$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?

Financial freedom for average Singaporeans?

From time to time, I get emails from readers who wonder if average Singaporeans could ever become financially free. 

Of course, I will remind them that AK was once upon a time a pretty average Singaporean too.

If we are from a humble background and if we have a humble lifestyle, I believe that these are strengths and not weaknesses.






I remember when I was a teenager about to join the armed forces, some wondered if I was going to make it because there were stuff I didn't like eating. 

Then, when they remembered that the stuff which I didn't like to eat were crabs, prawns, abalone, lobsters and a whole list of atas (i.e. Malay for high class) foodstuff, they knew I was going to be OK. 

I didn't have atas taste buds.







When I shared my liking for green tea, I was asked to try roasted green tea, Hojicha. Today, I was given some Hojicha as a gift when I met a friend for lunch and later visited a supermarket. 

Drinking Hojicha will transport me to a higher plane of existence (figuratively, of course), apparently. Zen? I like.

Well, I tried it just now and it tastes like Chinese tea to me but it costs a whole lot more. 

$7 or so for a box of 20 tea bags.

I think I will stick to my cheap cheap Japanese green tea. $5 or so for 50 tea bags.

Atas food and drink are wasted on AK. Seriously. The fault is mine and not the food and drinks'.

What is this leading to?





Some might not agree with me but I am just sharing my own experience here.

If we don't have expensive tastes, it is easier to achieve financial freedom, all else remaining equal.

There is no doubt in my mind ever that average Singaporeans can be financially free too. 

If you are not financially free yet, you should not doubt that you can one day be financially free too.

It just depends on what you do.

Related post:
Average income workers can be rich.

Use CPF account as a savings account. (Prefers money close by and is CPF the answer?)

This blog is the continuation of an earlier blog:
Our parents and their CPF plans.

Reader:
Thanks for your well structured reply! It answered most of my questions :)

The reason I am concerned is because my mum keeps cash in the house instead of making it work for her.. And often she gets "tempted" by agents/bankers who sell her savings plans (10 - 15years) with "guaranteed" returns!!!

I managed to stop 1 transaction last week during the free look period but she has another savings plan that is fully paid in the next month and will pay out every year for 10 years (I will just see it as damage is done)...

Hence I thought to further explore the use of her CPF account if she wants to earn more interest over the years.

She likes the feeling of 100% liquidity (which explains keeping of money at home) and she finds it a hassle to even withdraw it at the ATM.. will need to think of an arrangement such that it will benefit her pocket in the long run.







AK:
Yup, it is as I suspected. Your mom likes the feeling of having money close at hand. Haha. So do I, to be honest, if you remember my blog on keeping some convenience cash at home.

Yes, from my habits, you can tell that AK has joint the ranks of the old folks too. Cham. How like that? Die lah.

Convenience is a good thing but there is a price to pay for convenience. Convenience has a price? Yes. I blogged about this too.

Your mom is lucky to have you look out for her, especially when it comes to guarding her against unscrupulous sales people but worse than those would be the PONZI schemes.





Try talking to her about using her CPF account as a high interest savings account. She can do voluntary contributions up to the annual contribution limit ($37,740). 

Please check that her CPF-MA has hit BHS first ($52,000) or else most of her contribution, at her age of 60, will go to her CPF-MA and will be locked up.

Of course, I feel that it is a good thing to hit the BHS because the CPF-MA pays 4% per annum and the interest of more than $2,000 a year will pay for many things but it is her money and it should be her choice.



Related posts:
1. Convenience money.
2. The price of convenience.
3. Unpleasant experience at a bank.
4. PONZI schemes.
5. CPF as a high interest savings account.

Our parents and their CPF plans.

Reader:
I have been thinking about topping up my mum's CPF account in order to earn a higher interest for her monies because she currently keeps the allowances me and my sibling gives her at home 😓..

I tried to read up online on the CPF schemes but got a little confused along the way. She is 60 this year, and I believe she is not under CPF LIFE, she was given an option to opt in but she did not do so. Thus, this would mean she is under the Retirement Sum Scheme and she has around $91k in her RA. Her FRS is $131k and she can choose to receive monthly payouts when she reaches 65.

I understand that I will be able to make use of the Retirement Sum Top Up Scheme to top up her account and also earn tax relief while I do that. However, how would I be able to calculate the impact of my top-ups in order to convince her? Or should she opt for CPF LIFE instead?






