,have some confidence in generating returns of 10-20% /annum

If you were me and have some confidence in beating the CPF rates,would you still consider contributing voluntarily to CPF or try to 'frontload' and payoff the housing loan first as the loan amount is much much more than what I currently have in my CPF?

I'm also conflicted towards contributing to CPF as it will still eventually go towards paying off (at least the OA portion) the loan and I may be able to generate more( in terms of %) on my own through trading.

Hopefully you can shed some light on what you would do if you were on a similar situation financially (short of selling the condo).



"...higher income ceilings for new HDB flats..."

AK:
We are all made differently. So, we will look at things differently.

However, I think we should be able to agree that there is a place for risk free and volatility free savings instruments in our life, especially one that rewards us relatively well like the CPF.

We can be confident as an investor or a trader. Confidence is a good thing but we should also be sensitive to the fact that things do go wrong and sometimes very badly wrong.

I am reasonably confident in my ability as an investor and I used to trade quite a bit as well but I did not chuck CPF in the back seat and I am still contributing to my CPF account in my retirement.

What would I do if I were in your shoes? I don't really know because I would not ever put myself in such a position.

I don't know if you have read my blogs on how our homes are really consumption items. Something that costs more than $1 million, which does not generate income and which requires me to borrow hundreds of thousands of dollars to purchase is mind boggling to me.

I can only say don't discount the importance of the CPF in your life especially if you believe in having a risk free and volatility free bond component in your investment portfolio.

Best wishes,
AK

Why do we buy insurance? To transfer risk because bad things do sometimes happen in life.

What about the CPF? 

I told friends and family years ago that if all my investments failed, I would still have my CPF money.

I am sure Dr. Lee Wei Ling would agree with me. To recapt,

Related posts:
1. 4 ideas on housing loan repayment.
2. We need a home but a condo?
3. $1.2m in my CPF acount by age 65.