Quek Leng Chan ups stake in Guocoland. Is AK buying? (How much exposure to property developers does AK have?)

Someone asked me if I would be increasing my investment in Guocoland recently as it is still trading at a big discount to NAV.

In fact, he also asked if I would be increasing my exposure to the property sector since interest rates look like they will stay low for some years to come.

Although I like undervalued investments, there is always the possibility of such investments staying undervalued for an extended period of time.

Some readers might have noticed that this is usually the case with property developers.






My preference is, therefore, to invest in property developers that are able and have shown a willingness to reward shareholders with meaningful dividends.

The wait can be a long one and being paid while we wait makes it more affordable for most people.

Guocoland is a pretty good fit.

Since becoming a shareholder of Guocoland, I have received three rounds of 7c DPS.

Dividend yield is about 3.8%.

That is pretty decent for a property developer.








I became a shareholder of Guocoland in 2017.

That was when I noticed persistent insider buying and decided to do an incomplete analysis.

Then, I decided to invest in Guocoland which was trading at a hefty discount to valuation. 

Well, there is more insider buying now.

Following recent purchases, Mr. Quek Leng Chan's stake in Guocoland increased to almost 72%.

Although paying a price of $2.05 a share is more than 10% higher compared to what we paid back in 2017, the price is still a big discount to the NAV of $3.47 a share.






I am quite happy to hold on to my investment in Guocoland but I won't be adding now.

Reason?

Although individually my investments in property developers are not big enough to be in my list of largest investments, collectively, they are.

So, which property developers am I invested in?

They are:

1. Guocoland
2. Ho Bee Land
3. Hock Lian Seng
4. OUE
5. Perennial Holdings
6. Tuan Sing
7. Wing Tai

(If you want to read my past blogs about these entities, click on their names above as they are hyperlinked.)






Based on market value, together, they probably account for a sizable chunk of my investment portfolio.

For a retiree like me, I feel that is enough exposure to property developers.

For sure, I do not know when value would be unlocked and this unknown makes limiting the total investment exposure to 10% of my portfolio or lower sensible.

What if value is not unlocked in my lifetime?

Hmmm...






Although I am not interested in increasing my exposure to property developers, I have increased my investment in the property sector by putting more money into the following business entities not too long ago:

1. IREIT
2. Centurion
3. Accordia Golf Trust

(If you want to read my past blogs about these entities, click on their names above as they are hyperlinked.)






It should be obvious that the ability to generate a meaningful recurring income stream has always been an important consideration for me.

It has become more so as I grow more settled into my early retirement.

Of course, I am only doing what makes sense to me.

Others have to do what makes sense to them.

Oh, totally unrelated, I watched the following video by CPFB and had a good laugh:





Related post:
Largest investments updated (4Q 2019).

Buy a private condo and wage slaves we become?

Over the years, quite a number of male readers have asked me if they should upgrade from HDB flats to private condos.

For some reason, it is always the wife's desire for an upgrade.

I wonder if the husbands were being honest with me.

Hmm...

I wonder also if there is some truth in the saying that it is easier to sell luxury goods to females than males?

Hmm...






Aiyoh!

Did some (female) readers throw shoes at me?

Ouch!

Wait, I see some branded ones.

Maybe, I can sell these later.

OK, yes, I know.

Bad AK! Bad AK!






Well, these readers should know that, easily, on a per square foot basis, a condo is going to cost 3x to 4x more than a HDB flat.

Just getting something that is the same size as their current HDB flat would be quite a big deal.

So, it is not surprising that many who upgraded from HDB flats ended up downsizing.






A home is probably the biggest purchase we will make in life especially with home prices being what they are in Singapore.

If we want to upgrade, be sure that we can pull it off comfortably and this should also be in the unfortunate event if we should lose our job (or if we cannot continue working for some reason).

That is the ultimate stress test.

We should also bear in mind any other financial objectives which we might have and how this upgrade in housing could impact our ability to meet those objectives.






Even if we can afford the upgrade, remember that it is not just about affordability.

In order to upgrade our housing, if we have to become wage slaves, the price, to me, is way too high.

Not overstretching will allow us to stay financially resilient in good and bad times.

Of course, if you are financially a "jin satki" (very capable) person, please ignore this blog.






