HDB prices will come down because

1) Genuine HDB upgraders to private homes will have higher incentive to sell their HDB now. They can save 7%-10% (for PRs) on stamp duties and possibly obtain the full 80% loan of the valuation of private properties. (Though most HDB owners who buy 2^nd home for investments are likely to have fully paid off their HDB mortgage.)

2) PRs can no longer sublet their HDB homes and they are likely to sell off their HDB in time to come as it is no longer a viable investment vehicle for them. This creates a larger supply of resale HDB in the market, creating downward price pressure.

3) The current market has fears of increasing population with limited housing. The government has time and again reassured the market with its ample supply of housing pipeline. Most HDBs transacted at high prices are relatively old, some above 20 years old. Technically, aging homes should depreciate accordingly as their lease shortens, however, due to mismatched supply and demand by policies, it has appreciated, going against economics principles. This phenomenon will revert to classical economics when supply and demand reaches the equilibrium. Again, this point to lower HDB prices in time to come.

4) MAS has set a Mortgage Servicing Ratio (MSR) limit of 30% for loans granted by MAS-regulated financial institutions for the purchase of HDB flats. This means that financing has been tightened on HDB resale purchasers and they may not even qualify for the loan after paying hefty COVs. For instance, a couple earning 8,000 a month on 30 years loan can qualify a maximum of $534,000 loan and HDB valuation of $667,000. If they are above 35 years old, their loan tenure will be shortened, lowering their loan quantum. Hence COV are likely to come down due to stricter financing rules for HDB. Interest rates have to be assumed at 3.5% when calculating MSR. This policy will hit large, pricey HDB homes.  

5) Private property owners who have bought new homes in 2011 onwards should not be expecting much capital appreciation on their properties, since many developers are offering lower prices now. Property as an investment vehicle will lose it shine as rental starts to fall gradually and vacancies start to increase. A Singaporean property owner who buys another 1M property will have to cough out almost 100k in stamp duties. Assuming a 3% rental yield, the breakeven period is at least 3.5 years! A PR will have to cough out almost 130k in stamp duties, with breakeven period of 4.5 years! This does not factor into the rental decline and vacancies risk. Property tax, agent fees, income tax on rental income will continue to eat into the returns of investors yield. Hence, attractiveness of private property as an alternative investment will decline significantly. The correlation of private (non landed) properties to HDB is 0.9. This means that decline in private property prices will have a 90% impact on HDB.

Conclusion

With massive supply of properties in the HDB and private market coming into the market from this year to 2015, aspiring home investors should wait for cooling measures to be lifted before entering the market to invest in properties.

Home seekers should wait at least 6 months for reality to sink into their heads to lower their asking prices before entering into the resale property market.

Overpriced new launches will see developers dangling more discounts, stamp duty rebates, rental guarantee, furniture vouchers, tour packages and other innovative packages to move sales. In this situation, the late bird will get the best deals.

How to measure your life?

Clayton Christenson, retired professor of Harvard Business School spoke to a group of students about life. He applied his business theories on life and offered some good advices on how to live a good and satisfying life. Prof. Christensen argued that, when we measure our lives, we always mistaken short term tangible indicators such as social hierarchy and wealth as the true measure of a successful life. i.e living in a capitalist society, we are nurtured, so to speak, to measure our lives the same way as how business firms measure profits and losses. In the end, as we are moving to the end of our life, it is how many people in life that we positively impacted and how we stand by our moral principles that are important. As Prof Christensen remarks "God is not an accountant!" He offered this lecture for the young people as an education about life.

Why having an investment philosophy is important

If you are a reader of my blog, you probably have heard of Muddy Waters and OLAM. Let’s look at the 4 charts of OLAM, NOBLE, WILMAR, GOLDEN AGRI .

 

Poor performance relative to local STI. In fact if you look at commodities asset class as a whole, most of them are performing poorly, with the exception of physical gold and oil.

