Perennial Real Estate Holdings (PREH): A nibble?

Regular readers would remember how I once bought units in Perennial China Retail Trust (PCRT), how I sold a part of my investment when its unit price moved up and how I sold my entire investment a couple of years later in 2014.

What motivated me to invest in PCRT in 2012 was the much lower unit price it was trading at the time compared to its price at IPO and while it made progress in its business, its income distributions were largely unchanged. However, when it was clear to me that the income distributions were not going to be sustainable, I made my exit.

Of course, we know that PCRT was eventually delisted and its assets are now part of a larger entity, Perennial Real Estate Holdings (PREH). Backing PREH are big names in the corporate world, Mr. Kuok Khoon Hong, Mr. Ron Sim and Mr. Pua Seck Guan. Together, they hold a combined interest of about 70% in PREH. Some of us might have noticed some persistent insider buying in PREH and that was the reason why a friend recently told me that I should go take a look.

Well, I vaguely remember that PREH owns some Singapore assets as well. So, it is a more complicated creature compared to PCRT. It could be a daunting task to analyse and also because so many of its assets in China are still being developed. Anyway, I decided to start by looking at its financial results dated 13 Feb 2015 and see if I could cut short the process by looking at the numbers which could matter more. See financial results: here.

From 28 Oct 2014 to 31 Dec 2014, revenue was reported as $14.966 million. Just to make it easier for me, I will think of this as 2 months' worth of revenue. Assuming nothing changes, revenue would be $89.796 million for the full year. Now, I try to derive the earnings.

Administrative expenses ballooned due to the offer to buy over PCRT. Removing that non-recurring portion, we could see expenses at $40 million for the full year. Finance costs could be about $60 million for the full year.

Associates' contributions (disregarding fair value gains) would amount to about $8 million for the whole year, all else remaining equal. Similarly, I have ignored fair value gains on PREH's fully owned investment properties to the tune of some $46 million.

Now, if we put all these together, we will get:

Revenue $89.796 million
+ Associates' contributions $8 million
- Expenses $100 million
= A small full year loss of about $2 million

Whether PREH is able to become profitable would depend on their ability to increase asking rents for their investment properties in Singapore and China. It would also depend on whether they are able to sell some percentage of their investment properties to realise capital gains which was suggested by Mr. Pua Seck Guan when he was still running PCRT then in order to fund income distributions to unit holders. That would really have been a partial return of capital but it would also have been a useful exercise to see if the valuation of PCRT's assets was actually realistic.

Since the release of its financial results dated 13 Feb 2015, PREH also acquired stakes in House of Tan Yeok Nee and smallish stakes in Chinatown Point and 112 Katong. It also recently announced the purchase of AXA Tower in Singapore. We could see revenue receiving a boost as these are investment properties that would be generating rental revenue.

Of course, we won't be wrong to suspect that there will also be more debt on its balance sheet and that finance expense should increase. How much of an impact would these have? At the moment, I simply don't know.

What is known is that PREH inherited PCRT's Chinese portfolio and the challenges have not changed. There are still many development projects which are yet to be completed and these have to be paid for.

The funds required for the various projects are estimated to be about S$1.5 billion. That is a lot of money. If we look at the liabilities section of the balance sheet, PREH is already heavily geared. Having said this, they are well located projects situated on transportation nodes.

There are many assumptions for PREH to do better. Mr. Pua Seck Guan has a very good track record in his career and now he has the backing of Mr. Kuok and Mr. Sim. Having strong backers definitely helps especially when circumstances for real estate either in Singapore or China are somewhat challenging now. Could PREH have bitten off more than they could chew?

There are some calls to buy into PREH now because it is trading at a big discount to RNAV. Well, PCRT was also trading at a big discount to RNAV. A big difference is that PREH now owns, in part, some investment properties in Singapore which are generating recurring income but these are also bought with borrowed funds.

There is an estimate that the RNAV per share is $1.83. So, at $1.05, the stock is trading at a 43% discount to RNAV. RNAV is what an analyst thinks the stock should be worth in future based on revaluation exercises. Is it realistic? I read a 19 page report dated 4 February 2015 by PhilipCapital and I feel that they have been pretty realistic with valuing PREH's assets in Singapore.

As for the assets in China, PhilipCapital made assumptions as to percentages of certain development properties which would be sold by PREH and they seem to have opted for more conservative estimates with regards to asset values too. Read PhilipCapital's analysis: here.

Now, assuming that the RNAV of $1.83 per share is realistic, we would then have to ask ourselves if a 43% discount to RNAV is good enough for us to buy into PREH. If we are buying this in the hope that Mr. Market would pay a price closer to its RNAV in future, are we prepared to wait? For how long must we wait? I don't know. Will there be dividends in future as we wait? There could be, especially, if they sell bits (or chunks) of their investment properties although they could also very well opt to pare down borrowings. There is no certainty of a dividend.

