ST Engineering: A letter from a reader.

We are supposed to be emotionless as investors. This is not easy to achieve. Well, at least I am still working on it. I am a poor candidate for a ninja, er, I mean, investor.


Dear AK,

I went to your last seminar because of a friend. I have been investing for a year but I never make money. After your seminar and reading your blog, I understand why my friend said you are good.

At the seminar, you and the audience discussed ST engineering. I was inspired by your own story about your first lot at $1.55 almost 20 years ago and holding till now. I was excited that the stock pays you every year.

Some people said they know the business and also bought the stock. I remember one guy said he keeps buying every year. You gave me confidence when you said you bought again at around $3.30 and $3.40. You said it was not expensive. So, I bought that week.

Today, it is $3.77. I am very happy. Don't worry. I know you will say bu yao hai wo. You said to understand price and value. I have been reading your old blog posts. I know price can go lower in crisis. But I just feel happy. So, many thanks. You are a good person.

Yours sincerely,
W

I think we discussed STE at the 3rd "Evening with AK and friends"

Hi W,

Your last paragraph saved me from having to write you an email on the difference between price and value. Sounds like you have emerged from a fog and are beginning to plot your route in the stock market as an income investor.

It is, of course, normal to feel happy that our investments are doing well. However, please be mentally prepared that we might see prices sink one day. Knowing something could happen and being prepared for it are two different things. Apart from being mentally prepared, we should be financially prepared as well. So, have a war chest ready too.

I am glad that you have found my blog useful and that one of my chit chat sessions (not seminars) started you on your journey as an investor for income. Stay the course and, I believe, you will do well enough over time. Gambatte!

Best wishes,
AK

Related posts:
1. Seven steps to creating passive income.
2. 2014 full year income from non-REITs.
3. The mystical art of wealth accumulation.

Buy that second residential property and pay the ABSD?

UPDATE: 5 July 2018.

ABSD is going up 5% and LTV is being tightened as well.

Factor in this additional 5% when reading this blog.

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UPDATED (20 DEC 16):
How to calculate BSD and ABSD?
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A friend recently bought a second residential property and had to pay a 7% ABSD which amounted to quite a bit of money. 

He asked why wasn't I considering buying another property as I seem to have the financial ability to do so. 

Well, apart from the fact that I think that Singapore's residential property market is facing a glut and will continue to face a glut for a few years, I am reluctant to pay the ABSD.




ABSD stands for Additional Buyer Stamp Duty. This is at 7% for Singaporeans who buy a second residential property and is paid in addition to the regular 3% Buyer Stamp Duty (that has to be paid anytime a residential property is purchased).

For Singaporeans who buy a third residential property, the ABSD is 10%. 





Imagine buying a $800,000 property and having to pay the taxman an additional $80,000! 

That is enough to buy a 3 year old Japanese make family sedan in Singapore or a brand new Mercedes Benz E-200 in the USA with a fair bit of money left over.

My friend sent me this in an SMS:

"If it (the ABSD) goes down, then, people will rush in to buy again. Developers and sellers will raise the price. So, in the end, the overall paid is still the same... 

"If without this ABSD to artificially suppress the demand, the prices would have been super high and just keep rising. So, it helps to suppress the price but I must pay the ABSD.

"If the ABSD didn't exist, we would still have to pay a higher price."




See how the belief that property prices in Singapore can only go higher is firmly embedded in the message?

My reply:

"That is what property agents are saying to encourage buying (even if buyers must pay an ABSD). 

"I don't think anyone knows for sure (that prices will only go up). It is a lot of money. So, I rather stay cautious since I already have a property (i.e. my home). No hurry.

"It is called ABSD for a reason and when it is removed, it will be because the market has cooled enough and liquidity has dried up. In such an instance, developers would be shooting themselves in the foot by raising prices."

I am reminded not to ask a barber if I need a haircut.

Try to remember the Rule of 15. 

The ABSD raises the buying price significantly for anyone who is buying a second or third property. 

This has to be considered as part of the price tag of the property. 




If we could only eke out a 3% yield from a purchase, in a rising interest rate environment, I would hardly consider that a good investment.

The ABSD has helped to keep out investors and allowed first time buyers a chance to buy private residential real estate at more reasonable prices. 




Apart from the ABSD, investors should also be deterred from investing in residential real estate here by the fact that the oversupply situation seems set to worsen in the next few years.

Honestly, I would tell people to buy a piece of private residential real estate in Singapore now only if they want to make it their home. 

As an investment, for anyone who decides to buy now, private residential real estate in Singapore might be rather disappointing a choice in the coming years.



Related posts:
1. The Rule of 15.
2. Disastrous investments in the property market.