Related posts:
1. https://singaporeanstocksinvestor.blogspot.com/2018/09/free-ourselves-from-wage-slavery-now.html
2. http://singaporeanstocksinvestor.blogspot.com/2016/08/wife-wants-to-sell-hdb-flat-to-buy-condo.html

Keep $20K in CPF OA when taking HDB loan. (Growing CPF SA after OA was wiped out by home purchase.)

Just as I was about to publish this blog, I saw the news hot from the oven.

"Flat buyers will have more flexibility in using their Central Provident Fund (CPF) money, the Housing Board said as it launched 5,101 flats for sale from Tuesday (Aug 28).

"Buyers can now keep up to $20,000 in their CPF Ordinary Accounts (OA) when they take a Housing Board loan. Before, they had to use all the funds in their OA first.

"The funds can be used for their monthly mortgage instalments in times of need and will improve retirement adequacy if left unutilised."

Source:
The Straits Times





........................
Reader says...
Thank you for sharing so freely.

As like many others, I feel inspired and in awe.

I hope to get some advice if possible.

I recently emptied by OA to purchase a flat (on hindsight not such a great move).

Since then OA has been accumulating till it's about 10k now.






I plan to sell in 5-6 years time (depending on market).

Should I already start to transfer all my OA to SA?

Will there be any repercussions upon selling my BTO in 5 years time?

I am sorry if some of these questions look abit directionless.

Never been good with numbers, learning the hard way now.






AK says...
5 to 6 years from now, if you are not at least 55 years old or if you would be 55 but do not have the FRS in your CPF, you would have to pay back the accrued interest on the CPF money you used to purchase this flat.

I don't give advice but I will talk to myself.






If I had a mortgage now, it would not be a good idea to transfer all the money in my OA to my SA because if things do go terribly wrong, the OA money would go some way to pay the monthly mortgage.

I would keep enough in my OA for 12 to 24 months of mortgage payment (or any number of months that I think I might need to find work offering similar pay I had before).






Then, if I am certain I do not need the remaining OA money for any other purpose, I can consider transfering any balance to the SA.

Please remember that OA to SA transfer will not enjoy any income tax relief.

So, if income tax relief is important to you, you might want to do cash top ups to your SA instead.

Fresh funds from you will be required.






The first $7K of cash top up to the SA each year enjoys income tax relief.

Although OA to SA transfer does not enjoy income tax relief, it is financially less demanding as it is simply moving money that is already in your CPF account and not a demand for fresh funds.

Saving more in the SA is a long term plan to help fund our retirement but we should not do it without first considering our circumstances and what might go wrong.








You might want to read this:
Topping up our CPF savings can wait for some.

AK asks HDB-HIP-VERS can eat or not? Baojiak?

Single or married, if we are looking for a home in Singapore, the best value for money option is still a brand new HDB flat (i.e. BTO HDB flat), if we are allowed to buy one, of course.

Heavily subsidised, brand new HDB flats pass the Rule of 15 test with flying colors.

Don't know what is the Rule of 15 test?

See:
Rule of 15.



Singles weren't always allowed to buy new HDB flats.

Although allowed to buy only a one bedder (i.e. 2 room flat), allowing singles to buy new HDB flats is progressive thinking as many more young Singaporeans are staying single.

Space wise, having lived in a shoebox apartment for 4 years now, unless we are hoarders of material goods, I believe there is enough room for a single person in a 2 room HDB flat.

See:
My home is a hut in the sky.





As for HIP and VERS, for those who are not familiar with these acronyms, you are so unpatriotic lor.

Didn't watch National Day Rally 2018, right?

Bad XXX! Bad XXX!

"All Housing Board flats can expect to be upgraded twice during their 99-year lifespan under the newly-expanded Home Improvement Programme (HIP), as part of the Government's public housing redevelopment initiative.

"In a nutshell, all flats will be upgraded when they reach about 30 years of age, and again when they are about 60 to 70 years old."

Read article: 
HERE.


"Under the new Voluntary Early Redevelopment Scheme (VERS), owners in flats aged 70 years and older can vote for the Government to buy back their homes before their leases run out, if their precinct is selected for VERS.

"They can use the proceeds to buy a new flat, while the Government redevelops the precinct. If they vote against such a move, they can continue to live in their flats till the leases run out."

