When the lease on my HDB flat ends (UPDATED).

What happens to our CPF money used to buy a HDB flat when the lease ends?

Reader:
can I assume that whatever has been used to pay for the flat will be forfeited and we still need to pay back the accrued interest? 

I have friends who are paranoid over the lease issue cuz they keep on reading the anti hdb and anti CPF articles. 

End up frightening themselves.






AK:
Tell your friends it is the same anywhere in the world. 

Leasehold means there is a limited life. 

Once it is gone, it is gone. 

Money from CPF used in the purchase of such flats at the end of the lease is gone. 

Logically, if the money is gone, how to pay back?


Reader:
My friend just bought a 940k EA resale 30++y flat recently.










Simplistically, if there is 65 years left to the lease, the reader's friend is paying about $15K a year to "lease" the flat.

Of course, if we take into consideration time value of money and interest on a housing loan (or interest he could have made if he had not used his CPF money in the purchase), it would be more than $15K a year.

It is good to know that more people are thinking about this issue but don't over think. 

There is no conspiracy to impoverish anyone.





BTO HDB flats are the most affordable form of housing for Singaporeans and they come with a 99 years lease. 

Even if we were to live to be a hundred, the lease is more than enough.

The worry is when people pay top dollar for much older 99 years leasehold properties.






There is regulation in place to guard against CPF members from buying much older 99 years leasehold properties using their CPF money:

http://singaporeanstocksinvestor.blogspot.sg/2014/07/financing-purchase-of-hdb-flat-new-or.html


If a young couple decide to pay $1 million for a resale flat that has 65 years left to the lease, they have to be aware of the consequences.





We have to pay for the roof over our heads.

There is no free lunch in this world.

If we get something for free, someone else is paying for it.

If we are staying for free with our parents, it is because they paid for the roof.

People who want the CPF money which they used to buy their HDB flat returned to them after the expiry of the 99 years lease are looking for a free lunch.

Wake up.







Related posts:
1. Why I stay in a condo?
2. Resale Sengkang or BTO Bidadari?
3. Stop accrued interest from growing!

NDR 2018:
HDB, HIP, HIP II and VERS.

When will I have as much passive income as you?

What makes up a 'wealthy' face? LOL.

As my blog's readership grows, a question that gets asked more and more often is:

"When will I have as much passive income as you?"




Of course, one of the things I would say is that we have different circumstances and that financial freedom is not a race. 

All of us who reach our goals are winners. 

Some might take longer than others but they are still winners at the end.

Distilled to a word, patience.

In my retirement, I spend quite a bit of time gardening and, a few months ago, I took three cuttings from the mother Rosemary plant and planted them in a trough.


Today, I transplanted one into its own pot. 

It has been a few months but, for a Rosemary plant, its growth has been quite fast.

The other two cuttings are still nice and green but they have not grown much. 

Their time will come too. 

They are probably late bloomers. 

They are not in a rush and neither am I.




"When I find a stock that sells for 50 per cent of what I have determined it is worth, my job is basically done. Now it is up to the stock. It may move up toward its real worth today, next week, or next year... There is simply no way to know when a particular stock will appreciate, or if, in fact, it will."
(See related post no. 2)




You might want to read this blog too:
The beauty of investing in what we feel are undervalued for income is that we get paid while we wait. That makes patience more affordable.

There will always be people more successful than we are and you won't see me asking those who have more than I do:

"When will I have as much passive income as you?"




Related posts:
1. Financial freedom is not a race.
2. Little book of value investing.

Centurion Corporation Limited and pricing power.

Businesses can either be price setters or price takers. In a fiercely competitive environment where there is perfect competition, businesses are mostly price takers.

Customer:
"How much is this?"

Shop:
"$20.00"

Customer:
"Aiyoh, internet selling $10.00 only."

Shop:
"Oh... OK, $10.00."

If I were the shop owner and if this were to happen on a daily basis, I have something to worry about.

Of course, businesses could engage in anti competition moves and set prices if there are only a few players in the industry. 

So, in an oligopoly, there is always a temptation to fix prices. This, by the way, is illegal in many countries, including Singapore.

A business is in a sweet spot if they are price setters and consumers are willing to pay a higher price for what they offer.

Customer:
"How much is this?"

Shop:
"$20.00"

Customer:
"Internet selling similar for $10.00 only."

Shop:
"Then, you buy from internet lor."

