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.

I do not believe in emergency funds.

"It will never happen to me."

What if it should happen one day?

Then, die lah.

OK lor.





Reader:
Don't believe in emergency funds. Better to put money in bank preference shares or perpetuals.

AK:
Well, let's hope you never meet with an emergency which might force you to liquidate your investments at prices not of your own choosing.

Reader:
DBS preference share, at any price, still provides a return many times that of a FD. In a situation where the preference shares cannot maintain a payout, is the FD much safer?

While it sounds logical, how often do people who actually set aside an emergency fund found it useful?

Having an emergency fund in a FD is a big opportunity cost.






AK:
I think you could say that you don't have an emergency fund but to say that you don't believe in having an emergency fund boggles the mind.

It might be a good idea to remind ourselves of the GFC and how stock prices plunged terribly. The stock market was, then, in the doldrums for many, many months. 

Many people also lost their jobs.

Imagine someone without an emergency fund who might have an emergency in those months.

Imagine him liquidating his investments at a massive loss only to see the recovery in the stock market later on. Not a pretty thought.






Similar to buying insurance and how we hope we never have to make a claim, we hope that we do not have to draw on our emergency fund.

Similar to buying insurance, there is a cost involved in maintaining an emergency fund.

Should we say we do not believe in having insurance and money paid for insurance is wasted?

"I would rather see you have money you can get at than to worry about the interest rate." 
- Suze Orman

Related posts:
1. Fixed deposits for emergency fund.
2. PMET took 30% pay cut but thankful."... as I have more than 6 months of emergency funds, I was quite relax about this and could take my time to look for a job." 

SingPost posts sinking dividends.

Reader:
I am a sad shareholder of Singpost. Final dividend is 0.5 cent. Should I continue to hold and wait for improvement?

Suspicious looking package at 

Singapore Post mail processing centre.

AK:
Those who thought they would continue to get 7c a year were delusional. I also said those who were expecting a reduced dividend per share (DPS) of 4.2c to 5.6c a year could be disappointed.

Now, we could see an annual DPS of only 2c. If you are still expecting a 5% dividend yield, it is quite depressing.

In my earlier blog on SingPost where I wondered what price I might pay to be a shareholder, I made some assumptions which gave me what I thought was a more realistic DPS of 3c.

A more than 70% reduction in DPS from 7c to 2c is a tough one to swallow for any investor for income. Imagine a retiree who has SingPost as his largest investment in his portfolio.

How much do I think is a fair price to pay for SingPost now? 

You might want to read the related post below for an idea.

Related post:
An incomplete analysis of SingPost.
"Since SingPost is going to pay at least 60% of earnings as dividend, we would get a 3% yield at $1.00 a share, using the assumption in this blog which gives us a DPS of about 3c."