Monday, November 23, 2009

Is GDP a good measurement of life quality?

Consider the following (excerpted) statement by Robert Kennedy in 1968

“…And if the Gross National Product includes all this, there is much that it does not comprehend. It does not allow for the health of our families, the quality of their education, or the joy of their play. It is indifferent to the decency of our factories and the safety of our streets alike. It does not include the beauty of our poetry, or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials… the Gross National Product measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile….”

In Singapore, the government’s competency is assessed based on its ability to grow GDP year on year, quarter on quarter. Every civil servant’s bonus and salary increment depends largely on it. Does high GDP reflects high quality of living?

Consider that GDP is calculated using the following formula: Investment + Consumption + Government Expenditure + Net Exports

GDP measures the total income and total expenditure (since total income will equals total expenditure). It is also the total market value of all final goods and services provided within a country in a given period of time.

Intuitively if we compare countries with high GDP per capita over lower ones, we can see and feel the difference. If you have been to Japan, you will definitely find the quality of life there to be higher than Singapore. The reverse is true for Malaysia or China.

So how does GDP which is quantifiable able to measure quality of life which is not easily quantified?

GDP does not measure the health of Singaporeans. However, because of a larger GDP and high savings rate, Singaporeans are able to afford better quality healthcare. The budget for education has been growing (2nd largest after defence), thanks to high GDP.

This results in bright students becoming top surgeons, enhancing our pole position as medical hub in Asia. With good education infrastructure in place, quality teachers are employed to produce bright students in local institutions. This in turn helps to increase the production output of our labour, thus increasing our GDP.

High GDP countries allow citizens to access to quality education systems, thus many would be able to admire the beauty of poetry, humanities and arts when given the opportunities and education.

Marriages in high GDP countries though tend to be more fragile as there are more interaction and distractions among people. In fact, high GDP countries tend to have lower birth rate (though not always). This by economics theory might suggest that children are in fact inferior goods! Do not forget that as income rises, consumers switch from inferior goods to normal goods. In our local context, Singaporeans switch from having babies to having pets. Hence humorously, children are inferior goods and pets are normal goods (at least for some people!). I do believe that some pets cost much more to keep than children though!

That said, GDP does not also take into account our wisdom, compassion and our devotion to our country. However, with our basic needs being fulfilled (due to high GDP), we will be able to move up the hierarchy of human needs and foster the above attributes.

There are many arguments that GDP is NOT an accurate or good tool of measurement of well being. I will leave the points of discussion for another day.

Thursday, November 19, 2009

Are Singapore girls’ expectations beyond the sky?

Lately, I have been mingling with many of my classmates. Most of them are single, late 20s, with a high paying job and drives a cool vehicle. Sometimes during chill out sessions, they will inevitably talk about their expectations of a boyfriend or partner.

This brings an inspiration for today’s post.

I am absolutely flabbergasted by the standards they have set for their future boyfriends and husbands.

A: I would expect him to earn at least $12,000 a month. Anything less than that is either he is lousy or deserve a lesser human form as wife.

B: He does not need to earn the sky, but he must provide everything for me. I will not want to fork out a single cent for my wedding and matrimonial home.

C: I have even “simpler” needs. He just need to ensure that I can give up my job anytime I want to, possibly if I want to retire by 35, he is able to provide for me and our kids. Hopefully he has his own business and I can give up my job to help him. But he must at least be matching my $10,000 salary now lah! Or else no point giving up my job to work with him right? (Well, his business must be doing extremely well then!!)

D: Well, I expect a romantic proposal from him. Just a wonderful private apartment bought under my name will do. I will love him more!

Sgbluechip: WOW, please do not consider me! I earn a gross $5,000 monthly and will barely touch the $80,000 mark after including all bonuses and allowances. I thought that finding a life partner is beyond dollars and cents, which cannot be quantifiable even with the most abstract model?

A B C D: No worries, we will never consider you! Well, though money does not guarantee happiness, but we do want our husband to earn at least 30% more than us. In that way, we can feel secured and pampered.

Sgbluechip: Well, the median income for Singaporeans is only roughly $3,200 and average income possibly around $4,500. That includes the income of the high net worth individuals which in reality depicts and inadequate representation of the society’s income and standard of living.

Enough said.

A B C D all drives a nice car, earns a 5 figure sum monthly, works in MNC and are under 30. They are highly eloquent and well groomed, somewhat different from the girl next door working in a small company.

It seems that many girls around me are always using their girlfriends’ most eligible boyfriend/husband as a benchmark to set their “vision” and “mission”.

Many Singaporean guys lament that our local girls are pampered and have unrealistic expectations. This might be quite true, especially for girls who have high salary and credentials. Sometimes, I do feel quite amusing mingling with them. I mean, why do people attach monetary value for every single thing they do in their life, including their marriage?

Economist have time and again pointed out that GDP is never a good indicator of standard of living. And by that, it means that an equation of money and happiness can never be drawn even by Einstein. Yet many are conveniently drawing a simple equation with it.

Is there any module in universities that teaches people to love money less?

I think it will be useful to improve every graduate’s real standard of living.

