When to buy (and sell) a private residential property?

Please don't take what I say as the Gospel truth. I am just sharing my thoughts and limited experience. This was an exchange on FB:

• M
  

  Bro. Your property post always trigger my interest and thinking!

  Anyway during the talk, you mentioned there are still good property deals around.

  I wonder what's your definition of good deals?
• 7:44pm
  

  Assi AK
  

  Well, if people are looking for a BTO flat for own stay, I just shared an example in CCK (on my FB wall). Good deal.
• 7:44pm
  

  M
  

  How about private?

  Ps. I should be clear.
• 7:45pm
  

  Assi AK
  

  If people are looking for condos for investment, it is quite hard to find a good deal now.
• 7:45pm
  

  M
  

  Still will like your brain juice on what are good deals on private. Lol

• Assi AK
  

  I know that some developers like Bukit Sembawang and Capitaland are slashing prices but I don't think the prices after discount are good (enough) yet.
• 7:46pm
  

  M
  

  Haha. How much you will go in?
• 7:46pm
  

  Assi AK
  

  For example, someone bought a condo in Cairnhill by BS and it was heavily discounted. Just under $2m. Previously, would have to pay $2.4m to $2.5m for similar unit. However, the current rental is only $4K a month.

  ... Buyer said good deal. He said earlier buyers overpaid. I think (earlier buyers) just overpaid more than he did.

  His gross yield at $4K a month rental would work out to be about 2.4%. His housing loan interest rate is (probably) 1% + 3 months sibor... So, it is almost 1.7% now... It is probably going to be higher in the next 2 years... -.-"

  But what to do? D9 atas. I had a D9 property that I bought during the GFC and sold it when market recovered. This person (I feel) bought as market peaked (again) and beginning to correct.

  I sold off my properties that would have yielded just under 4% per annum. I found properties that were able to yield 6.1% per annum (later on). It made sense to me even though the 6.1% yielders are not in atas locations.

  In the current environment, those that I sold are yielding just above 3% per annum while the would be 6.1% yielders are now 5.1% yielders. (What a difference 2 years make.) All declined but I have a bigger margin of safety now.

• M
  

  Power!! Love your explanation. Gonna share w my wife bro.
• 7:56pm
  

  Assi AK
  

  Aiyoh, pai seh lah... I anyhow say de.
• 7:56pm
  

  M

  Nvm. Keep anyhow say
• Assi A
  

  I think I cut and paste for my next blog post. I ran out of ideas. This one just nice. LOL.
• 8:01pm
  

  M
  

  Yes. This one really vvvvv good

  It will educate a lot of property standbyers
• 8:04pm
  

  Assi AK
  

  Kamsiah. You very kind lah. I only sharing my thoughts and experience. I pai seh.

• 8:05pm
  

  M
  

  You Pai seh what. Haha. I sincerely appreciate that. My frens and wife learnt a lot too
• 
  

8:06pm

Assi AKReally? Thanks for the encouraging feedback. Very happy they enjoyed themselves.

Feeling happy (but also a bit scared) to share.

One thing is for sure though. You can safely ask AK if you need a haircut because AK is not a barber.

Related posts:
1. An evening with AK and friends.
2. Affordability and value for money.
3. Considerations for first timers.
4. CCR, RCR or OCR for rental income?
5. Smaller apartments' prices more resilient.

IREIT: What is a more realistic distribution yield now?

A reader who attended last Saturday's event sent me an email asking me about IREIT Global because he got in during its IPO and he is now worried after hearing what I had to say. 

I was puzzled because I asked if anyone was invested in the REIT on Saturday but there was no indication that anyone was.

Anyway, for those who are interested, I did not say anything new last Saturday. 

Please see related post at the end of this blog. 





Basically, I again explained why I avoided investing in IREIT Global when they had their IPO middle of last year.

I also said that people who invested in the REIT because of the expected 8% distribution yield would probably be disappointed. 

So, what is the expected yield now?

The Euro has been in a downtrend against the S$. 

Today, the exchange rate is one Euro to S$1.54 which is much lower than it was middle of last year at S$1.70.





Based on the estimated income available for distribution to unit holders of Euro 8.3 million (6 months) and approximately 419 million units in issue, annualising the DPU in S$ terms now gives us a distribution yield of about 6.8%.

IREIT Global's unit price has retreated since hitting a high of 90.5c a unit.

Will IREIT Global's unit price go much lower? 

