This shall be a short post.
The past few weeks have been eventful for me.
– Well work wise, it is getting busier. Working later. One of the colleague has resigned, while my immediate superior has been hospitalized.
– The announcement by Temasek to take SMRT private is another interesting turn of events after LTA’s takeover of SMRT’s rail assets. I do own some shares of SMRT. However since most of the shares were bought in 2010 / 2011, the prices which I have bought them were in the range of $2.10 to $2.13. So if the privatization is successful, I would have lost money. Personally, I think SMRT non-rail business is doing fine, and I don’t mind holding on to the shares.
– Earlier this month, another of the stock which I have invested in (Nirvana Asia) may also be bought out. On 8 July 2016, Private-equity firm CVC Capital Partners said that it agreed to pay $1.1 billion to buy out Nirvana Asia Ltd., Asia’s largest funeral-services provider by revenue. They would pay three Hong Kong dollars (39 U.S. cents) a share to take Nirvana private.
Nirvana Asia was only recently listed in end 2014. I do particularly like the business model of this death care company.
– The final most unexpected piece of news is from my parents (who are in their lates 60s and late 70s). They bought a second property (a 2BR condo unit) for approx. $1.1 mil. They just wanted to enjoy life at the late stage of their life. Oh yeah, with their age they can’t take up any loans, so they need to pay it off within 4 years before the TOP. My dad said he probably have to empty up all his savings and shares to pay for this.
Continue staying in HDB flat, stop working, surviving on life savings and dividends from shares.
Stay in condo, continue working for another 4 years to pay mortgage, with retirement funds totally dependent on rental market, with zero savings.
The former sounds more like “enjoying life” to me. What are your views?
I think it depends on the possibility of opportunity.
There are times when the property market presents opportunities and there are times when stock market presents opportunities.
Rental / property market fluctuates like the dividend / stock market.
Only difference is leverage; property requires leverage. It magnifies the profits and losses.
I think we have to be open minded when we see both. No harm checking out properties, viewing show-flats etc to get a feel of the market. If the opportunity presents itself, then be ready to invest.
However, I think even when investing in properties, you should not over-leverage. There should be a buffer (the loan repayment should be affordable – eg. your income must cover for it. To see through the tough months with low or no rental or higher interest rate or if you lose your job). When you talk to the mortgage / bank officer – he will probably list down what amount of loan your income can afford, what is the interest expected when rates rise to 3.5%. Set a big buffer.
I don’t particularly like the idea of staying in a condo now or in the near future. Maybe when I am older / retired – yes. Perhaps when I am able to generate sufficient passive income to cover for all the expenses (which would include the rental income from my HDB).
Hi, I have been reading your blog posts regularly. I think you are one of those few who think rationally and gave rather balanced & insightful views.
Been wanting to leave a message after reading your posts about property. Finally decided to do it today after reading your recent post.
Just want to hear from your view about property cycles. What is your opinion?
I want to know about it, not to invest but to buy a decent house just so I do not have to worry about overpaying. My search leads me to the 18 year cycle.
I did a study and plot the trends. Although the periods may not be very accurate, but here are the trends; 1981 – 1999 and the next which we sd be interested is 1999 – 2013 3Q, est. The graph fits rather well.
I still am skeptical, people around me are as well. But I guess, it pays to be prudent.
In addition, I read that using comparative rental and multiply it for a period of about 15 years is a good way to roughly gauge the value of the property. Unfortunately, the pple around me are also skeptical, I do not blame them.
Let me know what you think of it. Thanks in advance.
Sorry, my bad… the next trend sd be 1999 – 2017, 3Q.
Thank you. Glad you like my posts.
If you have read about my views on stock investing, you would know I really suck at timing the market. Having said that I was intrigued by Investment Moat post on Property Price growth over the years (read here) and did a post myself (read here).
There were down periods from 1982 to 1986 and from 1997 to 2003.
Many people like to interpret cycle by the length of time… for instance as you have said ’18 yrs’ cycle. In a way there could some truth in it. However, there is another aspect of cycles, it is the vibe I sense from the news and sentiment (partially influenced by the book “Grow rich with the Property Cycle by Kieran Trass”). Look all these are very subjective, and there are many different interpretation, but do hear me out.
Near the end of a boom, price will escalate, there would be oversupply, but news of people making huge profits from property are still around. At the end of the boom, start of the downtrend, there would be large oversupply, there would be a few incidents of bank foreclosure / auctions of property, however prices remain high. At the middle of the slump, there would be increased incidents of fire sale / foreclosure / auctions, news of losses can be read, vacancy due to lack of tenant & oversupply is common. At the end of slump, the allure of property as an profitable asset class is rejected by many, sentiment is generally negative, nobody wants to buy.
Currently, the vacancy rate in Singapore is at 16 years high. The key thing that will tilt the market towards the buyers’ favor (those with liquidity) is interest rates (the feather that will tilt the balance). A lot of investors are holding now even though they have no tenants because they can still service the loans. A rising rate might bring us to the middle of the slump. A 1% increase in rates for a $100,000, 25-30yrs loan will result in approx. $50 increase in loan repayment per month (or $600 per year). If you take up a $1mil loan, that would be approx $6000 increase per year with each 1% increase in rates; similarly a $1.5mil loan would result in approx. $9000 increase per yr.
I work in the construction industry. Started working in 2003. Being at the forefront of the industry, I can really sense and see first hand how few jobs our company had during the ‘slump’ period. Year 2003 & 2004 were bad years. Year 2008 & 2009 were also bad years. In fact right now it almost feel like 2008. Projects are few, salary increments are low.
I think you are in the right direction in using the multiple of 15 (AK from ASSI advocates that). However, I think Singapore properties are always overpriced even during a slump (now when I try this method, none of the properties I like fit the price). So we might never reach the stage whereby price of property = 15 x annual rental. But it is a way of gauging the value of the property base on its cash flow. Which is great.
Another way is to find the yield of the property eg. annual rental divide by property value (and how it measure up to the past). Well, I haven’t read deep into the yield history of Singapore property so can’t comment on that yet.
Over the years, being invested in the market – I tend to like down markets more and more… (as weird as it might sound).
Hi there, thanks so much for taking the time to reply to my post. Really appreciate it. A balanced and unbiased view and it added a few more dimensions to the topic. Take care and have a nice weekend.