AK:
Sometimes, when we think of what is best for our parents, we forget to ask them what is on their minds. I am guilty of that pretty often.

So, ask your mom what does she want to do with her CPF money? It could be that she has no intention to touch her CPF money at all. She might want to leave it as a parting gift for her children. Well, that was what my mom told me she planned to do quite recently.

In such a case, if we top up her CPF-RA, we are actually saving money for our own inheritance. I had a good laugh when I thought of this.

And some older folks are quite resistant to the idea of putting more money into their CPF accounts than what is required by the law. Best to avoid getting into an argument with parents. In my old age, I have less energy for debates.

I bring this up because it sounds like it could be the case for you since you asked me how to "convince" your mom of the benefits.




Talk to your mom and see what she has in mind first. If she plans on receiving monthly payout once she turns 65, I believe that CPF Life would be a better option since it would provide a monthly income for life. Then, let CPF Board know of this decision ASAP.

How to convince her to go with CPF Life? I think being able to receive a monthly income for as long as she lives is a pretty attractive idea.

How to convince her that topping up her CPF-RA is a good idea? I don't know your mom and how resistant she is to the idea. That is your hot potato. Not mine.




OK, I feel that you only need to convince her if you are going to take away her monthly allowance she is now getting from you and putting it into her CPF-RA instead.

If you are going to do a top up to her CPF-RA without taking away or reducing her monthly allowance, I don't think you need to do any convincing. 

The top up is on top of what she is getting from you in such a case. ;p

Part 2: Is CPF the answer?

Related posts:
1. Young people get 6% CPF interest!
2. Don't be stupid to top up CPF!

Why retirement is not an option for some people?

Ever since I went on a low carbohydrate diet, I have been consuming more protein and fats. 

One of the things I do eat from time to time is fish and I enjoy Batang fish quite a bit.

This evening, I paid almost $5 for my fish dinner:

150 grams of Batang fish. 

Just nice for a grown man or at least for me.

A dusting of turmeric powder, a sprinkling of garlic salt and some butter. 

1 minute in the microwave oven at 800 watts, followed by a drizzle of extra virgin olive oil and it is good to eat.

Yummy.

Anyway, as I was walking home from the supermarket, I tossed some numbers in my head.




$5 doesn't seem like a lot of money but to someone who makes $100 a day, that is 5% of his daily pay. 

(Once upon a time, that was my daily pay too.)

Considering the fact that $20 goes to his CPF, $5 is actually 6.25% of his take home pay. 

This is quite a big percentage.





Let us say this person depends solely on his CPF savings to fund his retirement and let us say he hit the FRS 10 years ago and CPF Life pays him $1,380 a month from today for life, he would get $46 in pocket money a day. 

In such a case, $5 is going to be almost 11% if his daily allowance!

The price of Batang fish would probably increase over time too.

Of course, he probably won't be eating Batang fish everyday but it is just an example to show how our CPF savings are probably not going to be enough to retire on.

If we depend solely on our CPF savings for retirement funding, it is quite possible that we would have to continue working beyond age 65.




This is for CPF members who have the FRS at age 55 too as this fishy example shows. 

For CPF members who do not have the FRS or even the BRS at age 55 and if their CPF is the only source of retirement funding, the chance of them ever being able to stop working is almost non-existent.





To people who are still unhappy with having money locked up in their CPF accounts and who want their CPF money returned to them because they have no savings to retire on, you have to wake up. 

You cannot retire. 

You have to continue working.





Related post:
CPF Life payout estimator.

Exploit the CPF-RA for a lump sum payout? (And HardwareZone Money Mind on how to hack the CPF-SA?)

Reader:
Need your advise, my SA is able to meet the MS (FRS), was thinking of opting for the enhanced option (ERS) for CPF life at 55 which is next year. 

There after, at age 65 think of pledging my HDB for the 85K to get back the money. In that way, i am able to earn the 4% interest for the $85K for 10 years, your kind advise please thanks.

AK:
You have to decide at 55 if you want BRS, FRS or ERS. You cannot change your mind at age 65.




Reader:
In a way i am not, but getting back the money of $85K at 65 after pledging. thanks.

AK:
The transfer to the CPF-RA is irreversible. So, think carefully what you want.

The money in the CPF-RA will fund CPF Life which will give you a monthly income for life. You won't be allowed a lump sum withdrawal from the CPF-RA.