Well that said, I think my perception is only limited to the people I hang around with. I am sure there are many nice girls (which I have also come across) that prefer their guy to be simple. Just a stable career, earning say $3,000 monthly, faithful, homely and reliable guy to be their life partner more than satisfy all expectations.

Not to worry, such guys are a dime a dozen. Let’s just leave the rich boys for A B C D since they live by the adage that money provides all solution and create no problems.

Monday, November 9, 2009

2009 Monthly expenses breakdown

It is always good to track your expense and savings as you will be able to better plan your finance. Below is a rough breakdown of my monthly expenses. I am not quite done with it, but I do think it reflects an 80% accuracy.


Lunch at workplace: $6 daily x30 days =$180
Restaurant: $20x4=$80 (Weekly)

Subtotal: $260

My workplace provides cheap food for us as we are lowly paid. I spend an average of $80 dining outside. I do not have a girlfriend (no time and opportunities) and this is probably why I spend so little on dining. Dinner is usually at home with parents.


Petrol: $150
Parking: $65 (HDB) +$20(outside home)=$75
Maintenance servicing: $20
ERP: $6
Road Tax: $80
Insurance: $57
Miscellaneous: $12

Subtotal: $400

I have fully repaid my car loan earlier to save on interest, hence there is no loan expenses on it. I live near my workplace and that explains the low cost on fuel. Parking is free in my workplace. I go to comfort delgro for cheap and good servicing. To me, a car is a workhorse, so it will not be shiny and be doubling as a fishing rod to pick girls up.

Family commitments

Allowance: $500

Subtotal: $500

I give 10% of my gross monthly salary to my parents.

Personal expenses

HP: $25
Cable TV: $40
Clothing expenses: $30
Insurance: $240
Hair Cut: $10

Subtotal: $345

I do not buy clothes every month, but probably every 6 months when the sale is in town. Hence, that explains the low cost I spend on fashion (averaged) monthly. The cable TV hubstation has bundled together complimentary broadband and home line. The actual amount incurred on telecommunications and TV is slightly lower as my cable TV costs me merely $25 monthly (promotion price).


Tour: $200
Movies plus dvd/drama series rental: $10
Books and magazines: $10 (including reserving from library @$1.50)

Subtotal: $220

I go on tours once or twice a year and spend about $2400 annually. I love to read and will reserve books online at least once a month to satisfy my craving for knowledge. I do not like to buy books as they take up space and I rarely read more than twice for any 1 book. Also, I tend to procrastinate reading books that I buy. Borrowing makes me ensure I finish reading the book by the 3 weeks deadline. I subscribe to the Edge Magazine for weekly market updates

Total expenses per month: $1725

Total expenses per year: $20,700

One thing I did not include is my $30k Masters fees. If I were to factor it into my monthly expenses, it would be $840 monthly (considering I need 3 years to complete).

This would increase my monthly expenditure to $2565. This is a hefty sum that would require me to earn at least $3,500 monthly to fuel the monthly expenditure. However, I have already prudently set aside a sum of money for my studies and hence, the “one off” expense will not be factored into my monthly cash outflow.

There will be occasional indulgences like buying a new handphone or laptop. However, I abstain from buying such “wants” as I would rather invest my money (in stocks and education) for future returns. My current desktop is bought in 2001 by my father when I entered university. I am proud that I am still using it. The only upgrade I given it is an additional RAM and Windows XP. My company provides a powerful 4GB Ram and 1GB graphics card laptop for work. I do not own much technology gadgets as I prefer very much to keep life simple at the moment.

It is therefore conservative to say I am able to invest $46,000 cash per year from my career income after taxes. It is worthy to note that due to the nature of my work, it has helped me to attain huge savings. If I were working in the CBD area, I believe I will spend much more on food, clothes and leisure.

I am sure many people would deem me as stingy. But this label is only applied when they compare Sg Blue Chips relative to themselves. I have no issue with anyone spending his/her pay to the last cent as I respect that it is their way to demonstrate passion in life. It just so happens that the pleasures that I obtain in life are just so affordable and simple.

These days, reading a good book, the Straits Times, Edge Magazine or Economics and Finance textbooks together with a cup of green tea at starbucks have eaten away many of my weekdays’ nights and weekends’ afternoons. The pursuit of quality education and knowledge can be enjoyed rather economically. Ostentatious goods are still not quite my kind of indulgence. I would rather people admiring me for being knowledgeable than having a sports car, anytime.

Monday, October 26, 2009

Earn one million dollars (in 6 years time)

A reader pointed out that it is nearly impossible to turn my $350k portfolio into $1M in 6 years time as I would need an annual compounded return of 19.1% to reach that amount.

(Snap shot of my 360k portfolio invested funds from my trading platform)

Am I being unrealistic?

To be honest, I could possibly set an impossible target judging from current circumstances, as most people think. However, to put things in perspective, perhaps there is a way (at least theoretically) to meet the target.

As a portion of my portfolio consists of CPF stocks as well, the following calculations will be based on CPF investment returns and reinvestments.

Considering I earn $80k per annum now. I spent approximately $24K a year, or $2000 monthly. I have a remaining $56k for investment.

My dividend income amounts roughly $20k a year. Thus, I have about $76k for investment. To be conservative, I put the figure to be $66k. Hence I have $10k for CPF contributions to Medisave and Special account and other off budget spending, that cannot be invested.