I have bought into OUE Limited at slightly more than 50% discount to valuation. I have bought into Wing Tai Holdings at about 56% discount to valuation. Will I now buy some PREH at a 43% discount to valuation? I have a feeling that if not for the persistent insider buying, PREH's stock price would have declined to a much lower level by now. Will insider buying let up? Again, I don't know.

PREH is definitely not an investment for income and I don't think that they are likely to pay a dividend anytime soon. PREH is still very much in its growth phase, just like how PCRT was in its growth phase. PREH might have stronger backing compared to PCRT but there are still many unknowns.

Of course, we could choose to put our faith in Mr. Pua Seck Guan's judgement like Mr. Kuok and Mr. Sim have done and invest in PREH. Why get headaches from trying to analyse the business? Truly, I got a mild headache after my amateurish attempt which lasted several hours.

In conclusion, I probably don't have the kind of vision that these esteemed gentlemen have and I know for a fact that I do not have the deep pockets that they have. If I should invest in PREH, I would make sure it is a smallish position similar in size to my investments in OUE Limited and Wing Tai Holdings.

A nibble? Maybe.

Related post:
PCRT: Full divestment.

Could we see Wing Tai Holdings' stock price going higher?

Wing Tai Demo. Wow!

There was some excitement today for retail investors who have a stake in Wing Tai Holdings. Share price formed a long white candle, touching a high of $2.12 a share before closing at $2.11 a share. 

The closing price is some 10.18% higher than the closing price last Friday (i.e. $1.915 a share).

Why did Mr. Market chase Wing Tai Holdings' stock to a much higher price level? 

Could it be that privatisation is on the card? 

If so, what might the offer price be? 

These are some questions which people might be asking.

Well, with NAV/share at about $3.80, could we see an offer of about $3.00 a share or a 20% discount to NAV?

Honestly, I don't know.

What I do know is that the white candle formed today is on the back of much higher volume. In fact, it is the highest daily trading volume in years. This suggests that the upmove in price is likely to have momentum.

Could the stock provide more excitement in the days ahead? I am inclined to think so. 

This might not be over yet.

The momentum oscillators have formed higher highs which suggest that the upward price movement could continue too.

Could I hazard a guess as to the next price target? Well, if no one is going to hold me to it, I could always indulge in a bit of crystal bowling ball gazing.

Using Fibo lines, it seems that the high formed about two years ago in 2013 could be challenged. 

Given time, S$2.37, perhaps?

Related posts:
1. A nibble at Wing Tai Holdings Limited.
2. An incomplete analysis of Wing Tai Holdings.

Wing Tai Asia.

Tea with LS: The Pros and Cons of topping up the CPF-SA.

LS left a very good comment on the CPF recently in my blog and I suggested that a guest blog could be next and here we have the maiden guest blog:

Just want to share with you some of my thoughts on the CPF cash top up to SA. Please note that we are talking about CPF cash top up, not transfer of OA to SA.

I know you have being recommending readers to do cash top up to SA early as this will greatly assist them in achieving their Minimum sum(MS) in the future. While this advice is mathematically sound, does it applies equally to all? Is there any cons involved in such a plan? Let’s us look at some of the pros and cons.

Pros

1) You can enjoy up to $7000 in tax relief per calendar year. The amount of tax relief you get is the amount you contribute to OA/SA, up to S$7000. How much saving do you get from this?  If you are earning more than $80k, the tax rate after the first $80k is 11.5%. Which mean you get a one-time saving of $805 from the $7000 top up. That is a very respectable amount for a one time saving fee. Average Singaporean will be earning between S$40-80k so the tax rate is only 7% which work out to be a one-time saving of $490. Still a decent amount. This clearly works better for the higher income earners but the lesser income earners do get quite a bit of saving too.

2) You get free 4% interest (not accounting in the additional 1% interest for first S$40k in SA) from the government. Who do not like free money from the government? Lol. Contributing S$7000 yearly into SA for the first 10 years and leave it to roll for another 15 years will nett you around S$87k in interest alone after 25 years. That is decent return with a contribution of S$70k of your own. S$87k free money after 25 years, risk free J

3) It can also act as a risk free bond portion in your overall portfolio. This will reduce the overall volatile in your portfolio since the SA will not be affected in times of a crash.

Cons

1) While SA is earning us an interest rate of 4%, there are also other options that is earning more than 4% though not risk free. STI ETF (stock code ES3) is having an average return of 8.55%(inclusion of dividends) since inception from April 2002. Rate of returns does matters especially over a long period of time.