It looks like it could, especially if Mr. Market still demands an 8% distribution yield.

What? Take a stab in the dark? 

Er, well, if the annualised DPU is 6.1c, to get an 8% yield, the REIT would have to trade at 75c a unit which is some 15% lower than its IPO price of 88c a unit.





Related post:
IREIT Global: Distribution yield of 8% safe?

Suddenly, financial freedom looks less remote!

Blogging about my meals has had positive consequences both for me and some readers.

1. There are people who care enough to write to me to tell me I don't eat enough vegetables. So, I have been making a conscious effort to incorporate vegetables in my diet more regularly, thanks to their nagging. What did I have for dinner this evening?

Non-fried noodles. Broccoli. MSG free soup cube.

Add mom's secret ingredients plus a mug of genmaicha.

2. Some readers have informed me that I have inspired them to pack lunch to work and to have dinner at home more often instead of going to the restaurants. Some of them actually realised substantial savings especially when they managed to get the whole family to participate. 

Like with many things, it gets easier with time as is the case for a lady who told me her husband is now a firm believer in the changes she has made to their lifestyle because of the resulting savings he sees accumulating in their bank account.

Their wealth is growing more rapidly now, month after month, and this gives them a greater sense of financial well-being. This is an achievement. 

I feel happy for them.

Through sharing very personal information such as how much I receive in terms of passive income, how much I have in my CPF-OA and SA, how I am able to get free health insurance in Singapore and how I save money on a daily basis, just to name a few things, I have found that it is easier to convince people, to inspire people to take their first step on the journey towards financial security and, ultimately, financial freedom. 

Suddenly, it is not just something people talk about. 

Suddenly, it looks more achievable. 

Suddenly, it does not look so remote.






It has been a 20 years journey for me but, hey, if AK can do it, so can you, right?

Some might take a shorter time. 

Some might take a longer time. 

It doesn't really matter, does it?

I know some people might ridicule me for blogging about my meals but I am sure regular readers are able look beyond the facade. 

Regular readers know that my journey towards financial freedom is anchored upon a philosophy and that philosophy is apparent in my daily life.




Updated on 2 July 16:

Related post:
How to recession proof your life?

Singlish with AK: Give a talk? Can but not free.

Aiyoh, the title is so ambiguous lah. Fun, right?

Got people invited me to give talks and I said just read my blog lor, it is free lah.

At home, I blog, reply to emails and interact online with readers. All own time, own target and for free mah.

If I have to leave my home to give a talk, it cannot be free liao. Why? AK lazy. AK doesn't want to leave his home. Too bothersome. (Don't later some smart aleck suggests to have talk in my home hor.)

I made the remark, "I fishing no use hook de..."

From the reply, I think the person doesn't know what I am talking about. LOL.

How to make my money last longer? A senior's example.

The very first question I was asked during the meeting with readers last Saturday was, "I am 60. What can I do to make my money last longer?" 

Well, in our golden years, I feel that we probably want to be less adventurous when it comes to money matters and I shared some of my thoughts with everyone at the event. This blog post coincidentally exemplifies one of those thoughts. I don't know if the lady who posed the question on Saturday will be reading this or not but I hope she does.

My dad might not be the most financially savvy person I know and he has some bad money habits but he has very good work ethics. He belongs to a generation of hard working Singaporeans who refuse to stop working. He is almost 70 years old and, yes, still working.

My dad used to spend money very easily, too easily, and, for many years, I was very worried. I wondered whether he would have enough money for retirement. So, in my own retirement planning, I factored in the cost of my parents' upkeep, just to be safe.

For a long time, my dad was also very suspicious of the CPF but, in his old age, as he fears not having enough money for retirement, he started believing in the system instead of joining the Hong Lim Park "Return our CPF" protests. Well, this is largely due to my nagging.

Son nagging at father? Bad AK! Bad AK!

This morning, my dad sent me a message:

"Son, my cheque to CPF cleared already."

I logged into his CPF account just now to take a look.

My dad continued to work beyond 55 years of age and, in so doing, accumulated more funds in his CPF account. Any voluntary contribution he makes now can be considered as short term savings as he is allowed to withdraw money from his CPF account once a year while still working and anytime he wants once he stops working. 

The funds will enjoy interest rates of 2.5% (OA) and 4% (SA) per annum in the meantime. No fixed deposit rates in Singapore can beat these.