Assume it is year 0 on Dec 2009.

Hence from year 1 to year 6, I have $66k for investment into my $350k portfolio every year, till 2015.

Question 1: What is the annual compounded rate of return do I need for my portfolio to hit my target of $1M by 2015? ($66k invested in year 1, compounded annually (7.1%) for 6 years will have a value of $99.6k in year 6)

Answer: 7.1%

To attain this figure it means that I reinvest $20k dividends and at least $46k cash (and CPF) into my portfolio.

My assumptions for the above calculation are as follows:

I have the discipline to reinvest at least $66k (CPF+CASH+DIVIDENDS) into my portfolio from year 1 day 1.

My salary increment is stagnant from 2010. (It is in fact going to be higher, if I stay on my current line).

I do not experience catastrophic financial events (again) that would wipe out my portfolio and bring it back to starting point. (No snakes and ladders game again please, I got a weak heart)

Question 2: Assuming I have the discipline, but due to my limited ability returns yield only 5.5% compounded return. (i) How much will I have at the end of year 6? (ii) How long will it take to hit my target of $1M?

Answer: (i) $937k at the end of year 6 (shortage of $63k); (ii) 6.54 years (takes roughly 6 months longer)

Not a bad plan actually! My current portfolio is giving a decent dividend yield of $20k per year, consider I have bought ARA, Suntec, Fortune Reit, SGX, HL Finance, Starhub over this year. My trading income has also given me a decent return. Hence, at least for this year, I would earn a minimum of $20k dividends (and trading income).

The good thing is that I only need to set aside $66k per year to reinvest into my existing portfolio. My dividend income and pay will rise and I will be able to enjoy a higher standard of living. Hence I do not assume that inflation is non-existent and standard of living remains constant. In fact, I may be able to get married and still achieve this target!

Question 3: However, consider my Singapore centric portfolio, then what is the anticipated Straits Times Index in year 6 (2015) for my portfolio of stocks to be worth $1m?

This is probably the most difficult question to answer. If I assume that STI returns an average of 7.1% from year 1 to year 6, this means that it will have to rise from 2700 points to 4074 points from 2010 Jan to 2015 Dec!

However, as my strategy (philosophy) here is biased towards dividend income investing, I would only need to invest in stocks that pay 5.5% dividend yield and 1.6% capital appreciation annually. Hence, STI may hover at the region of 3500 points in 2015, but my portfolio may have already exceeded $1M.

Hence, I do think that having a million dollars in 6 years time is (remotely) attainable.

That said, we often plan with caution, execute with confidence and the rest is up to fate. I am 35% done with the journey. Please follow me through.

If my advertisements are of interest to you, please follow them as well. It will be a good catalyst to my financial journey.

Wednesday, October 14, 2009

How to withdraw money from your paypal account

As my readers have realised from my right column bar, there is an advertorial "Money for your website". Websites with google page rank more than 0 and are willing to earn money from ads will receive upfront advertisement payments from my company. No meet up is required and we pay in US$. I would like to demostrate simply how to withdraw funds from paypal.

Step 1: Log into your paypal account
I have just withdrawn money, so the balance is 0.
Step 2: Go to "withdraw funds"
Step 3: "Click withdraw funds to your bank account" and you will end up below:

Lastly, fill in the amount you would like to withdraw and click "continue". It is ok to fill in in which ever currency you had received in the first place. Paypal will automatically convert it into your home currency. However, the exchange rate may be poor. A spread of 2.5% was taken from me!!! The indicative fx rate on fxstreet was US$1 to SGD$1.39. Look at what paypal charged me:

Do take note that any withdrawal amount lower than $200 will be levied a $1 admin charge. I hope this answers to the many email queries on payments on USD and Sing dollars withdrawals. That said, paypal is still quite efficient in handling money and I have called them on their Singapore hotline for some money matters. The money will be credited into your local bank account within 5 working days.

Jason Marine IPO

I seldom blog about IPO as I have never made money from it. Usually company owners who want to sell their business will weave a compelling story to entice people to invest. If I own a company that is really profitable, I would need an offer that I can't resist before I sell it. I will never sell it at fair value. Hence, I never believe in get-rich talks because if I find a gold mine, I will not tell anyone about it until it is empty.

However, the IPO market can rarely be predicted using fundamental analysis. Based on my observations on current market sentiments, the IPO launches for the first day are largely positive.

Considering the outlook for marine sector is looking up, Jason Marine may have a good run up on its first trading day.

As my faithful readers will know, I never have any luck making money from IPO. One of my major mistakes in investing IPOs is holding them for too long without any cut loss strategy in place. Hence for Jason Marine IPO, I will sell it on its debut trading day, be it at a loss or profit. Since it only costs $0.21, 10 lots will cost a mere $2101 including $1 admin fee if you subscribe over ATM.

However, there are only 500k shares for public up for grab, 15.5m shares have already been placed to institutions. Chances of being allocated the IPO are rather low. Personally, I feel that there is a good chance to profit from the IPO from the first day, though this view is made purely without any fundamental analysis.