2) Opportunities cost. While transferring S$7000 cash per year might means confirmed 4% compounding and one-time tax saving, you will also lose opportunities to invest in cheap bargains if they do come your way (example like OCBC at S$9 last year and Keppel at S$8 this year). We can always alleviate this 4% loss by putting our money in some high yield saving accounts like OCBC 360 account which earns 3.05% with some terms and condition. (Interest will soon be changed with more details yet to be announced) These high yield accounts provide lesser returns but with no lock up of funds until age of 55. Feel like a good alternative comparing to 4% return but no flexibility in withdrawing of funds at your convenient timing. 

3) Lastly, to enjoy the fruit of the accumulated SA, we have to wait until the draw down age which is 64 in 2015, 65 in 2018 (hopefully no more adjustment to a later age though I highly doubt it) or a portion of the fruits at the age of 55 if you have excess of MS. How you will enjoy your fruit of labour is through the policy of CPF Life. You will enjoy life long monthly pay out with the amount depending on how much you have accumulated and which plan you select. What is not widely known is that the monthly payment is not fixed and will be adjusted depending on the money left in the overall pool that everyone contributes in. The solvency of the fund could be affected by many factors. Mr. Wilfred Ling had sent a post to Straits Times and MOM replied. What we are given is just a verbal assurance that CPF Life scheme is designed to be sustainable. But if they are sure, why do they feel the need to include in the non-payment in the case of insolvency in the bill? Isn’t this like preparing a back door exit and they are not as sure as they want us to believed? So is contributing guaranteed cold hard cash of S$7000 into SA really risk free? Could that money be better used investing somewhere so it will still be available if something do happen to CPF or Singapore?

  

Above are just my thoughts and I am just another common man in the streets with limited knowledge. Read everything with a huge pinch of salt and disregard any portion that you find distasteful.

Also feel free to advise me if I am misguided :P

Thanks for sharing, LS. Appreciate it. :)

Related post:

Should I do a CPF OA to SA transfer?

Attended a Dividend Machines workshop.

I was invited by The Fifth Person to attend one of the workshops they are conducting for their course on income investing, Dividend Machines. They informed me that many of ASSI's readers signed up for the course and, I guess, my appearance could be a form of encouragement to my readers and seeing me (in my usual get-up) could also lighten the mood.

From the many dates available, I chose to make my appearance on 5th of April (Sunday) as it was the most convenient date for me. Here are some photos taken at the event:

Door to the classroom.

Remember our primary and secondary school days?
Students standing at attention to greet the teacher....
Kidding! It was an ice breaker they thought of. ;p

Victor Chng was the trainer covering dividend stocks while Rusmin Ang was the trainer covering REITs. I have known both Victor and Rusmin for a while and they are both brilliant investors. Don't let their youthful good looks deceive you. They are really full time investors although they are quick to admit that they do make mistakes and don't know everything.

I certainly hope that everyone who went for the full day workshop took away with them valuable insights. I know I certainly did although I had to leave halfway through the afternoon session.

Rusmin.

Victor.

Investing in the stock market for income is something which anyone who is thinking of generating another stream of income could consider.

Investing for income will empower us in many ways. It starts by giving us a greater feeling of financial security which might translate into financial freedom later on in life. Of course, I know this for a fact and say this with much confidence.

“Never depend on single income. Make investment to create a second source.” Warren Buffett.

Almost 20 people present in the audience were my readers.
That's a good 40%! So, must take a group photo lah.
Very happy to see everyone leveling up.
I was smiling. Honest.

For readers who signed up for the course through my blog,
I was able to deliver the promised surprise in person too. :)
Actually, is there such a thing as a "promised" surprise? Hmmm...

To everyone who was at the workshop, seeing you hard at work to level up was very inspiring. Yes, I know you had to work at the workshop and not just sit there and listen. Hey, I was put to work too, remember? Taihen desu ne. -.-"

Finally, remember that it is always hardest in the beginning but it will get easier with time. Believe me. I know. Gambatte!

Related posts:
1. Listen to AK and create your Dividend Machines.
2. What is the best insurance to have in life?
3. Retiring a millionaire is not a dream.

Saizen REIT: Deeply undervalued but is it a BUY for you?

Regular readers know that I have been invested in Saizen REIT for a long time. Some might even be able to write a script for a K-drama based on my experience with the REIT. Anyway, if you are interested in the history, just use the search function found in the top right area of this blog. I shan't bore you.

I mentioned Saizen REIT in the last "Evening with AK and friends" session and went on to highlight why it is one of my top 3 investments in REITs. I think that episode might have interested quite a few members of the audience as I received not one, not two but three emails asking me whether the REIT is priced fairly now. I must say that the emails weren't phrased exactly like this but they were close enough.

Taken on my last trip to Japan. Love the chocolates. Cheap too.

I will say that we must question, as always, our motivation for thinking of investing in Saizen REIT. Is it for income or capital gain?