If you are a senior or if you have loved ones who are seniors, this might be something worth considering and sharing if they are trying to achieve retirement adequacy.

IMPORTANT (added 4 Feb 15):
For seniors 55 to 65 years old, please read comment by Sally Tan in the comments section below.

Related post:
Retirement: Buying a AAA rated bond.

How to recession proof your life? Your time will come too.

Last evening, after the group photo taking ended, I took my first selfie ever with a couple of readers and the lady asked me whether I might make some changes to my frugal spending habits as I go into retirement. Well, maybe not in those exact words but I think that was what she meant.

Actually, many people asked me questions along the same line before. Why not be more generous to myself since my investments are generating meaningful income annually? Why am I still so frugal? (Aiyoh, car, chocolates, ice cream, remember?)

"I don't think I will change anything. I am too used to what I am doing now. I don't think I can change," was my reply. Now, this can either be viewed as a good thing or a bad thing, depending on what we are talking about.

My breakfast this morning.
Yes, got chye sim! Trying to take more vegetables.
I nag at readers about money and readers nag at me to eat vege.
Sounds fair to me. ;)

Human beings are creatures of habit. Everyone has some habits, whether good or bad. Look at ourselves and be honest. I am sure we can identify some of our own habits.

We might need a little help because our eyes are looking outwards. So, ask our friends and family members and they will tell us. They might be brutally honest but that is a good thing. It is all going to contribute to an important body of knowledge, self knowledge.

A visit to NTUC Fairprice in the morning.

There will always be some habits in life that will hold us back from achieving financial freedom. There will be habits in life that will help and, no matter what your persuasion might be, it is probably difficult to dispute that being frugal is one good wealth building habit. If we keep to our frugal lifestyle even as we make more money in life, we would probably be on our way to financial freedom.

My dinner tonight, breakfast and lunch for tomorrow.

I shared last evening that my family narrowly averted bankruptcy when I was in primary school. It was a difficult thing to understand for a boy but my mom was able to paint a picture of total loss for me that has stayed with me till today. I forgot to mention last evening that although we averted bankruptcy, we suffered financial hardship for many years. We lost almost everything. How does one forget something like this? Quite impossible.

The fear of growing old and destitute stayed with me till today.

I must never be in a situation like this, I told myself, and the last two decades have been a journey of self-discovery and stumbling in the dark, somehow doing mostly the right things but also falling into a few pits along the way. I do feel that I have been mostly lucky.

Of course, I could still fall into a pit or two in future. I don't know everything there is to know, for sure. However, I hope that I have done enough that is right so that, unless the pits I fall into in future are particularly deep, I would be able to recover quickly.

In summary,

1. Develop good habits that will help to build wealth.


2. Discard habits that lead to wealth destruction.


3. As our wealth and income grow, maintain a frugal lifestyle.

If we do all these, we would most likely become more recession proof than the average person too.

It is always hardest in the beginning. It takes time but you must believe that your time to work when you want to and not because you have to will come too just like it has for AK the giam siap fellow.

Related posts:
1. If we are not rich, don't act rich.
2. Three points which could turn our lives.
3. To retire by age 45, start with a plan.

How did AK amass so much money in his CPF-OA?

I received my CPF statement in the mail last night and when I was chatting with my mom, I told her how much money I have in my CPF-OA now and she was very shocked.

"How much did you say?!" my mom went. 





I passed her my CPF statement so that she could take a look for herself.

Well, to be honest, it might not be much to some people but it is quite significant to me.

So, how much is it?

How did I achieve this?

What I basically did was to do nothing to my CPF-OA after selling my last property about 3 years ago. 

In the purchase of my current home, I use my CPF-OA money sparingly as I was not and still am not able to get any interest income for my cash on hand that is close to 2.5% per annum.





Also, we have to remember that the opportunity cost of using our money in the CPF-OA is a bit more than that because we would have to pay ourselves the accrued interest lost for using our CPF-OA money. 

This happens in the event that we sell the property concerned (before we turn 55).

See:
Unemployed, almost 55 and worried about CPF.

Essentially, what happens is that instead of the government paying us interest on our CPF savings, we would have to pay ourselves interest as the CPF's primary objective is to ensure that we have a financial safety net in retirement. 

I rather prefer the idea of someone else paying me, to be sure.

For most of us, in our early years, it would probably be difficult to purchase a property in Singapore without the help of the funds in our CPF-OA.

