Buy that second residential property and pay the ABSD?

UPDATE: 5 July 2018.

ABSD is going up 5% and LTV is being tightened as well.

Factor in this additional 5% when reading this blog.

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


UPDATED (20 DEC 16):
How to calculate BSD and ABSD?
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A friend recently bought a second residential property and had to pay a 7% ABSD which amounted to quite a bit of money. 

He asked why wasn't I considering buying another property as I seem to have the financial ability to do so. 

Well, apart from the fact that I think that Singapore's residential property market is facing a glut and will continue to face a glut for a few years, I am reluctant to pay the ABSD.




ABSD stands for Additional Buyer Stamp Duty. This is at 7% for Singaporeans who buy a second residential property and is paid in addition to the regular 3% Buyer Stamp Duty (that has to be paid anytime a residential property is purchased).

For Singaporeans who buy a third residential property, the ABSD is 10%. 





Imagine buying a $800,000 property and having to pay the taxman an additional $80,000! 

That is enough to buy a 3 year old Japanese make family sedan in Singapore or a brand new Mercedes Benz E-200 in the USA with a fair bit of money left over.

My friend sent me this in an SMS:

"If it (the ABSD) goes down, then, people will rush in to buy again. Developers and sellers will raise the price. So, in the end, the overall paid is still the same... 

"If without this ABSD to artificially suppress the demand, the prices would have been super high and just keep rising. So, it helps to suppress the price but I must pay the ABSD.

"If the ABSD didn't exist, we would still have to pay a higher price."




See how the belief that property prices in Singapore can only go higher is firmly embedded in the message?

My reply:

"That is what property agents are saying to encourage buying (even if buyers must pay an ABSD). 

"I don't think anyone knows for sure (that prices will only go up). It is a lot of money. So, I rather stay cautious since I already have a property (i.e. my home). No hurry.

"It is called ABSD for a reason and when it is removed, it will be because the market has cooled enough and liquidity has dried up. In such an instance, developers would be shooting themselves in the foot by raising prices."

I am reminded not to ask a barber if I need a haircut.

Try to remember the Rule of 15. 

The ABSD raises the buying price significantly for anyone who is buying a second or third property. 

This has to be considered as part of the price tag of the property. 




If we could only eke out a 3% yield from a purchase, in a rising interest rate environment, I would hardly consider that a good investment.

The ABSD has helped to keep out investors and allowed first time buyers a chance to buy private residential real estate at more reasonable prices. 




Apart from the ABSD, investors should also be deterred from investing in residential real estate here by the fact that the oversupply situation seems set to worsen in the next few years.

Honestly, I would tell people to buy a piece of private residential real estate in Singapore now only if they want to make it their home. 

As an investment, for anyone who decides to buy now, private residential real estate in Singapore might be rather disappointing a choice in the coming years.



Related posts:
1. The Rule of 15.
2. Disastrous investments in the property market.

To be richer, do not indulge in creature comforts (Part 2).

Some readers might remember that I had a blog post in January with a similar title. In that blog post, I revealed that I was probably one of Starbucks' least favourite people. I know, I am putting it ever so nicely.

Unless it is free or heavily discounted in price, I don't drink Starbucks' coffee.

Now, what about Coffee Bean & Tea Leaf?

Alamak! AK is taking a pot shot at Coffee Bean & Tea Leaf next?

Aiyoh, do you really think I am so bad? No lah! I am just sharing here how I am going to get a free coffee from them lah.

Yes, I know. I am terrible.

Related post:
To be richer, do not indulge in creature comforts. Really?

Eat wholemeal bread and win a $6,000 holiday plus cash!

I will almost always choose wholemeal bread over white bread as it is a healthier choice although it costs more:

Wholemeal bread is nutritious because it is made from whole wheat flour produced from milling the entire wheat grain. 

You get all the nutrients – dietary fibre, antioxidants such as vitamins A and E, essential minerals and B vitamins (B1, B2, B3, folic acid) from the bran (the grain’s outer layer) and germ (inner layer).

In addition, whole grains also contain phytochemicals which may help to reduce risk for conditions such as heart disease and certain types of cancer. 

(Source: healthxchange.com.sg)

Now, there is an added incentive for me to choose wholemeal bread from Gardenia. What is it? OK lah. Got good lobang must share.

Gardenia Wholemeal Bread packaging.

Closing date: 15 June 2015.

1st Prize: $6,000 Holiday Package + $2,000 cash!

Made some sandwiches:

Tuna, cheese and margarine sandwich.
I always make at least 4 at one go.
Keep refrigerated and bring one to work each day.

If I don't win, I hope one of you do. Good luck. :)

Disclosure: 
Buying Gardenia bread will benefit AK as he is a shareholder of QAF's.

Related posts:
1. Supporting my companies.
2. QAF: Rising 5c to 93c a share.

Six questions to ask about your insurance.

My dad bought for me my first life insurance policy when I was just 18 years old. When I started life as a working adult, of course, it was only right that I took on the responsibility of paying the quarterly premium. It costs me slightly more than $1,000 a year for what I now know is a miserable $50,000 sum assured on my life plus coverage for critical illnesses till age 50.