For someone who is thinking of capital gain, the fact that Saizen REIT is trading at a huge discount to valuation might be the reason for his interest. At 86c a unit, it is trading at more than 20% discount to its NAV/unit of about $1.10. This is despite the continual fall in the JPY against the S$. Even at its high of 98c touched almost a year ago, it would still have been undervalued based on the weaker JPY today.

The first question we have to ask, of course, is whether the NAV is realistic. The best way to ascertain this is to see what price Mr. Market is willing to pay for the REIT's properties. In September last year, I said that the REIT sold two properties at premiums of 19% and 12.8% above book value. That told me that the REIT's NAV was conservative. In the REIT's February 2015 presentation, they reported that another property was sold at 16% above valuation.

There is some deep value in Saizen REIT's portfolio of freehold residential properties in Japan, I believe. However, whether the value could be unlocked and returned to unit holders is much harder to say. Could we see an acquisition by a residential J-REIT? I know that a substantial shareholder, Argyle Street Management (ASM) was pressing for something to this effect.

So, anyone who is buying into Saizen REIT, hoping for value to be unlocked, will have to be patient and also remember that it might or might not happen. While waiting, Saizen REIT offers about 6c in DPU per year. Based on 86c a unit, that is a distribution yield of about 7%.

For someone who is thinking of investing in Saizen REIT for income, it is important to bear in mind that income is generated in JPY by the REIT's assets but converted to S$ for distribution. There is always risk in foreign exchange rates. What do I think?

Gingko tree. So many of them in Japan.

The JPY has fallen a lot in the last 2 years against the S$. It is my opinion that any further fall is likely to be mild as:

1. The S$ is also weakening because the M.A.S. is mindful that Singapore must remain competitive and with the dramatic fall in the price of crude oil, Singapore's economy has become mildly deflationary of late.

2. The Japanese government wouldn't want to cause hardship for the Japanese people which any greater fall in the value of the JPY might bring. Already, the people are grappling with much higher inflation in prices of imported goods.

Having said this, for the income investor, what is very important to note is that Saizen REIT's loans are amortising in nature. I have mentioned this many times in the past when I was more active in blogging about the REIT. This means that the principle sums shrink over time as they are paid down. Amongst S-REITs, Saizen REIT is probably the only one that has this feature.

Also, amongst S-REITs, Saizen REIT is probably the only one with very long term loans with many maturing in the 2030s and 2040s. Long term loans actually make sense for REITs because property investments are, logically, long term commitments.

Anyway, the point is that because the loans are amortising in nature, Saizen REIT cannot distribute all its income to unitholders. Some of it goes to amortising the loans. However, because Saizen REIT amassed quite a bit of cash from many of its unit holders who exercised their warrants, they are able to use that money to amortise the loans, distributing income as if the loans were non-amortising. One day, this money will run out. Then what?

Then, everything remaining equal, we might see the DPU reduce by two fifths. So, distribution yield might become 4% then. This is something investors in Saizen REIT at the current price must be aware of and be comfortable with.

I estimated before that it would be many years down the road before it happens but when it does happen, the REIT would be even stronger in its balance sheet as its debt burden would have reduced significantly. I like this very much as it would give the REIT more debt headroom to acquire more properties which would mean a higher DPU. In other words, the REIT would be able to grow without having to raise funds from its unit holders.

There are many things which I cannot foresee happening or not happening. Could Abenomics breathe life into Japan's economy in a sustainable manner? Would demand for housing improve, leading to higher occupancy and asking rents? Would the JPY sink much lower?  These are some questions I do not have definite answers to.

However, there are some things that I do know and those are the things that inform my decision to be invested in Saizen REIT, those are the things that tell me Saizen REIT matches my motivation as an income investor. If there should be an unlocking of value sometime in the next few years, it would be a bonus for me. In the meantime, I am quite happy to be paid regularly.

Related posts:
1. Saizen REIT: Sell the entire portfolio?
2. Saizen REIT: Is the dividend sustainable?
3. Saizen REIT: Why did I buy? Would I buy more?

Upgrade our income but not our expenses: AK's expenses.

When I learned from a member of the audience on Monday evening that OCBC 360 is going to reduce their bonus interest by half for online payments and credit card spending, I was saddened. I have to say that it wasn't as if it was unexpected but, I guess, I didn't expect it to happen quite so soon.

Well, it has been a good one year. Yes, it has been one year since I started my OCBC 360 account. Time does fly, doesn't it?

It is also because of the OCBC 360 account that I have an OCBC credit card again after many years of not having one. Well, got to have one to get some bonus interest, right?

Only last night, oddly, I found out that OCBC's ibanking has a bar chart which shows how I have been using my credit card and since I have diverted all my credit card spending to my OCBC Frank card with the exception of petrol purchases for my car, this gives a good snapshot of my monthly spending.

Dining. I guess I don't visit restaurants very often. I think this was clocked from a couple of visits to Curry Times by Old Chang Kee.