Read article: 
HERE.





Many things have been said by many people about HIP and VERS since NDR 2018.

I was afraid readers might ask me about them and my fear came true.

Why afraid?

Apart from the fact that I am really lazy, I am really unimpressed by HIP and VERS.

To me, HIP and VERS are simply attempts to allay fears of people who happen to be owners of older flats, especially those who might have bought a resale flat that is quite a bit older than they are.

Purely from a value for money perspective, I think it is silly to pay full market prices for much older flats if we have the option of paying a much lower price for new HDB flats which, of course, have fresh 99 year leases.

See:
Affordability and value for money.





HDB flats come with a 99 year lease.

In case you don't understand what that means, it means that we will enjoy them for a maximum of 99 years.

As they age, the remaining lease becomes shorter and shorter.

If we are sufficiently clear headed, it would be quite obvious that HIP and VERS do not address the core issue of a decaying lease.






HIP

HIP simply makes old flats look new again.

The looks are upgraded but the leases are not.

It is like repackaging something with an approaching expiry date to sell to an unsuspecting consumer.

Or imagine an 80 year old granny going for plastic surgery to look young again but it does nothing to extend her lifespan.

Alamak, AK why liddat say?

Bad AK! Bad AK!






VERS

What about VERS?

Surely, it must be a good thing, right?

Well, it is 20 years away and we can't really tell what the compensation quantum is going to be like.

However, we can make an educated guess.

My guess?

VERS is going to be like selling the tail end of the lease to the government (i.e. HDB Lease Buyback Scheme) except that, this time, you get kicked out of the flat.

See:
HDB Lease Buyback Scheme.





You will have to look for a new home.

The monetary compensation from VERS should be higher than selling the tail end of the lease to the government under the HDB Lease Buyback Scheme.

However, the compensation cannot reasonably be expected to be enough to purchase a new home with the same attributes with a much longer lease.

You will most likely have to downgrade or downsize or top up to buy a new home.

What does this sound like?

Sounds like your old home with a much shorter remaining lease which you sold to the government under VERS was less valuable.

See?

It is free market economics.






You cannot reasonably expect to exchange an older batch of produce which is going to spoil soon for a fresh batch that will stay good for some time to come.

Hmm.

Wait, actually, you can.

How?

If you meet a "gong giah" (i.e. "stupid fool" in Hokkien) of a buyer lor.

So, what is the moral of the story?

Look for a "gong giah" buyer lah!

Aiyoh, no lah!

You so terrible!

Moral of the story is don't be the "gong giah".






For some reason, if you are set on buying a resale HDB flat, "bochap" (i.e."ignore" in Hokkien) the hype around HIP and VERS.

They are just noise.

Remember, you must have very good reason to give up the option of purchasing a new HDB flat if you are actually lucky enough to have that option.

Focus on what you need and if only a resale flat will do the job, try not to buy a very old flat.

See:
Buying properties with short remaining leases.






Although you are being a "gong giah", don't be more "gong" than necessary.

See also the related posts at the end of this blog.

OK, I am packing and rushing to the airport to catch the next flight out of Singapore now.

Hopefully, it is going to a country that does not have an extradition treaty with Singapore.

Alamak!

Bad AK! Bad AK!







Related posts:
1. Older flats are problematic.
2. HDB flat is 37 yo but son is 8 yo.
3. $1M for 30 year old flat and now?

Another blog was published earlier today:
CPF SA time and income lost!

Investing or speculating in real estate?

Reader says...
My friend bought 2 units private condo (District 9-10) last year and early of this year.

One for own use and one for investment purposes (still vacant as at to-date).






As recently all banks increase the loan interest.

Thus, I asked him whether it is stressful to service the two condos.

He told me...

AIM FOR THE CAPITAL GAIN. WHY WORRY IF YOU KNOW THAT YOU CAN MAKE 300K IN THREE YEARS TIME?






Any idea whether Singapore property sure will increase price?

See so many en bloc recently, I believe developer here won't anyhow dump their money.

Isn't it?

AK says...

Your friend knows for sure his recent D9 purchase can make $300K three years from now?

After all the costs that comes from holding it vacant for three years?

Power!

He probably knows something I don't.





As for property developers, they have tons more money than we have and they probably have easier access to credit than us too.