Post dated: Jason Marine soared on the first day of IPO to 40 cents. Currently it is last traded at 41.5 cents. That is a whopping 98% return!!

Monday, October 12, 2009

Flash update on SPH Financial Year 2009 Results

Full year profit: $422M

Net profit down 3.6% from 2008

Group operating revenue: $1.3B (largely unchange from 2008)

Final dividends: 18 cents (total 25 cents for FY 2009)

SPH paid 19 cents final dividend in 2008, (total 27 cents in FY 2008 and 26 cents in FY 2007)

Thursday, October 8, 2009

DBS 1% Unit Trust Sales Charge

DBS Unit Trust Sales Charge has been publicized widely recently on papers. This is 50% cheaper compared to the 2% charge by online portals and financial advisors. Moreover, financial advisors, especially independent ones quote a wrap fee that demands their clients to pay 0.5%-2% of their asset under management (AUM) annually. This is a hefty charge, considering a 1 million portfolio, you will be paying $10,000 (1%) to your financial advisor yearly, even if your portfolio is underwater, losing 10% annually. Also, the wrap fees force sells your best performing unit trust (even if it is in the red) to pay for the management fees quarterly.

Hence, engaging such portfolio advisors will mean feeding them as long as you live. Unless your advisor can earn you over and above the market expected returns of 8% per annum, you will be better off investing on your own.

As soon as I read the advertisements, I went over to Fundsupermart to search for good DBS fund house deals. One of the funds, DBS Global Properties Securities Fund caught my eye. This fund invests in REITS around the world and pays out quarterly dividend (in units) regularly.

Below is the payout history:

At current price of $0.60, investors will be able to get a decent yield of 10% and diversify into global property equities and ride the property recovery market.

I do not know how good the fund is, but it may be a good deal for investors looking for a potential place to park their CPF ordinary funds.

I have written once on why I do not like Unit Trust here, but this fund may change my perspective.

I might just invest $5,000 CPF money for some global exposure to the property market.

Sunday, October 4, 2009

The future of Starhub after losing EPL

Starhub lost the broadcast rights of EPL, ESPN, STAR Sports and STAR Cricket last week which explains the huge plunge in its share prices. It was down from $2.16 to a low of $1.94 on Friday before rebounding to close at $2.

Is there any future for Starhub?

Starhub is known for paying hefty dividends over the years and at 18 cents dividend per share, the yield is at 9%. Considering its bottom during the crisis was $1.76, $2 seems to be rather attractive buy for a yield and recovery play.

To put things in perspective, cable TV accounts for about 20% of Starhub’s revenue. It has about 550,000 pay TV subscribers and it is not known how many families actually subscribed cable TV purely for soccer.

Reports over the weekend showed that many subscribers and soccer fans will be hanging onto Starhub even though EPL can only be watched on Mio TV. Of course, the reports can be biased as we do not have the actual numbers or expected churn rate.

Personally I feel that losing EPL is a prelude to more losses of TV subscribers to Mio TV. As much as I do not like Singtel, I cannot help but to admit that Singtel has the full financial muscle to boot Starhub out of the cable TV market altogether.

Now that Singtel has committed a large sum of money for the EPL, it is only a matter of time before it competes with Starhub on Discovery, HBO, Animal Planet and other premium content. (Not to mention the 2010 World Cup will be another bidding war highly anticipated by market watchers.)

If the worst case scenario materialised, Starhub will be at the deep end of the water.

Starhub might be its victim of its success of bundling the 3 services into discounted packages. Now that Singtel can do the same, Starhub will need to spend more on marketing, retention and content to remain a market player.

The question is, can it afford it at all?

Starhub nearly pays out all of its operating profit as dividends and I have once questioned its ability to sustain its dividend policy here.

Based on its 2H 09(distressed) balance sheet, Starhub’s current assets stands at 500M versus its current liabilities of 695M. It has a long term loan of 842M, but has only cash balances of 237M. Starhub is easily the highest leveraged Straits Times Index component stock and telco in Singapore.

Given its distressed balance sheet, Singtel has chosen an apt time to enlarge its cable TV market share well. Singtel obviously know that Starhub will be mindful not to engage in a price war as it might not be able to get funding after all. With strong ammunition to target Starhub’s wobbly defence, how long can Starhub sustain the cut throat competition?

I estimate pay TV accounts about 80M of Starhub annual profits (given its 400M revenue). This translates to about 4.7 cents per share earnings. It is not a clear cut of losing 30% subscribers to Singtel translates to 4.7cents less 30% as Starhub might lose other subscribers of mobile and broadband to Singtel as well (double edge sword of bundling strategy). Hence, the repercussion effects are high and difficult to predict.

The only way for Starhub is to lower its pay TV rate, acquire customers on longer contract periods and treat loyal customers like me well. It has to look beyond its current marketing model and rethink its strategy to keep its subscribers base. Once Starhub loses its subscribers base below a critical level, it will be burning cash for its cable TV business. Then, it will need to give up everything to Singtel and compete on level grounds with M1.

That said, for the next few quarters, up till 2011 Dec, Starhub will not lose out much of it subscribers as it has strong followers for its Education, Entertainment and Infotainment package. HBO, Star Movies, VV Drama are staple TV for many, especially foreign families. I do not think that family subscribers consist only of soccer fans. For existing subscribers of cable TV, the content is largely part and parcel of life and EPL is only the dessert for one or two soccer fans in the family.