However, if we are financially prudent enough to accumulate cash, invest to grow our wealth as we make progress in our career, it is not difficult to imagine us having more cash on hand as time goes by.

In the purchase of our second home years later, assuming that we do, it is then possible to use less of our CPF savings and more of our cash on hand, leaving money in the CPF-OA to grow.





Of course, we could always do voluntary refunds to our CPF-OA as well.

See:
How to stop accrued interest from growing?

Let the government work steadily to help pay for our retirement? 

Yes, you got it, that is the idea.

Related post:
A lot of the money in my CPF-SA is from...

Why we should buy the biggest and most expensive home?

Bro, good, knock some sense into her head!






Whenever I tell people not to buy a home that stretches their finances to the max (and beyond), often, I would get the reply that if they don't buy a home that is as big as possible, that is as expensive as possible, they might not be able to afford something like it in future due to inflation.

I have blogged about how our homes are really consumption items and not investments although it is hard for many to accept that especially when they see real estate prices in Singapore sky rocketing in recent years.




Of course, in recent months, the mood has become a tad more cautious but many people still think of their homes as investments and assets which are a good hedge against inflation. 

A recent argument put forward by someone along this line provided the catalyst for this blog post.

That someone said recently that if I were willing to buy some physical gold and silver as a hedge against inflation, why not a bigger and more expensive home?

Well, I have to say that my motivation for having some gold and silver is, in fact, an insurance against the flaws of fiat currencies. 

Embedded in that motivation, therefore, is the belief that precious metals are a hedge against inflation. So, this person is right in this respect. 

However, his understanding is incomplete.

The vast majority of us have to use leverage in the purchase of a home. 

A home purchased with a loan is a liability for the next 20 years, 25 years, 30 years or whatever the duration of the loan should be.

Only a home that is fully paid with our own money is an asset. 

Before that, we might have control over the property and the ability to enjoy using it but we do not have ownership of the property.





Another point is that if we have developed a crisis mentality, we would know that having some precious metals as insurance also makes sense because they are portable. 

Our home, even a shoebox apartment like mine, is not portable. 

Well, there are exceptions, I suppose, and those who live in caravans and houseboats might be the really smart ones.





Finally, precious metals usually form less than 10% of our wealth, for those of us who have them. 

However, for most of us, our homes easily form 50% or more of our wealth. 

This is why people say that Singaporeans are asset rich but cash poor. 

That asset they are referring to is usually our home.

"Professor Benedict Koh, director of the Singapore Management University's Centre for Silver Security, says the asset-rich, cash-poor phenomenon is an outcome of over-investment in property. And the proportion of such seniors is only going to rise as the population ages, say Prof Koh and other observers.


"Ms Peh Kim Choo, director of Hua Mei Centre for Successful Ageing, is worried that the asset-rich, cash-poor problem will be exacerbated as baby-boomers retire over the next 20 years. This is the generation that entered the workforce after CPF and the message of home ownership were introduced, she says.


"As more of these folk retire, says Ms Peh, "that is where we will see a lot more of the asset-rich, cash-poor situation". It cuts across both public and private housing, she notes. Her centre has counselled such seniors living in larger HDB flats."

Source:
http://www.straitstimes.com/the-big-story/case-you-missed-it/story/asset-rich-cash-poor-retirees-speak-20131203

What makes thinking that we should get the biggest and most expensive homes we can afford now because real estate prices will always go up in the long term particularly risky is complacency, the lack of a contingency plan, the lack of a crisis mentality.

Of course, vested interests would want to propagate the belief that there is never a bad time to buy a home and we don't have to time the market.

Apart from questions we should be asking these vested interests, we should ask ourselves some questions.


What if we were to lose our jobs? 

What if we were unable to continue working for any reason? 

What if we had bought at the peak of the market? 

What if the property market should crash in the next few years?


Do we have the financial resources to cope in such instances and if we should have some financial resources, would these financial resources remain strong or weaken in tandem?





I have been through a few economic cycles. 

I have seen how bad the bust in an economic cycle could be and how they affected families and friends.

It could be that this time it is different as I certainly do not possess the ability to look into the future.

However, we might want to remind ourselves that although history does not repeat, it does rhyme.




Related posts:
1. Disastrous investments in the property market.
2. Singapore properties will surely make money.
3. Two questions to ask buying investment properties.
4. Buying a home within your means.
5. Buying a property: Affordability and value for money.