Want a 140 years housing loan?

Authority showed that, at current pace of amortisation, it takes Swedish households 140 years on average to repay their home loans. Only 40% of borrowers with mortgages smaller than 75% of their property's value actually pay down their debt, according to the report.
(The Business Times, 12 Sep 2013.)

Wah! Like this also can?

If this were to be allowed in Singapore, property prices would shoot through the roof (and to the moon).

Related post:
Leverage up and buy real estate.

Tea with Mike: A fundamental analysis of SPH (Part 2).

Now, let’s talk about the recent move to spin off some properties to become SPH REIT. There was some very misleading info and I thought it might be a good idea to clear it here once and for all.

 

SPH has stated that NET gearing would fall to 9.3% from 40.6%.  That led some to think the interest cost might be lower now, and given such low gearing now, SPH could gear themselves up to 40% again without any new consequences to develop their malls.

First of all, I do not know how the management will utilize the proceeds, and whether they will pay down debts using the proceeds. But NET gearing fell simply because the cash level went up. Absolute debt remains the same and hence finance costs will remain the same.

Also, it is very unlikely SPH will increase gearing further to fund the mall management business.  If they do increase gearing, and start using their cash, NET gearing is going to jump quite drastically.

So let’s assume, they simply use their proceeds for mall expansion, they will have a warchest of $760 million, and gearing will be back at 40%.

What can $760 million do?

Clementi Mall is valued at about $560 million. Well, it depends on which valuation report you take. So, the money can be used to buy or develop another mall of such a scale. If Clementi Mall is any guide, the potential mall would have an NPI of $31 million.

 

Seletar Mall has GLA of similar size to Clementi Mall. So, let’s assume they have the same NLA, and we take a 30% discount to the NPI, and that given the fact that Seletar Mall is  only 70% SPH owned, Seletar Mall will contribute $15 million. $15 million is hardly exciting but more than enough to offset the deterioration of revenue from the Classified section.

So, in conclusion, if you are looking for growth catalyst in SPH, and hence higher dividend yield, don’t get your hopes too high, but if you are worried that SPH might start going to the dogs soon, I think you worry too much.

Buying SPH will be buying into a stalwart, with a yield of between 5-6%, which is unlikely to see downward revision anytime soon, is not too bad a deal for me.

 

Read Part 1: here.

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AK71: I agree with Mike in that SPH is a good investment for income and it is a stock I will be accumulating on weakness. If share price should retreat to $3.60 a share, a DPS of 21c to 24c would mean a dividend yield of some 5.83% to 6.67%. Pretty decent.

Peter Lynch classified stocks into 5 categories. "Stalwarts" are "big companies which are not likely to go out of business. The key issue is price, and the PER will tell you whether you are paying too much. If you plan to hold the stock forever, see how the company has fared during previous recessions and market drops." (Page 230 in "One Up On Wall Street".)

See also: SPH is a better investment than retail S-REITs.