However, I still think the future is still bleak for Starhub unless it changes its pricing and marketing strategy. There are so many things it can do to turn the situation around given its large retail presence. I do hope it can fend off Singtel’s cash burning strategies.

Friday, October 2, 2009

Selecting a gym membership with swimming pool

Due to work and studies commitments, I have become rather unhealthy, as I sit on the chair for long hours without knowing and moving. Hence, I decided to look for a gym membership that would best serve my needs.

Basically, I would need a gym membership that is near my workplace or home that comes with a swimming pool. I intend to spend 45 minutes to an hour each time.

My budget is only $40 monthly.

One reputable gym got back to me and offered me a promotion: 36 months of gym membership (all gym access with pool at Suntec) and 6 months free, together with 3 complimentary sessions of workout with a personal trainer. It costs an average of $48 monthly. The only drawback is that I have to commit for 3 years at one go and the pool at Suntec is quite far (though within walking distance) from the gym.

Another gym membership costs roughly twice the price but there is no “lock in” period. It also comes with an integrated pool beside the gym but is too far from my workplace. Besides, it is way above my budget.

Registration fees were waived for the above 2 gyms.

I enquired on the SAFRA (Energy First) gym package and was appalled that it costs almost $60 per month after registration fees and monthly fees were factored in. If you have been to SAFRA gyms, you know it is only a slight tad better than the community sports centre ones.

The SAFRA membership was given by my company and we sometimes conduct our meetings there. My only impression of the facilities and environment is “minimalist” theme and a heaven for teenage kids. The bowling allies and pool centres are remembered to be packed with teenagers in the afternoons. However for less than $4 a month membership and an additional 7% off caltex petrol, I do not expect the sky.

After much consideration, I decided to go for the cheapo and convenient way of signing up for my community centre gym instead. It costs me a mere $10 monthly and comes with a treadmill and a few weights machine. It is only a 5 minutes walk from my home and this translates to savings on car parking and time. I will go for a swim in SAFRA clubs twice a week (which is free for members) and hit the treadmill twice in my community centre for 45 minutes. The drawbacks are it can be rather crowded in the evening and some people there can be boorish and vulgar. Not recommended for ladies though!

Hence my total cost for the healthy lifestyle cost a mere $18 a month inclusive of parking fees. Not bad for 4 workout sessions a week. The good thing of spending way below my initial budget is that I do not feel pressurised to go the gym or pool as my “sunk costs” are low. Even if I reduce the frequency of the exercises by 50%, I do not feel wasteful as I got a pretty good DIY hybrid deal.

Healthy lifestyle, here I come!

Wednesday, September 23, 2009

Starhub 50% cable TV promotion

It has been quite some time since I found some money saving tips!

Last month I passed by a shopping mall and was approached by a Starhub cable TV promoter. My natural response was "have already". He was persistent and replied how about 50% off your bill for one year?

Now that's enticing! My cable TV set me back by $50 monthly, including the rental of hubstation. How is that possible? Starhub never offers recontract offers for loyal customers. My loyalty is worth only $50!

Well, just return your set up box today, clear your outstanding bill and sign up with me tomorrow. I will report you as a new subscriber! You just need to sign a 1 year contract and get a 50% off your channels and hubstation.

Knowing the promoter is commission based, I took his word and sign up! Today I received the bill and true enough, I got 50% off for my bill and for the next 11 months!

I do think it is a silly idea to pay out unnecessary commission to the promoters while inconveniencing existing subscribers. Is Starhub aware that their glaring loopholes are eroding shareholder value day by day?

Loyal customers are not retained; new customers are pursued while incurring high costs of acquisitions. As a shareholder of Starhub, I am unimpressed with their marketing strategy.

Is there a need to report "new" subscribers for pay TV when 90% of new subscribers were loyal customers yesterday? Because of the need to manipulate the numbers, fulfill KPIs, money spent on advertising and marketing are wasted down the drain through the loophole.

Time to wake up and value loyal customers, revamp your marketing strategy and retrain your sales officers, Starhub!

Saturday, September 19, 2009

Quiz on Financial Literacy

Not sure whether it is due to my academic pursuit, does that mean I should stop studying since I am already (theoretically) a "Guru"?

Tuesday, September 15, 2009

Are HDBs affordable at all?

With reference to my earlier article, I have calculated that a couple who bought a decent 3 bedroom unit at Dakota Residences will have paid about $3.3M in interest and principal. It is an awful large amount of money. I would never even dare to dream I have that kind of money!

What about HDB?

Let us now consider the cost of HDB from a cost-salary historical perspective. I draw the following information from Lianhe Zaobao, 6/9/09, written by financial columnist Xu Li Qing.

In 1970s, a 3 room HDB flat costs $8,000. A fresh graduate then earns $1,000 monthly. It is about 8 times his salary. Of course it was extremely rare to have a graduate then!

In 1980s, a 3 room HDB flat in Ang Mo Kio costs $40,000. A fresh graduate then earns $1,600, which translates to 25 times his salary.