Groceries. I go to NTUC Fairprice supermarkets once or twice a week.

Medical and personal care. I think this must have been from a visit to NTUC Unity (Pharmacy).

Other financial services and charges. I did auto top ups to my OCBC Frank Card's NETS Flashpay function (for parking and ERP charges) six times in March to help hit the $500 monthly spending required to get the higher cash rebate for card spending. I didn't use all the $300 stored in the card for parking and ERP charges which usually add up to not more than $30 a month.

I use the money stored in the card to pay telco and utility bills. I also use the money stored in the card to pay for groceries by using the NETS Flashpay function. So, actually, my monthly groceries bill should be higher and not just $148 which makes sense as I like my ice cream and chocolates.

Government services. This was for passport renewal. Won't happen again for another 5 years.

Of course, this is just a regular month's snapshot. It shows roughly how I spend my money on a monthly basis using my OCBC Frank Card. There are big ticket items like insurance premiums and car servicing which are not reflected here.

I don't keep a record of my monthly expenses but I think I am pretty careful with how I spend money. Yes, I know. This is just an excuse. AK is lazy.

As our income gets upgraded, make sure our expenses are not upgraded and we will naturally have more savings over time, all else remaining equal. Unless severely disadvantaged, anyone can do this.

Related posts:
1. Get paid more while waiting for opportunities.
2. An easy way to improve cash flow: My Frank Card.
3. How to have a comfortable retirement?

$2.00 Burger King's Fish N Crisp Burger: A Failure.

When Burger King announced their $2.00 Fish N Crisp Burger, McDonald's responded by lowering the price of their Fillet O Fish Burger to $2.00.

I have always been a fan of the Fillet O Fish and would order the $5.00 Extra Value Meal whenever I visited McDonald's in the past. When they dropped the price of Fillet O Fish to $2.00, I was overjoyed.

Then, I would order two Fillet O Fish for $4.00 instead of spending $5.00 on the Extra Value Meal. I am not crazy about the fries and soft drink. Just that when the Fillet O Fish was priced at $3.95 each, it was kind of silly not to take the fries and soft drink for only another $1.05.

Anyway, Burger King's claim that their Fish N Crisp Burger offers better value for money with one slice of cheese, not half, and 40% more fish got me curious enough to give it a try. Yes, AK is a sucker for value for money deals.

Poster outside the restaurant. Looks good, right?

So, I tried.

Hmmmm... Doesn't look quite the same.

Opened it up to add some ketchup. The bun felt stale.
The piece of fish looks to be the same size as the Fillet O Fish's.

Alamak!
AK is not a practitioner of Shaolin Temple's Da Li Jing Gang Zi!
The bread is definitely stale. This was from lifting the top earlier.

The fish is sooo salty! Why so salty?

Very disappointing.

Staying with McDonald's Fillet O Fish.

Burger King's Fish N Crisp Burger gets a resounding "C.M.I." from AK.

Related posts:
1. $3.30 Fillet O Fish meal.
2. 1 for 1 Fillet O Fish.

Should I do a CPF-OA to SA transfer before buying a flat?

I received an email from a reader in my age group regarding the purchase of a resale HDB flat. He asked if it would make sense to use up his savings in his CPF-OA to fund the purchase.

As I am not familiar with the rules in the purchase of a resale HDB flat, I would like to share our email exchange here and see if others have any ideas to share:

 

Hi AK,

I know you have blogged a lot about CPF, in particular to build one's retirement fund.


I'm 45 years old. I am buying a re-sale flat, say, $400K. I have $200K in OA and $200K in cash. But I do not want to spend all my cash and hence plan to take a bank loan between $100K to 200K.
 
Would like to know your opinion. Should I use up the money in the OA + cash or cash plus bank loan to fund the purchase?

Leaving the money in CPF (and perhaps transfer OA to SA) seems logical for beefing up my retirement fund. But it will mean I need to pay interest for bank loan, whose trend is increasing.

-------

Hi ,

If you think you are able to take a $100K loan and repay it in full in 8 years, the POSB HDB loan will save you some money still as the interest rate will be capped at 2.5% for the first 8 years. After that, given the rising SIBOR now, it will probably be higher than the 2.6% rate from the HDB Concessionary Loan.

Also, you might want to consider buying BTO, if you are eligible, against buying a resale flat. A BTO 2 room flat costs about $100K which is a small fraction of the $400K you are thinking about for a resale (3 room?) flat. Just being kaypoh. ;p

Best wishes,
AK

Hi AK

Appreciate ur reply.
Unfortunately, I'm not eligible for any new HDB flat :(

Btw, I still have friends advising me to "use up" CPF for housing. They say, govt may increase the min sum and increase the withdrawal age. Hence, our money will be stuck in CPF. 