Reader:
But spoken to CPF on this and they said its possible to get the $85K with pledging? thanks.

AK:
Yes, at age 55, if you opt for BRS, you can take out all the money in excess. This is probably what they meant.








"On your 55th birthday, we will create a Retirement Account for you. Savings from your Special Account and Ordinary Account, up to the Full Retirement Sum, will be transferred to your Retirement Account to form your retirement sum which will provide you with monthly payouts. For higher monthly payouts, you may also top up your Retirement Account up to the Enhanced Retirement Sum." (Source: CPF)


"Top-ups under the RSTU Scheme are irreversible and irrevocable." (Source: CPF)

---------------------



From my Facebook wall.

Kelvin Tan:
What do you think of this plan as a form of hack, which might make sense if you have most of the FRS sum in your OA.

-At age 54, before your birthday, invest all your SA, after leaving aside 40k, into a government T-bill.

-Let your RA formed largely out of your OA.

-Redeem T bills and have the money return back to your SA.

-Profit!

AK:
Unfortunately, I don't think it works that way. At 55 years old, once we have put aside the FRS or BRS in our CPF-RA, (if) we will have to close our CPFIS-OA and CPFIS-SA (if any), we can continue to hold these investments in our name directly or if we choose to liquidate our investments, the money will be paid to us directly and won't go back into our CPF accounts.




------------------

Lee Keh Yi: 
CPF FAQ says: 
"You can continue to invest even after age 55, as long as you have set aside the Full Retirement Sum or Basic Retirement Sum with sufficient property charge/pledge in the Retirement Account."
CPFIS is not auto-close at 55. 

Another FAQ says 
"You may apply to close your CPF Investment Account and transfer your shares to your own Central Depository account after you have reached 55 years old and have set aside the Full Retirement Sum or the Basic Retirement Sum with sufficient property pledge in the Retirement Account." 

Note -> *may*, not *must*

AK:
Ah, I see. 
But if the CPFIS account is closed, the investment is held directly under our name or if liquidated, the money is paid to us and does not go into our CPF accounts.




Lee Keh Yi: 
The "hack" that Kevin described was discussed on HWZ Money Mind forum. 

The conclusion was that it would probably work: 

there is nothing in *current* CPF regulations that stops it from working. 

Some of the participants in the discussion will reach 55 within a year. 

If they try it out and report back like they said they would, we'll know for sure :)

AK: 
I read from the CPF After 55 booklet that if we terminate the CPFIS and liquidate the investments, the money will be paid to us directly. 

I doubt it goes to our CPF accounts. 

It is on page 15. 

Quite clear on this unless I have misread again.

Lee Keh Yi:
the "hack" is intended to make CPF draw the RA-FRS from our OA rather than our SA at 55 (by investing the max SA that we can). 

After RA-FRS is formed (ie 55yo), liquidate the SA investment and return the funds to SA. 

Thereafter we can enjoy the 4% interest from SA. 

All this should work, provided we are able to meet FRS via OA

AK:
Yes, I understand the strategy. 

Well, nothing beats actual field test especially when others are going to be the lab mice. ;p




Lee Keh Yi:
HWZ money mind had examined this very closely, looking for pitfalls in the theory, but we couldn't find anything in the *current* CPF regulations that stops it. 

Yup, it remains a theory, until someone tries it, crosses the 55 mark and can either confirm or refute the theory with their own experience ;)

AK:
I am always ready to learn from someone else's experience. 

It is less troublesome and sometimes less painful. :p



Related post:
BRS, FRS and ERS.

Don't be the 1 in 9 Singaporeans who has diabetes.

From time to time, ASSI would have a public service blog.

What? Don't bluff?

I am always blogging about the CPF? That is public service. 

Orh.

Anyway, since PM Lee talked about the dangers of diabetes, I decided to kay poh a bit too.





AK was overweight and being overweight is a risk factor. Fat people have a higher chance of getting diabetes.

Change our diet. 

For a start, consume less sugar.

Change our lifestyle. 

For a start, become less sedentary.

Yes, go out more but not like this:

Or this could become the reality:

Overweight? Lose weight.




Instead of frozen yogurt or ice cream, try something healthier.

Granny Smiths.

Carrots, broccoli & cauliflower.

Vitagen or Yakult for pro-biotics.