When we owe a few hundred thousand dollars to the banks, we are at their mercy but when we owe  hundreds of million of dollars to the banks, they are at our mercy.

If things should go downhill from here, (most) property developers probably can weather the storm but can we?

It is only too easy to feel invincible during good times but we should stress test our finances to see if we are really invincible or is it all in our mind?





I know some people think I am against property speculation but, really, I am not.

It isn't something I would do but I am not against other people doing it.

As long as the people who do it know that they are speculating and if they have more than sufficient ability to do so, go ahead.

The problem I have is with people who

1. are speculating but think that they are investing

and

2. are really not financially strong but have only enough spare cash to follow the herd.

Anecdotal evidence shows that these people are more common than not.





Those who expect property prices to double in the next 10 years like it did from the Global Financial Crisis a decade ago are more likely than not going to be disappointed.

We should not let the fear of losing out force us into following the herd.

Ask what are we really losing out on anyway?

What do we gain by doing this?

What do we lose by not doing it?








My experience has been that if we buy a property that is a decent investment (see related posts at the end of this blog), its value will likely hold and over time it could enjoy capital gains.

Of course, it is never my way or the highway.

I just don't have much confidence in my power in speculation.





A blog published earlier today:
Condo investment has been a drag.


My own experience:
1. Property investment philosophy.
2. Affordability and value for money.

This condo investment has also been a drag.

Reader says...

A lot of people like to buy property for investment only.

I don understand.

To get 4% yield is hard on properties





AK says...

I dun understand also. 😛

4% is a dream... 3% (gross yield) is already very good. 😉

And if cannot rent out, it is not 0% but negative because still must maintain. (Vacancy rate is so high now) 😛

Ask these people to buy Martin Modern by Guocoland, OK? 😛

http://www.martinmoderncondo.sg/

(Yes, I know. Bad AK! Bad AK!)







Reader says...
My mom 5 years ago bought a condo on impulse. 

The rental from initial $2,750 drop to current $2,200. 

Still must pay maintenance, property tax, tax on the rental income etc. 

Negative return.





AK says...

Aiyoh. 

Older folks even more so should be more conservative... 😞

(See related post #1 below.)






Related posts:
1. Condo investment is a drag.
2. Buy 2nd property and pay ABSD?
3. Bought multiple properties and...

https://singaporeanstocksinvestor.blogspot.com/2016/05/how-much-money-can-you-save.html

Questions from an investor on HDB and CPF.

Reader says...
I have been following your blog for a few years and am grateful for the nuggets of wisdom that you post on your blog.

I bought a resale HDB flat that is of the same age as me and by the time I fulfill the 5 years MOP, the remaining lease would be 59 years.








In other words, I understand that there would be certain restrictions on the use of CPF for potential buyers of my flat.

(See:
Older HDB flats with remaining lease of less than 60 years are problematic.)








However, I am not intending to sell the flat as I think the lease is sufficient and the flat is big enough.

To pay for the flat, I took up a bank loan with 2 years fixed interest of 1.58% and am currently using my CPF OA to pay my monthly mortgage.






I am thinking since I don't intend to sell the flat, I might as well not repay the accrued interest and continue using CPF OA to pay the monthly mortgage. 

I could use the extra cash to do my own investments.






However, I also wonder if I should use cash to pay the monthly mortgage so that my CPF OA can grow and government can pay me 2.5% interest?

I hope you could shed some light on what would be the best way forward. 

Thank you very much 😊

AK says...
I will try to focus on what is important here if I were in your shoes.

Feel free to ignore me.

I wouldn't use my CPF OA money to pay a loan that attracts 1.58% interest.

I have lost 1% interest right away.








I would use cash to pay the loan.

Even if you do not intend to sell the flat and would not need to repay the accrued interest, it still doesn't make sense to lose that risk free interest.

This is especially if you believe that having an investment grade bond in your investment portfolio is important.






AK does well enough as an investor but he is not a very good investor.

AK needs some certainty in retirement funding and risk free, volatility free CPF helps him to sleep better at night.

If you are a very good investor, please ignore this blog. ;p







Related post:
Free money from the government is good.

Should I sell my home and downsize or downgrade?

This is a reply to Ruby, a long time reader of ASSI, but it turned out to be quite lengthy.