Currently, a 3 room HDB flat in Ang Mo Kio costs $270,000. Compared to a fresh graduate’s salary of $2,700, it is 100 times his salary!

HDB prices have increased 12.4% (compounded) annually and our salary has only increased 3.4% (compounded) annually.

In simple words, HDB prices have since increased 30 times, compared to 2.7 times our salary since 1970.

And HDB has always maintained that prices are reasonable and affordable. I supposed it is, for the higher income families!

This explains why dual income is the dominant income model for most families. It makes houses 50% more affordable!

It is not exactly a wonderful feeling to know that my entire portfolio of stocks is barely enough for a 4 room HDB flat or a 20% down payment for a 2 room apartment.

When can I afford to buy my own house?

Thursday, September 10, 2009

A visit to Dakota Residences

I visited Dakota Residences over the weekend. There was no crowd, just a couple of families looking at the showflat and the architectural model.
Currently Dakota has fully sold its 2 bedroom apartments and are left with few units of 3 bedroom apartments. 4 bedroom apartments are still plentiful as there are little takers.

I enquired about the 3 bedroom apartments. They cost a minimum of $1.16m or $889 psf for a low floor unit, with an area of 1313 square feet. Similarly sized unit but at 17th floor, costs $1.33m or $1014 psf.

Seriously, for a 99 year leasehold property I do feel that such prices are out of the reach of ordinary Singaporeans.

Let the numbers tell you why.

Assuming I pay a 20% downpayment to purchase the 17th floor unit, I will need to take out an 80% loan which will mean a monthly repayment of nearly $4,800 @ 3.5% interest. I would have paid about $2m for the house after 30 years.

(I used 3.5% interest as it is usually the interest rate banks use to calculate the affordability of individual income on the house and to be conservative)

After 5 years, my outstanding loan will be about $956,530. I would have paid 60 months of mortgage installments amounting to about $288,000.

If I intend to sell it in 5 years, I will need to sell it at $956,530 (to cover outstanding loan) +288,000 (interest and principal paid) +266,000 (down payment paid) = $1.51M just to BREAKEVEN.

This amount does not include legal fees, stamp duty, renovation, insurance, maintenance fees and other miscellaneous expenses.

Dakota Residences site was purchased at height of property boom in June 2007. It is understandable that the price that developers set need to be profitable to the shareholders, after paying hefty remuneration to the company directors, CEO, senior management etc. They probably need to achieve at least a net profit margin of 15%-25% to ensure that shareholders are happy on their equity investment.

The site next to Dakota Residences was sold at a slightly lower price (per plot ratio) to UOL recently. Personally, I might not buy Dakota Residences even if I have the full cash to pay for one apartment.

Firstly, I would need to endure another 3 years of construction noise and dust at my residence while the 2nd condominium project is being built.

Secondly, the apartments might be priced lower by UOL to entice buyers.

Thirdly, I went for hawker fare at old airport market and found the food rather mediocre. The hawker centre has poor ventilation and you can smell where the toilets are.

Lastly, I have the choice to buy a 5 room HDB nearby at $650,000 and use the spare cash for gym membership and a trusty Japanese car. Who need a door step MRT then?! I would have saved at least $2M at the end of 30 years!

Perhaps buying stocks is still safer for some of us now.

Tuesday, September 8, 2009

How does statistics hide facts?

Statistics often make us believe wrong conclusion and misled us into believing silly correlations.
Let me tell you a story that happened in Country Blue Chips (CBC).

A freshly minted assistant professor (in statistics) “discovered” that drinking orange+apple juice makes you smarter. He runs a regression analysis after a grant by the largest manufacturer of juices in CBC. He then engages 10,000 pupils from CBC primary school, and split them into groups of 10 comprising of 1,000 pupils per group.

Each group is given different compositions of orange and apple juice. E.g., group 1 drinks 10% orange juice+90% apple juice; group 2 drinks 15% orange juice+ 85% apple juice and so on. If the professor can have a large enough sample, he can have an unlimited number of sample groups. He then realized that hey, drinking orange juice and apple juice daily for 1 year does not increase the entrance score of the local gifted programme for 9 groups of pupils. However, coincidentally, the last group that drank 15.5% orange and 84.5% apple juice actually had a 99% percentage of people entering the gifted stream. “Okay, I am going to use this statistic and write a paper on it! Based on a 99% confidence interval, the hypothesis that orange+apple juice can make your child smarter is true! 99% went into gifted stream after drinking the juice composition!”

What about the rest that showed otherwise?!!

They are coincidences! Untrue!! I will not publish that! Anyway, people in CBC are too stupid to discover that!!

Assistant Professor gets a hefty grant and promotion to associate professor, the manufacturer of apple orange juice gets a boost from sales. Correlation does not mean causation. But who cares? At least not the people in CBC!

The same trick has been going on for many years in CBC. It is a sure win-win situation for the researcher and grant sponsor. I can also run the theory that TV makes babies smarter using the same manner. The variable is the number of hours of TV. For instance, I can choose groups of babies that watch 1 hour, 1.1 hour, 1.11 hour all the way to 10 hours of TV and choose the group that is the smartest, or with the highest percentage that goes into the gifted programme eventually.