Customer:
"No, I like this. OK, $20.00"

Ka-ching!

How does a business get to be in such a sweet spot?

Differentiation. 

Better quality, better features, better design etc. Something that differentiates them from the competition in a positive way which makes consumers willing to pay a premium.

This is not an easy feat. 

It is even more difficult to maintain this edge these days because copy cats are fast to act.

What? You have a patent? 

Try telling the Chinese factories.

So, if it is a product, be prepared to see copies within a matter of months, if not weeks.

What about businesses which are providing a service?

Well, they are not safe from copy cats either. Business models can be copied too.

Some are worried about the competition faced by Centurion when it comes to workers' dormitories as more players jumped on the bandwagon. 

It is a valid concern and I did say that I would keep an eye on this relatively new investment of mine. So far, so good.

Of course, I am not the only one keeping an eye on Centurion and a reader recently sent me a report by PhillipCapital dated 19 May. 

I am sharing the stuff which I find more interesting here:

1. Higher occupancy for workers’ dormitories at Westlite Woodlands (c.95% in 1Q17 vs. c.90% in 4Q16) and ASPRIWestlite Papan (89% in 1Q17 vs. 75% in 4Q16). We estimate rental rates increased c.1%.

2. 1Q17 net profit margin improved to 33% compared to 32% a year ago. The improvements 
to net profit margin was due to ASPRI-Westlite Papan becoming more profitable in 1Q17 but
slightly offset by higher Cost of Goods (“COGs”) and higher interest expense.

3. Centurion continues to enjoy a high operating leverage where they will be able to grow revenue faster than costs through positive rental reversions.

4. Singapore Workers’ Dormitory Portfolio have almost hit full occupancy by 1Q17, well ahead of our expectation of hitting full occupancy by end of 2017. We expect the supply constraints in workers’ accommodation to continue while the strong pipeline of public sector construction projects which are expected to last till 2020 will keep Centurion’s Singapore workers’ dormitories fully occupied.

5. We are pleased to see Centurion’s ability to command a price premium for its Singapore workers’ dormitories and yet ramp up its occupancy faster than expected. All these despite
competitors slashing prices and weaknesses from the oil and gas industry that we have
witnessed in 2016.

6. ... expectation for stronger operating cash flow as a result of Centurion’s continued ability to exercise pricing power in its student and worker accommodation business across markets ...

In a competitive environment, we want to invest in a business that is able to retain pricing power.

Remember this blog?

My investment portfolio.

Centurion Corporation Limited is a relatively substantial investment for me and if I were to update the list:

From $350,000 to $499,999:
AIMS AMP Cap Ind'l REIT

From $200,000 to $349,999:
ACCORDIA Golf Trust
CROESUS Retail Trust
FIRST REIT

From $100,000 to $199,999:
ASCENDAS H-Trust
QAF Limited
WILMAR Int'l
Centurion Corporation Limited

What made me invest in Centurion Corporation Limited again? The answer is in this blog:

Added Centurion Corporation Limited to my investment portfolio.

Related posts:
1. Full year 2016 report.

2. Centurion to double in price?

Prudent retirement funding strategy for elderly parents.

Reader:
Hi AK, apologies for the multiple questions from me. 🙂 I am looking to help my parents with their retirement planning and hope you could shed some light.

For convenience of calculation and discussion, assuming the following hypothetical figures, can you share how you would do the planning?

Parent A - 500k cash
parent b - 300k cash,
Zero CPF for both,
No existing loans at all
Children all financially independent
Require about 2k per mth for expenses
Occasional traveling

Given the above I was thinking of topping up their retirement account to the ERS and opt into cpf life at 65.

The remainder will be kept in minimum risk instruments like FDs etc and maybe just a small percentage into shares. Hope you can help me out in your free time. Thanks a lot!

Both parents have basic health insurance. I am thinking of getting them to surrender their whole life policy bought donkey years ago with low sums assured as we children are all financially independent.



AK:
What you are planning to do sounds like what I would do if I were in your shoes. Spooky!
Old folks should not be too adventurous with their money.

Reader:
I read your blog daily! I guess that's where I get all my thoughts mainly. Can't thank you enough!

Related posts:
1. Elderly with spare cash.
2. How to make money last longer?
3. FRS, BRS and ERS.
4. Parents have enough H&S cover?
5. Dad terminated his whole life policy.