 Hence better keep cash and invest it for (hopefully) highly return than CPF.

I see merits in their points and yours. Confusing ?

----------

Hi ,

Well, if you are able to use your CPF-OA money to generate higher returns consistently than the risk free 4% offered by the CPF-SA (which you would get if you were to do an OA to SA transfer), then, you should invest the money. When we are doing the comparison, the ideas to bear in mind are "risk free" and "consistently", not "hope". ;p
 
I will say this to your friends:

1. The minimum sum will increase at a rate of 3% per annum.

2. Withdrawal age is at 55 years. You may withdraw anything that is above the minimum sum based on your cohort.

3. Our CPF money is our money. It is not "stuck". It is going to fund our retirement through CPF Life, an annuity.

Please feel free to share my blog posts on how we can make the CPF work for us with your friends. I think you will be doing them a favour. ;p
 
Best wishes,
AK

In this case, I feel that it makes sense to do an OA to SA transfer (maxing out the SA, if possible) before using the balance in the CPF-OA to help fund the purchase of the resale flat.

Of course, before doing this, the reader should consider whether he would be able to repay the loan (i.e. POSB HDB loan*) in 8 years when the interest rate is capped at 2.5%. 

This way, he would be saving on the interest payment for the home loan (in a rising interest rate environment) and also benefit from the higher interest payment on his CPF savings. Sounds good?

*It is 5 years now. Blog post on POSB HDB loan updated.

Related posts:
1. How did AK amass so much in his CPF-OA?
2. A lot of the money in my CPF-SA is from...
3. How to upsize $100K to $225K in 20 years?

The name is Bond, Singapore Savings Bond (Part 3).

There is more news on the Singapore Savings Bond (SSB) by now and there is also plenty of discussion in cyberspace about it. I am sure there is no shortage of questions along the line of "Good or not har?"

So, this is AK asking the same question (i.e. "Good or not har?")  and attempting an answer.




To answer this question, we must first answer a couple of other questions:

1. What is our purpose for considering the SSB?

2. What are the alternatives out there?

When I first found out about the SSB, I thought that it might be a good place to park my emergency fund and war chest. 

Whether I would do it or not would very much depend on the yield I could get from the SSB.




Currently, I park my emergency fund in fixed deposits. The emergency fund is money that I will not touch unless things go very wrong. If the unthinkable should happen, I would have to break the glass, um, I mean fixed deposits. 

So, locking up the money in several fixed deposits that pay 1.08% to 1.25% per annum made sense.

As for money in my war chest which is to be used to capitalise on investment opportunities, I need them to be very near to me. 

The nearest form would be money in savings accounts (unless we consider money I keep in a tin at home as well). I could easily transfer money to my broker using internet banking from my savings account without having to visit the bank.

So, I have an OCBC 360 account which earns higher interest of up to 3.05% (but this is due to change to 2.05% from 1 May, apparently) for the first $50K. I have a CIMB savings account which pays a flat 0.8% for the first $750K. 

I also have some money in my brokerage account which pays 0.6% in interest per annum. All of these rates are better than the 0.05% we get from regular savings accounts here. 

We need a war chest but we should try to reduce the cost of holding money.

If our war chest is somewhat bigger (and, logically, this should mean at least more than $50K in size since the OCBC 360 account, even at 2.05% per annum, would beat any 12 months fixed deposit's interest rate today), then, it makes sense to have some money in fixed deposits which offer interest rates higher than the 0.8% offered by the CIMB savings account. 

Try to make sure that each fixed deposit is smallish in size so that we don't lose out too much if we should have to break one.




When would the SSB make sense for me then?

I understand that the SSB's interest rate would step up every year and if we were to hold the SSB for the maximum of 10 years, we would receive the same yield as a 10 years Singapore Government Security (SGS) which has a yield of about 2.4% per annum. 

So, if we are simply renewing a 12 months fixed deposit each time it matures to capture higher promotional interest rates for the next 12 months, would the SSB be a better option?

Well, right now, the interest rate is about 1.4% for a 12 months fixed deposit and it is more likely than not that interest rates will increase, given time. 

With expectation of higher interest rates in future, each successive fixed deposit would probably have a higher interest rate in the next few years. In such an instance, it makes the SSB less attractive.




If the SSB is not really that attractive an option for my emergency fund, then, it is definitely not an attractive option for money in my war chest which is less likely to be locked up for a much longer period of time compared to money in my emergency fund (touch wood).

We want to remember that in a deflationary environment, interest rates will keep dropping. In an inflationary environment, however, interest rates are likely to keep rising.

Of course, I do not know for sure what is the yield going to be like for the SSB if it were to be held for only a year or two. Only the MAS knows the answer. 

However, I do know that if it is not above the interest rate which I can get for a 12 months fixed deposit from a local bank, it is probably not going to attract me, keeping my purpose for considering the SSB in mind.