Blend everything together!
Yummy and healthy dessert!

Don't be the 1 in 9 Singaporeans who has diabetes.

If AK can do it, so can you!

Related post:
My weight reduced!

See also:
http://www.straitstimes.com/singapore/beating-diabetes-starts-with-small-steps-pm-lee

Guocoland declared 7c DPS and is AK selling?

Reader:
Guocoland declared a 7cts dividend. The share price also up a lot since I followed your call in Mar. Are you keeping your investment for dividend or selling? I am sure you know a famos investment blogger sold all his shares in Guocoland already...

AK:
1. AK does not issue BUY, SELL or HOLD calls. AK is just talking to himself here in ASSI.

2. Whether AK is keeping for dividend or selling his investment should have no bearing on your decision to keep or to sell or, indeed, to buy more. Ask yourself why did you invest in Guocoland in the first instance?

3. Similarly, the fact that another blogger has sold his investment in Guocoland should not mean that you should sell too. He probably had a plan. What is yours?





-----------------

I believe that Guocoland will have the ability to pay better dividends as its flagship property in Singapore, Tanjong Pagar Centre, matures.

The fact that Guocoland has declared a DPS of 7c which is higher than the year before shows their willingness to reward shareholders better in tandem with a growing ability to do so.

To an investor for income, the ability and the willingness of a business entity to pay meaningful dividends is a key consideration in the decision making process.

Why did I invest in Guocoland at the price which I did earlier in March this year? Please see related post below.

Related post:
Invested in Guocoland.

A replacement for Croesus Retail Trust.

Reader:
Just wanna seek ur views with regards to Croesus retail trust as it's most likely soon going to be delisted.

Thereafter, I'm thinking of recycling funds into AimsAMP cap Reit to replace CRT to generate high dividend.

Recently, the share price of AimsAMP went down quite a bit and make it rather attractive to purchase. This dividend income is important to me as I use it to pay for the living expenses n accommodation for my child's overseas uni education for 2 more years. Hope u can talk to yourself

AK:
Er... See my latest blog post





Reader:
Thanks, noted n seen. Due to my needs to find dividend income replacement after CRT, do u think AimsAMP at current P/B at 1.0 and it's NAV is equivalent to current trading price at $1.385/unit provides a fare price to buy in? I'm rather attracted to 7.8% annually and hopefully this is sustainable for the next few years at least.


AK:
Actually, do you really need to hunt for replacement dividend income? The capital gain from the sale of CRT would provide more than 2 years of "dividends" in advance, more than enough to fund your child's expenses. That is the point I am trying to make in my blog.

I don't know if it is a good idea to buy more of AA REIT especially if AA REIT is already a big investment in your portfolio.

Apart from concentration risk, being hasty to deploy the funds might not be a good idea.



Croesus Retail Trust is quite different from AA REIT. So, when we are thinking of replacing one with the other, it shouldn't just be because their yields are comparable.

When I got into Croesus Retail Trust, partly, it was because I was looking to reduce concentration in industrial S-REITs which have most of their assets in Singapore. So, it was to reduce sectoral and also geographical concentration risk.

So, it wasn't a simple case of getting a comparable or higher yield.

Of course, it is about what gives me peace of mind. It could be that I think too much.



Reader:
Wow, AK..very thankful for your fast reply and details 🙏🙏🙏
Noted your pointers and I'll keep them in mind.
Currently my AA REIT is not as large as my CRT investment ( really thank u very much as I read n focus in this Reit). Hopefully if AA REIT price weaken further, then I'll look into it.

AK:
I am sure you will do what is right for you. 🙂
Take your time. I think there is no hurry to redeploy the funds from CRT.

That is the beauty of buying into an income generating asset at below fair value. We could see its value unlocked and while waiting, we get paid. That was the case with Saizen REIT too 😉



Reader:
No lal, AK... definitely u r not thinking too much, 小心驶得万年船!
u r definitely doing the right thing n doing things right 💪🏼👍🏼
It's really great to know you since 7 yrs ago 👍🏼
Even though I missed the Saizen REIT, but there will always be more of other good dividend income stocks along the way, I'm sure 😊 Just continue to read ur blog ✌🏼

Related post:
How to deploy Croesus Retail Trust money?

How to deploy the Croesus Retail Trust money?