Then I say, TV is good for your baby! Research has shown that 95% of babies who watched 2.145 hours of TV per day grow up to become scientists in CBC. (The group of babies who watched 2.144 hours of TV grew up to be ordinary Joe findings was not published)

Take a pinch of salt when you read statistics next time. Unfortunately, I cannot run a regression that tells me the amount of truth in all commercial statistics. But my rough guess?


At least in Country Blue Chips!

Sunday, September 6, 2009

Grandlink Square Apartments

Which would you buy? A 1200 sq feet freehold apartment or a 1100 sq feet HDB flat, costing the same, just 2 stops away from each other?

Intuitively, all will choose the former. But with reference to my earlier post, many risks are ignored when we make choices based on intuition.

However, there is indeed such an offer!
A quick check at the government website showed that a freehold apartment in district 14 is selling at a lower price psf compared to one which is just 2 bus stops away, within the same district!

Consider a 111 sqm or about 1195 sq ft HDB flat in pine close selling at $600,000. It works out to be $502psf. The larger 1227sq ft private apartment at grandlink square is only selling for $489 psf!

There are 2 possible scenarios, intuitively:

1) The grandlink apartment is under priced, as it has a lot of sleazy pubs at ground floor. It is in geylang and loans can be a problem. Interest rates will definitely be high. Rental to families virtually impossible. Bachelor would not want to rent a large place to stay either. MRT is nowhere near.

2) HDB is over priced, despite walking distance to Aljuned MRT, near old airport road eateries and stadium.

At this kind of cheap pricing, grandlink square apartments may well be the cheapest freehold apartment in Singapore. One can consider for investment if your family consist of only males and can afford huge cash outlay to purchase the apartment

Renting out grandlink apartments are perhaps a headache. Your tenants might be in the flesh trade and your apartment may evolved into a boutique hotel.

Everything is priced for a reason, buyers beware.

Friday, September 4, 2009

My loyalty is only worth $50 voucher

I called up Starhub recently to enquire about re-contracting my mobile line. Being a faithful 4 year starhub user, I wanted to request for a voucher to offset the purchase price for my next mobile phone.
After 3 days, an advisor called me and told me I am entitled to get a $50 handset voucher which will follow my registered number up to 1 month. I will not get a mailed voucher and neither will I get a cent more.

Compared to M1, which I have been a subscriber before switching to Starhub corporate plan, M1 had rewarded me with $100 vouchers without fail every 2 years. Upon termination notice, it offered a 30% cut to my mobile bill to retain their service.

Also, M1 offers a $100 discount to new sign ups now, even for corporate plans. I guess its time to switch back to M1. Moreover, the cheapest corporate plan is only $15 monthly, which is more than enough to serve my needs, giving me a $10 savings monthly. Caller ID and auto roaming will be free for 2 years.
I urge readers to check out corporate plans over the phone with the telcos. They are not advertising such plans and you will need to call them up personally to check. You could possibly make substantial savings of few hundred dollars if you are entitled to sign up on corporate plan.

Time to say goodbye to Starhub!

Thursday, September 3, 2009

Advertlets never pay!

I guess we get bad debts every now and then, and I have decided that Advertlets will be banned from my blog.

Emails were not replied, yet they clutter my blog 24-7.

Unless they pay up, this posting will be as long as blogspot is around.

Fellow bloggers, please upgrade your nuffnang status instead.

Special thanks to LP for teaching me how to upload screen shots.

Tuesday, September 1, 2009

Counter-intuitive and property investment

An intuitive proposition is one that seems to be true when assessed using intuition of gut feelings.

A counter-intuitive proposition is one that does not seem likely to be true when assessed using intuition or gut feelings.

For example, before we proved that the world is round, many folks believed that it is “common sense” to assume it is flat, or at least, not round! It takes great wisdom for another person to question the assumed belief or “common sense” and often takes great rigour to uncover the truth. I mean, who would actually observe the Earth’s circular shadow during a lunar eclipse?

In real life, many decisions were made based on intuition or “common sense”. However, many people are time and again proved wrong. Hence, humans are never rational. Their intuitions are often imagination of sorts, rather than based on actual facts and figures.

Objective truths are often discovered the hard way, either through scientific research or personal horrific experiences. Many scientific ideas that are generally accepted by people today were formerly considered to be contrary to intuition and common sense. For instance, 0.9999… is equal to 1 is considered counter intuitive. People used to believe 0.9999…. is smaller than one.

There are definitely more examples if you search the web. I shall not list them all.

In investment, many risks are assumed to be absent and thus brought the downfall of many. One have to be counter intuitive to be able to see the hidden risks.

For instance in the purchase of a property at current times, the buyer assumes that a new property (e.g., Trivista, Vista Residences, Optima) will fetch a higher price upon TOP and property in Singapore will only head north. This is the kind of intuitive and “common sense” idea that is deeply entrenched in many buyers mindset.

Buyers continue to believe that their jobs are stable (hence a 30 year loan commitment), Singapore will remain a paradise for rich foreigners (hence the perpetual rise of home prices), neighbouring countries will remain laidback (forgetting Hong Kong, Korea, Japan, Taiwan as competitors and assuming Malaysia will remain as it is), he/she will not be diagnosed with cancer and be forced to sell his property prematurely (many Singaporeans are under insured), interest rates will be low (until they sell/flip their property), buying a house during recession is a sure winning bet and tomorrow will only be better.