My dad bought the policy for me from a friend who said that he should get a policy for his teenage son because because it was cheaper to buy whole life policies at a younger age. This, I know now, is quite a standard sales pitch. The fact that his friend was a high achiever (ahem, made a lot of money) who led a team of agents meant that he must be dishing out advice that was right for us.

If I had known the stuff I know today, I would have stopped my dad from buying that proposed insurance product for me. $1,000 a year was a lot of money almost 30 years ago. I know that my dad bought the policy for me because he loved me but, really, all my dad had to get for me was Hospitalisation and Surgical (H&S) insurance in case I was hospitalised.

See what I mean?
Taken from DIYInsurance on Life Stage Planning.

Anyway, I am glad to say that things have changed over the years and for the better too. Matters regarding personal finance which were once regarded as esoteric have become clearer as the internet removed barriers, making information readily available to the general public. Many who are in the know willingly share their knowledge and experience in cyberspace. This is a good thing because, till today, I still hear horror stories from people regarding insurance agents.

To be fair, there are good insurance agents out there who are ethical and genuinely care about their clients' welfare. Hard to find but not impossible. If we have to rely on someone, make sure that someone is trustworthy. This, of course, requires us to take a leap of faith.

So, the best thing to do is still to be educated. With education, we will know very clearly what are the options available to us and which options will best serve our needs at different stages of our lives. Then, the next thing to do is to go online and buy the insurance products we need at lower prices. What? Is this possible? Sounds too good to be true?

When I read about DIYInsurance, I thought that this service should have been available sooner. They aim to educate the public, helping them make better choices and save money in the process. What's there not to like?

The good people at DIYInsurance start by asking us to ask ourselves 6 questions:

6 questions you MUST ask yourself about your insurance.

1. Did you purchase Term insurance instead of Whole-life insurance?

The only way to be sufficiently covered by insurance is to purchase Term insurance.  Term insurance is a low-cost insurance in which you only pay for the amount of coverage you require, providing maximum protection at a minimum cost. Most of us will require at least $500,000 and up to $1million when we have a family with kids.

Purchasing term insurance means we are able to sufficiently provide for our dependents livelihood on our unfortunate demise. Not having sufficient coverage means our dependents may have trouble paying off our housing loan, education fees and to maintain their lifestyle. Having $1million coverage would cost less than $200 per month with term insurance. Find out how much life insurance coverage you need here. Compare term insurance products from different insurers here.

2. What is break-even point?

The “Break-even point” is widely referred to in Whole Life and Endowment Insurance (Savings) plans as a point of time in future (Eg. 20 years) when the:

Total amount of premiums paid = Cash value which can be obtained if the policy is surrendered.

While this may seem that we are getting “free” insurance coverage at the break-even point which could be in 20 years time, it is vital to note that the same amount of money now will differ significantly in value in 20 years due to inflation. Which means the value of us paying $10,000 in insurance coverage over 10 years cannot be compared to the value of $10,000 which you only receive in 20 years time. The value of $10,000 is much smaller in year 2035. Our chicken rice used to cost $1 and the same plate may cost $6 in 20 years time. Hence, we have not “broken-even” and are in fact paying for additional commissions, insurer’s costs, insurance coverage and savings element from the loss in insurance coverage in whole-life insurance plans.

3. Have you compared?

Comparing allows you to purchase an insurance product at the best value. The cost savings can be significantly higher.  Insurance web aggregators are popular and widely used in the United Kingdom and Australia. Singapore’s 1^st Life Insurance Comparison Web Portal, DIYInsurance, allows you to compare products for your Protection, Savings and Retirement needs from a wide range of companies. Learn more about using web aggregators, there is a complimentary event by DIYInsurance, Plan, Compare & Save on Insurance: Using Web Aggregators on 25 April 2015. Register here.

4. Have you received commission rebates?

Insurance agents are paid a handsome sum of commissions for insurance products they sell. Up to 1.5 years of the cost (premiums) you pay may have contributed to the fees of your insurance agent. This means you are insufficiently insured for the large sums you may be paying. DIYInsurance rebates 30% of the agent’s commissions back to you in cash, providing greater cost savings to you.

5. Do you know how is your insurance agent paid?

Singapore’s insurance industry is predominantly remunerated by commissions. Earning by commissions for a living means your financial planner may have a greater tendency to sell you products which provide them with higher commissions. This means you may be exposed to products which you may not need and pay a higher cost for them. A large part for what you are paying for is channeled to the fees for your financial planner. Buying through DIYInsurance and for you to receive 30% commission rebates means you will know how much DIYInsurance is paid.  DIYInsurance is transparent with every product's commission’s structure so that you know exactly what you are paying for.

6. Do you know how independent your insurance agent is?

To ensure there is no conflict of interest, it is important to ensure that your financial planner is paid on a fixed fee and not by commissions based on their product sales to you. All staff from DIYInsurance are paid a fixed salary and do not participate in sales-based compensation or incentives of any kind. Not being remunerated on a commission-basis means the staff at DIYInsurance are independent and are able to focus on doing their best to fulfill your needs. There is no hard-selling and no over-selling.

Pay less for your insurance today.

AK agrees.

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?