Reader:
I understand u have pretty huge stake in CRT so I thought I can eavesdrop how you intend to redistribute the funds. If u could talk to yourself on that, I will be just eavesdropping.

AK:
I am quite happy to hold on to more cash for a while. No hurry. ;)

I do have a relatively large investment in Croesus Retail Trust but I had an even larger investment in Saizen REIT.

I am mostly an investor for income and I view the huge capital gains as having received many years of income in advance.

It means that I could wait for many years without deploying the funds and I would still be quite comfortable. I don't need to grow my wealth constantly.

Now, if you must see positive growth year after year, what I have just said will not sit well with you. You will constantly have to look for ways to make sure you do not "fall behind".

So stressful.




You are hardworking. I am lazy.

For me, well fed, I am quite happy to sit on more money while waiting for new investment opportunities to come along.

Related posts:
1. How much did AK make from Saizen REIT?
2. Croesus Retail Trust, HPH Trust, NBN Trust and SingTel.

Croesus Retail Trust, HPH Trust, NBN Trust and SingTel.

Reader on HPH Trust, its decreasing NAV and distributions:
Thanks for your reply. I knew a lot of readers were asking you to talk to yourself on may things so definitely appreciate your time on this topic.

AK:
HPH Trust's land leases are decaying rapidly. I blogged about the Trust a few times before and why I avoided it.
(They were holding back much needed CAPEX to maintain DPU for a while but CAPEX could not be held back indefinitely.)

Reader:
As u know, we received the CRT scheme document and the suggestion is for us to accept.
At current price, we are looking at yield of 6.6% or slightly higher if the scheme went through. But there isn't any obvious choices (trots or trust) in the market that would match or beat that. Would like to understand what are the top few choices you would have redeploy the capital return.

AK:
If you are looking for 6.6% yield, I think it is not difficult to find but I would say yield isn't everything and it is obvious from the fact that I bought into SingTel instead of NBN Trust recently. 
See: Avoiding the instant gratification of yield.

Wondering to vote for or against the sale of Croesus Retail Trust? See related post #1 below for some of my thoughts.

Related posts:
1. Croesus Retail Trust.
2. HPH Trust.
3. SingTel or NBN Trust?

Sold DBS and want to buy back.

After re-sharing on Facebook that I was buying mostly DBS shares in 1H 2016,

Reader:
I saw your FB posts on DBS. Thanks for sharing again. I did buy some DBS shares after attending one of your talks last year. I made a bit of money. Been waiting for the price to drop. My broker told me it will go up higher. Should I buy back?





AK:
I wonder what did your broker tell you about DBS last year? Just curious.

Since you attended "Evening with AK and friends" last year, you might remember that I explained buying into DBS then was buying in at a nice discount to NAV and also at a single digit PE ratio.

Many were worried about the bank's exposure to the troubled O&G sector and I explained that only about 6% of the bank's loan book was exposed to that sector. Even if they had to write off everything, however unlikely, we would still be buying at below its NAV back then.






There was a margin of safety, I felt.

I also pointed out that the bank's CEO, Piyush Gupta, was buying more DBS shares at $13+ a share. His purchase amounted to more than $2 million. That kind of insider buying has to be a vote of confidence. I couldn't ignore that.

He is not buying more now and I believe he has, instead, cashed in not too long ago.

Why did he sell? I don't know. You have to ask him.






Looking at the numbers now, DBS is trading way above its NAV and at a double digit PE ratio. Mind you, it does not mean that its share price cannot go higher from here.

However, DBS is just no longer the bargain that it was last year.

Reader was referring to these blogs I shared on FB earlier today:
1. Wait for big crash to pick durians.
2. 2016 FY passive income (non-REITs).

Wait for a big crash to pick our durians?

Reader:
You have been through the times when you got stocks w div yield of 10+ or even 20%..

Why are you still keen to pick up stocks at 3-5% now?

Isn't it easier (and less work) to just wait out for the next crash to pick your durians again?

It shouldn't be too long from now right...?

Now, this was a CRASH!
Did anyone predict this?
This is what insurance is for.
It is for if a CRASH happens.
Our war chest is an insurance!

..




..

AK:
I cannot predict what will happen. 😞

Some people have been waiting for years for a big crash.

I will keep investing but keep a war chest ready. 

There will always be opportunities, bear market or not.

Just have to be careful so that I don't get killed by falling durians. 😛





Related post:
Make $1 million investing for income.