That said, does that mean we should not buy property for investment? Of course not! But I will be mindful of the risks before that. For instance, before I embarked on a masters course, I went for a full body check up to ensure that I have no illness. I do not want to give up my studies and forfeit my tuition fees because I assumed that cancer will not hit a 30 year old young man. I will definitely insure myself against early stage of cancer and purchase a higher quantum of disability income if I were to commit to buy a private property. The insured sum should at least be $500,000 and disability income benefit of at least $3,000 monthly. Based on earlier statistics I am quite sure most people are not well insured to that extend.

I will also not overstretch my repayment but rather keep payment within 15 years and monthly payment of maximum 40% of my gross pay, before monthly rental contribution. This would reduce the odds of over paying my property through exorbitant interest rates and having a higher level of free cash flow at my more vulnerable years.

That is why I have been rather frustrated of the kind of frenzy that has over taken the property market. I mean, a 2 room 99 year property selling for almost 1 million dollars, everywhere?! The couple who bought it cannot have more than 1 child! And they are going to spend the rest of their lives repaying the loan. Assuming a hefty $200k down payment and a 30 year loan at 3% interest rate, at the end of 30 years, they would have paid $2,615,000. Their monthly payment is $3,372.80. Assuming they earn $10,000 monthly, that is almost 34% of their gross income.

How many couples earn that amount? And you are assuming you can sell a 2 room apartment, left with 66 years lease (assume 3 years construction period) for more than $2.6 million?

Not to consider that one may be retrenched, parents and themselves may fall ill and need medical expenses, they may have more than one child and interest rates may rise etc.

If you are thinking, based on intuition, buying a property here is a sure bet!

Then perhaps, maybe then the Earth is flat.

PS: Finally sorted out the orientation!

Saturday, August 1, 2009

Bad news over the weekends

According to my finance lecturer, the worst performing day of equities for the past 100 years is not Friday, but Monday.

Apparently, the worst news are released when market closes on Friday as companies hope that investors have a nice weekend to enjoy thus mitigating the sell down that will happen on Monday.

It rarely works.

Perhaps this is why Great Eastern reported the “good news” that it will take a hit of 250M for its Q3. This is a significant payment as the profits for its Q2 is only 97.7M. Understandably, OCBC will also be dragged down on Monday when market reopens as it expects to take a 218M hit on its books in 3Q.

Of course it is no mere coincidence that OCBC will be reporting a decent set of 2Q results on Monday (3rd August) to mitigate the negative news.

I am not sure how market will react on Monday, but I do feel puzzled that GE and OCBC are not acting on shareholders interest, but on customers’ interest.

The objective of all (for profit) firms, theoretically is to maximize shareholders value. Considering DBS who have paid out only 10% of its earmarked impairment fund for DBS High Notes and Minibonds, it has incurred the wrath of many except the stakeholders.

I presume that GE is expecting this move to increase its image and translate to better sales and maximizing shareholders’ value in the future.

That said, GE and OCBC are great companies to own and if their stock prices dipped to an attractive level of $10 and $6 respectively, there is no harm picking them up for long term investment.

Saturday, July 11, 2009

A visit to Vista Residences

I visited Vista Residences show flat today and was appalled by the prices of private property prices! A 1 bedroom 646 square feet unit costs $1370 PSF! After factoring all stamp duties, legal fees, it will cost almost $1400 PSF. Yet there are only three 1 bedroom units left and all 2 bedroom units are sold! The project is at least 80% sold at the 3rd week of launch!

Consider a district 12 property, selling at this kind of price and high take up rate, does it feels like a bubble brewing?

The Toa Payoh MRT station was not within sight and I have to walk at least 18 minutes to reach Toa Payoh central. This is a far cry from the 7 minute stated on papers. It is near PIE, which means the noise from expressway will probably accompany you everyday. Traffic was quite bad even during off peak hours, the lanes are narrow and I do feel some stress navigating the neighbourhood.

Of course it was the price that totally put me off! The stamp duties and legal fees are not even absorbed. The sales agent even has the cheek to ask me to pay a 5% booking fee within 15 minutes of viewing. He thought I was buying vegetables in the market.

I would have to pay 3% more if I opt for interest absorption and payment deferment.

Consider Vision Crest, a district 9 property near Plaza Singapura. It was initially launched at $1100 PSF in 2003 (recession) and peaked at $2500 PSF. It is currently selling about $1650 PSF, which has an average of $5.92 median rental (1Q09 data).

As I stated in my earlier posts, I am still looking for a $600 PSF freehold property near novena area, for investment purposes. The current prices will definitely be unsustainable as the recession’s impact has yet been unleashed.

I foresee some cheap lelong sale coming up in 2010 and 2011 when the backlog of properties are being cleared by developers and huge influx of projects TOP.

Hopefully by then I have enough cash and CPF to scoop up nicely TOP apartments and can see what I buy.

Buying over priced apartments based on photos, artist impressions, showrooms, floor plans, architectural models and imagination are still too sophisticated for me now.