Related post:
The name is Bond, Singapore Savings Bond (Part 2).

The name is Bond, Singapore Savings Bond (Part 2).

On 26 March, I blogged about the Singapore Savings Bond (SSB) and during last night's "Evening with AK and friends", we talked about it too.

I am of the opinion that the SSB's coupon is unlikely to be as high as the CPF-OA's base 2.5% interest rate although it has been said that the coupon will be linked to long term Singapore Government Securities' (SGS). If we look at the yields of the 10 years to 30 years SGS, they are above 2% to under 3%.

The SSB gives holders the flexibility of early termination without incurring penalties. Holders will not have to worry about price volatility if they were to sell their SSBs before maturity date. Bonds are supposed to be safer if held to maturity. With the SSB, there is no need to hold to maturity and will be equally safe. This is a big plus.

Of course, now, what is on our minds is what will be the yield?

During last evening's session, Azrael, a fellow blogger whom I got to know not too long ago shared that the yield might be between 0.375% to 1.75%. He blogged about it too. You might want to read his blog post: here.

Credit: Yune Ki.

We really have to wait for more details from the Monetary Authority of Singapore (MAS) closer to the date of the launch which has been scheduled for sometime in the second half of this year. Who knows? We could be pleasantly surprised with the yield. 2.5%? Dare I hope?

Although I really like this development, I feel that the banks will have reason to be worried. Of course, by extension, their shareholders should worry too. Interest income forms about 60% of their total income. The finance companies will have to worry too. Interest income forms about 80% of their total income.

These financial institutions' interest income will take a hit if their cost of funds should go up. Cost of funds will probably go up if they have to compete with the SSB for deposits. By this, I mean they will have to offer more competitive rates for their fixed deposits. Will they be able to charge borrowers correspondingly higher interest rates to maintain their NIMs? Well, whichever way we slice it, things will get a lot more competitive for them.

However, all is not gloom and doom because the MAS also said that there will be a cap as to how much SSB each person is allowed to buy. They said that they want a broader reach and I think, by that, they mean that the SSB is not to benefit the very rich but the masses. This is similar to the mission of the CPF. If the cap is rather modest, then, the impact on the banks and finance companies is likely to be minimal. A cap of $20,000 to $50,000 per person, perhaps?

A modest allowance of SSB per person will also mean that the institution that is the CPF remains relevant as a long term savings tool. The SSB could be like the SRS which is an additional tool to help us achieve retirement adequacy.

I do feel that the government will tread carefully so as not to make the CPF less relevant nor cause hardship for the local financial institutions (which will have unpleasant ramifications).

Let's wait and see.

Related posts:
1. The name is Bond, Singapore Savings Bond.
2. National Day Rally (2014): CPF and retirement.
3. SRS: A brief analysis.

An interest rate of 10.68% per annum for a fixed deposit!

In January, I shared in my blog about POSB's Chinese New Year fixed deposit special.

The offer was:

Get 1.88% per annum for a 12 months fixed deposit from a minimum sum of $1,000 to a maximum sum of $1,000,000.

I tried taking part in it and because I am such a dinosaur with IT stuff, I wasn't sure if my application went through.

In fact, when a reader asked me about this during the second "Evening with AK and friends" last week, I was not able to give a clear answer.

Anyway, I checked earlier and I found that my account has been credited with $88. Apparently, I was one of the first 10,000 customers! My application was successful!

We need little happy surprises like this from time to time in life.

For POSB customers who deposited only $1,000 and received the $88 ang bao, they are actually getting an interest rate of 10.68% per annum!

In fact, it is more than that since the $88 ang bao is given now and not at the end of the 12 months period!

Thank you, POSB, for the generous ang bao.

I'm smiling. :)

Where to put your emergency funds? Fixed deposits aren't too bad. See related post number 1 below.

Related posts:
1. A special chest for emergency fund.
2. Should I put money in a foreign currency FD?

Why have I been silent on Mr. Lee's passing (till now)?

So many people have blogged about the passing of our country's founding Prime Minister, Mr. Lee Kuan Yew. Some asked me why I have not said anything in my blog?

Well, apart from the fact that other bloggers have done such a good job of it, I am really not very good at writing eulogies. I do feel very sad and, actually, it goes beyond sadness. It is a deep sense of loss.



After all, even after he retired as Prime Minister, he was still very active, dispensing good advice and, for a while, it felt as if he would always be there for us.

Anyway, why am I blogging about him now?


Mr. Lee Kuan Yew "wore the same exercise shorts for 17 years. And when it tore, he patched it up, or his wife patched it up for him." 

This was revealed by Law and Foreign Affairs Minister, Mr. K Shanmugam.

Mr. Lee Kuan Yew was a very frugal person.