Recall my post here in 2008 where I blogged about my investment philosophy. I wrote at one point on NOT investing in high volatile stocks and assets classes.

“I do not have high risk tolerance and will avoid investing in equities that are highly volatile in nature. S chips, penny stocks and commodities are almost out of my consideration. Unless I have strong reasons and have done due homework, I will not invest in them, at least in the near future.” SBC (2008)

I do not invest in volatile stocks from simple observations. When a stock falls from $1 to $0.90, it only has to rise 11.11% to regain the 10% drop.

 However, if it falls from $1 to 0.50, it needs a good 100% rebound for it to go back to $1. And we know volatile stocks are rarely high dividend counters, there is little hope of even recouping one’s initial capital when you are hit with a 50% loss.

Making good investment decisions are not the most important. Avoiding any bad investment is the critical success factor. Do not forget it is human nature to hold on to losing stocks and selling winners too early. Hence one is likely to book a 20% - 30% gain rather than cutting loss at 20%-30%.

This is the importance of having investment philosophy. Have a sound one and have the discipline to adhere to it.

How many hours did you spend in your car?

My colleague was lamenting that cars used to be cheap to own and he regretted not buying earlier. I need to correct him, car ownership is never cheap in Singapore, especially if you use my calculation matrix.

Ever since I started using a GPS to navigate directions, I noticed that I drive an average of 1km/min. If the journey is 15km, I usually take 15 minutes to reach the destination. Hence my average travelling speed works out to be 60km/h. This is largely consistent with the average speed of most roads in Singapore other than the expressways.

My car has a mileage of 70,000KM. This translates to 1167 hours usage. My car is already 6 years old and the depreciation works out to be 20k, base on current value of my car. Thus it cost $17 to spend one hour in the car! This excludes cost of petrol, insurance and taxes!

If I were to buy a new car now, the depreciation will be about 10k per year, base on my usage pattern, my cost will be $52/h. Prices of car have doubled since 6 years ago, but car usage cost has actually tripled, at least for my case.

I am not complaining on high cost of car ownership, but many people only calculate base on yearly depreciation. If we were to dwell further, the cost of actual usage is extremely high and uneconomical. Sigh, living in Singapore is tough!

3 months from June low... Markets are up again!

In early June there was an opportunity to invest into the markets as markets looked bleak with eminent downside risks. This was an exact replication in April 2012 when markets have moved up swifty, with STI surpassing the 3,000 mark in April, before correcting to 2700 levels in June.

Fast forward 3 months later, markets are again in euphoria and STI has rallied 12% (before dividends).

If you look at fundsupermart GM’s portfolio, it has rallied about 10%( with dividends likely to be reinvested at the discretion of individual fund managers).

Do not belittle the dividends from stocks over the 3 months period as many blue chips firm paid the dividends for FY 2011 in July and August. For my humble low 6 figure portfolio, I got a couple of thousand dollars worth of dividends.

I took profit on my entire CPF OA equity unit trust portfolio on Friday, keeping my (cash) stocks portfolio largely intact as I am uncertain if markets would rally further. Unlike equity funds which are largely directional, some of my stocks holdings did not rally much over the past 3 months (eg SPH) or have not reached my target sell price (eg OUE).

Interestingly, as I am blogging, OUE is up 10% today as there are talks of possible asset sale. It is currently trading below book value and there is possible upside if the asset sale goes through. Read today’s AM Fraser report for more insight.

The markets are largely ranged bound since 2011. It seems that technical analysts would have a better return over the past 2 years compared to investors buying and holding for the longer term. My strategy is still to hold a core portfolio (at least 50%) in dividend yielding counters and purchase when markets correct 10% from my last profit taking levels. For instance, I took profit when STI was above 3000 points. If it goes near to 2700 or maybe even 2800 depending on the reasons for correction, I will enter the market. If markets continue to rally to 3300 from current levels, I may enter the market when it falls to 3000 points again depending on reasons for correction. This would ensure my funds are always invested when investors flee the markets and give higher potential upside from entry levels.