So, I decided to publish it as a proper blog instead.






Ruby's comment and questions:

My reply:

Hi Ruby,

Of course, the property agent would want you to sell your home and buy a new one (probably from him too). ;p

Ask do you need to sell or do you want to sell your home?





Your home is a freehold property and does not suffer from lease decay.

This is a fact.

Aging freehold property?

I don't understand why is that an issue.





From the perspective of your home holding its value over time, what's wrong with that?

Now, if you need more money for retirement and if selling your home is the only way to achieve this, then, you have to do it.

Then, you can choose to either downsize (rightsize) or downgrade.





You could get another freehold private apartment but one with a smaller footprint if you care about your home holding its value and often people care about this because they want to leave their home as a legacy for their future generations.

I think a one bedroom 500 sq ft apartment should be good enough for a married couple if the space is used efficiently.






If you need the same amount of space as your current home, if you want to stay in Singapore, then, downgrading to a public (HDB) flat is the only way to go and, with the current rules, resale flats are your only option.

As retirees, I guess you don't have to be located in mature HDB estates.

It is a fact that flats in non-mature HDB estates would cost less and this option would leave more money in your pocket.





Also, as seniors, if this is the route you choose, you don't have to be so particular about shorter remaining leases of resale HDB flats as long as the price is right because HDB flats are for staying in and not meant to be a store of value for legacy planning.

You might also want to read the related post at the end of this blog which is about another reader who was thinking of downsizing.

Wishing you good health and good luck!

Related post:
Downsizing our home for better?

$1m for 30 year old HDB flat and what now?

Reader:
I wonder what you will do if you were me- can you talk to yourself?

I finally sold my maisonette for >$1mil, as it almost hit 30 years old. 

 I had paid up my HDB loan a few years ago, so have this full amount available in cash and CPF.

I have a family of 5 including 2 teenagers and a helper, so am looking for a place to buy.

Although $1mil may sound like a lot, there is hardly any property to buy if I rule out HDB options. 

 My husband and I are in our mid 40s, and our income do not qualify us for BTO nor ECs. Newer resale HDBs may not be the option due to same issue of lease decay and no certainty of SERS...






If I look in the condo space:

- newer 99-year lease condo of at least 1200 sq ft- the location will be outskirts and not within walking distance to MRT station

- older freehold/ 999-years condo of the same size- good locations walkable to MRT stations will be at least $1.8mil at the lowest...





I cannot imagine paying $2mil and above for a property- all the cash (even if I have) will be locked up in ONE property...and cannot use as war chest or emergency fund in the event of unemployment...

What will you do in my case?? I solved one problem of selling off my old HDB, but seemed to have created another one...








AK:
This is why many people say there is no point in property prices going higher if the only property they have is their home. 

They would need a replacement property and it would probably cost the same or more, especially if they are not able to get a new HDB flat (i.e. BTO) as a replacement.






If our home is an ageing HDB flat, it makes sense to consider selling it in view of the lease decay issue. 

However, the issue really becomes more of a problem when the flat has less than 60 years left to its lease. I blogged about this, if you remember. 

I feel that you might have been in too much of a hurry to sell.






For anyone selling their flat and if they need a replacement property of comparable size, they should ask if they qualify for a new HDB flat (i.e. BTO). 

My sister successfully applied for a new 5 room flat and only put up her old 4 room flat for sale after her new flat was ready, for example.





For anyone selling their flat and do not need a replacement property of comparable size, downsizing is the obvious answer. 

A reader shared her family's experience of downsizing and downsizing again, for example. They are quite happy.






Without the BTO option, like you have shared, you are probably not going to find a new similar size property nor one with a much longer remaining land lease selling at the price or lower than the price you sold your 30 year old flat for.

The only reason why I would find myself in your shoes would probably be because I want to leave the family home as a legacy to my children. 

Why sell the flat which has another 69 years left to the lease when I am already in my 40s, otherwise?





However, as I do not wish to be asset rich and cash poor (which is the impression I get when you said you cannot imagine having $2 million locked up in ONE property), I would look for the largest and newest resale HDB flat (i.e. 5 years old) $1 million (or lesser) can buy. 

It might be smaller than my old flat but it would have to do.

Related posts:
1. Downsizing our homes.
2. Problem with older flats.
3. Legacy or location?