I might not understand all of Mr. Lee Kuan Yew's great wisdom even if I tried but I can certainly identify with his frugal habits.

When I see some of my relatives throwing away perfectly good clothing just because they were out of fashion or children not finishing their food just because they didn't like it, I would feel very sad. I would worry, probably needlessly.

I remember the hard times my family had to go through. I remember being told never to waste food and, till today, I will finish all the food on my plate. When I buy cooked food, I would tell the vendor to give me less rice because I don't want to throw away what I cannot finish.

Once, I actually told my brother in law's sister to finish her food when she left so much unfinished. She looked at me, irritated, and asked if I would like to finish it for her. If I wasn't going to do it, keep quiet. I was surprised. She was quite a few years younger than I was and I probably expected her to listen. Anyway, it wasn't a response I was expecting.

Life is too good now, perhaps.

Waste not, want not. This is something we should all try to remember. Not something to do with meritocracy or good governance, perhaps, but this is something Mr. Lee Kuan Yew would probably want us to remember too.

Farewell, Mr. Lee Kuan Yew. Thank you for all that you have done for Singapore. We owe you a great debt that can never be repaid. May you rest in peace.

Related posts:
1. Some of my stuff (Part 1).
2. Saving time and money but lost face?
3. An essential habit to becoming richer.

Should I forfeit $5,000?

Read this and see if you get upset like I did:

I have recently become interested in growing my wealth and financial planning because I have seen how my own parents failed. However, I am only just starting, plus I am terrible with numbers. I am probably only good at capturing the theory, but terrible at application, and may have made some mistakes, which I now need help with. I have no one else to turn to except insurance agents, who I am sure you know are mostly biased towards their own products.

Grapes.

One major mistake I made recently was buying from an XXX agent a pure investment product called PPPPPP. I have put 5k into it. I am not sure if the agent mentioned at the time that this product is a premium payment product, because I was shocked to learn only after everything was done that this is something I have to pay for monthly or yearly. She had put me down for 30yrs, I believe that is because she knows I am looking at long term investment. I was also informed by a third party that unless the funds make more than 6% returns, I would not be able to offset the charges and fees of the product. 

All in all, the impression I got from the agent who sold me the product was that this is similar to something I would get from the stock market, a one time payment, wait for gains, sell if you need to, otherwise hold and allow the gains to roll. I knew there would be fees and charges because this product is from an insurance company, but I did not know I would be unable to surrender any time before 30yrs is up.

My question is whether I ought to give up this product. I talked to the customer service at their headquarters, he told me if I surrendered the product I would simply be forfeiting the 5k, that even though the agent havent given me the policy document, I was past the 14days free look policy. The alternative would be to hold on because the funds are good. 

I had initially agreed to the product because i recognised a lot of the funds eg Blackrock, Schroder, Legg Mason, Pictet. Plus, I thought this product would be a safety net for me, just in case I screwed up my own private investments, because I had believed in the ability of these funds to do better than I could.

I am unable to decide now if surrendering the product would be a rash decision. However, if you are able to tell that this is a bad decision and surrendering the product now will cut future loss, please let me know. I promise I will not sue or come back to you for revenge because the funds turned out to be profitable. I have no one else around me with appropriate financial knowledge who is unbiased towards any companies, and as I think you can tell, I am a green horn greener than grass. 

Any advice or feedback will be greatly appreciated.

Banana...

Misunderstood? Misrepresented? Negligence?

I have passed this case to a friend who is a professional to follow up. However, feel free to share your opinions in the comments section. I am sure the victim reader will take all the comments (if any) into consideration in deciding what to do next.

Related posts:
1. Know what is good for us.
2. Will I retire happy?
3. "A safety net in case we screw up our investments?"
(It is the CPF.)

The name is Bond, Singapore Savings Bond.

A new product is going to be available soon for people who are risk averse but are looking for better returns. Enter the Singapore Savings Bond!

Singapore Savings Bonds will offer the higher returns of a long-term bond and give what investors call a term premium, while retaining the flexibility of a shorter-term deposit, and the safety of an instrument guaranteed by the Government. (Senior Minister of State for Finance, Josephine Teo)

Source: CNA

In summary:

1. Interest rates linked to long term Singapore Government Securities.

2. Ability to get back our money at any time without penalty.

3. A "step-up" feature will pay long term savers more interest with each passing year.

4. Guaranteed by the Singapore government.

This could spell trouble for banks here as I foresee savers moving their money from fixed deposits to these Singapore Savings Bonds.

Well, I know I am really looking forward to this. Aren't you?

Updates:
A. The name is Bond, Singapore Savings Bond (Part 2).
B. The name is Bond, Singapore Savings Bond (Part 3).
C. Singapore Savings Bond: Good or Not?

Related posts: 

1. A special chest for emergency fund.

2. CPF or Singapore Government Securities?