However, I do hold directional unit trust funds (which are so much easier to invest without emotions) and individual stocks which I try to control my excitement of watching them going various directions without being overly participative in premature trade executions.  

 My investment journey at large has been positive mainly because of dividend returns and a conservative mindset. I am happy with 6% P.A returns for my overall portfolio, anything extra is a bonus.

I believe yield counters will be favoured by fund managers (it is already happening) and with low interest rates for next 3 years, dividend returns will outshine stock appreciation yields over longer investment horizons.

Buy equities now and maybe after June 17 2012

Usually when the fundsupermart General Manager’s personal portfolio is in the red, it gives a clear indication of a buy for equities.

Down slightly as at 5th June 2012

There are likely 3 scenarios after June 17.

Greece pro austerity measures government wins election. Stock markets will rally.

Greece’s anti bailout government wins and Greece exit EURO. Short term pain, but European central bank will pump in money to stabilize economy. Buying opportunity for rebound.

Greece leaves Eurozone, central banks do nothing. 40% loss in stocks. This is the most unlikely scenario.

Looks like buying opportunities are appearing, now and after June 17th.

My quality of life

I met up recently with an old friend overseas. It has been a long 3 years since I met him and every time we chat about old times, I learnt something about life and relish knowing my old self. People essentially change over time; the current self is vastly different from the old self a decade ago. We are changing without self conscious. Sometimes people like to cling on memories as memories remain but people change, isn’t it?

However, some things in life don’t change. A decade ago, I was driving a humble 6 years old Japanese Toyota corolla 1.3litre to school. Today I am still driving a Japanese make except with an upsize 300CC simply because there wasn’t a 1.3litre version. It is still trusty and when I see people on road with a brand new continental car breaking down, I will grin to myself and pat my steering wheel for giving me worry free driving experience.

I realize that my need for material wants have not changed at all over a decade. When I met up with my friend I was still wearing old winter clothing and eating cheap food. Over the years, the only thing that has changed was my bank balances. I remembered earning $2,000 a month eating the same hawker food, occasional restaurant and overseas indulgences. Currently I earn about $7,000 monthly, I am still eating the same, spending the same and having the same level of material needs. I must be a freak as my 3.5 fold increase in income does not translate to a better life style! I am probably spending more on investment only!

Why is that so? Hasn’t my quality of life improved over the years?

If we look at per capita GDP, my “quality of life” under official statistics would have improved tremendously; if we look at GNP, my quality of life would have remained the same as my spending hardly increase much; if we look at spiritual satisfaction, I probably have enjoyed my than 4 folds increase in quality of life.

I believe quality of life cannot be measured by the annual value of your home or the average household income. It is the same of Maslow hierarchy of needs: A blue collar worker can achieve self actualization needs while a CEO may still be struggling to satisfy the esteem needs level.

Over the decade, I have gotten a few postgraduate degrees, been through a few relationships and changed 2 jobs. I changed from a high paying job government bonded job to a new private sector entry level job before moving on to a managerial role to where I am today. My pay fluctuated from $2,000 to $6,000 back to $2,000 and to current levels. I changed countless boss in-between: Bosses that groomed me and bosses that made me burning mad and left the government service.

On hindsight, whatever I have gone through has not been in vain. If not what I have been through, I would not have survived in my current post and be where I am today. If not for my nasty bosses, I would not have met nice ones that were willing to groom me. Life is about trying out new things isn’t it?

Along the years, my pursuit of knowledge made me a calmer person; I get less irritable on unfair treatment; more tolerance for irritating colleagues and bosses; less vocal on things that simply cannot be changed overnight. I will still not spend more than $70,000 on a car and still a firm believer that money should be spent on things you used the most, not on what people will use to judge you.

I do not know if I would change a decade from now, whatever it is, I believe I will continue to enjoy life and enhance my quality of life, regardless of my earning capacity. It is not how much I earn but rather my expectations of life that dictates my perception of good life quality.