That feeling…

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You know the feeling when you have the money but nothing good to buy? I don’t know – I have been waiting at the sideline and occasionally seeing fellow bloggers purchasing stocks. But that feeling to buy just isn’t there.

Property

I was with my wife at a recent property launch by a developer. I guess the developer was hoping for better buying sentiments due to the recent government targeted tweaks to property market measures and a new stamp duty.

My wife was impressed with the property.

One note-worthy point – there have been a number of property launches around that area over the recent years, and this project stands out because there are no shoe box or 1 room units. The smallest units are 2 bedroom units. It was stated that the target group was people buying for own stay or families rather than investors. I reckon developers have come to acknowledged that the savvy property investors are out of their reach and beginning to target people buying for their own stay.

There are many things to like about the property – great location, near amenities around it, near the city, good schools nearby, near our in-laws, great for renting out to expats, etc…. But for a 3BR + study unit, it is not cheap….

My wife just fear that we would regret in the future if we did not buy.

But I just looked at my wife after the viewing and said:

“Dear, there will be many middle-income couples like us who think they can afford it, and who will probably buy a unit. Yes, with our income now, we can afford it. The bank representatives would say no issue. But with interest rate increasing – to maybe 2+ to 3+ percent, that would be difficult for us to finance.

And won’t that be a better time to buy? When these people are thinking of dumping their properties?”

Yes, even if interest rate increase by another 1% (with current rates at approx. 1.38% to 1.48%), it is still possible for us to service. However, banks don’t use the prevailing interest rate to calculate TDSR, they use a “stress test” interest rate (set by MAS), which tests the ability of borrowers to handle any sudden rise in interest rates.

FYI, MAS has standardized the stress test to the following levels:

  • For residential properties, all banks must calculate your TDSR on a stress test rate of 3.5%.

Would I be comfortable paying the loan at 3.5%? I think not…. Leverage magnifies the gain and pain.

I think one must really know oneself really well. I reckon investing (with real money) in the stock market really make you acutely aware of yourself (and your own weakness). You had to be – after staring at a portfolio full of red. muahahaha

“Bulls make money, bears make money, pigs get slaughtered”

Will it reach there? Check out the chart below.

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Most banks in Singapore offer SIBOR-based home loan packages. It is considered the most widely used reference rate for home loan packages in Singapore and the most popular amongst consumers.

Currently, the 3 mth Sibor rate is 0.99875%. Looking at the above chart, if you ask me, over the span for 1987 till now, this rate is still ultra low. The rate after the GFC in 2008-2009 in relation to the previous years (with the wild swings from 1987 onwards) seems artificially low….. The previous years’ chart looks like the typical stock chart (more realistic) :p

Nevertheless, the above is just the Sibor rate, not the variable interest rate or fixed interest rates (which will be higher).  So back to the question… will it get to 3.5%? My answer will probably be – why not?

The real puzzle is how fast. The fact is, people like you and me have totally no control over it.

Home owners should prepare for higher mortgage rates: Analysts (read here)

Banks drop some fixed-rate home loans amid interest rate uncertainty (read here)

The below chart is from this website. According to the site, the below set of home mortgage loan offerings represents the best deals available for people in Singapore given that most loan rates move in tandem with reference rates like SIBOR and SOR.

Well, it may be outdated (dated Jan 2017) and the 3mth Sibor rate has increased from 0.96893% (Jan 2017) to 0.99875% (in May 2017)

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I just don’t see any blood on the street yet.

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Yes, Sentosa Cove is becoming like a ghost town and many of the sellers are losing money (surprisingly some of the buyers forking out the millions to buy, have HDB addresses)… but that blood is not rampant everywhere yet.

Why are Sentosa Cove prices falling like crazy? (read here)

How will interest rate affect the price of the property? Not sure too… after all property price is dependent on a number of factors eg. rental rates, population growth, government policies, etc… But in general, the price (according to the price index chart below), still look relatively high. Odds not in buyers’ favor I reckon.

3

 

Fear-based selling

I find this recent post by BULLy the BEAR intriguing if not timely – considering what I am currently thinking about.

To quote: “I just want readers to be aware of such emotional battles. When people are making huge money and you have a lot of cash rotting in the bank, are you able to withstand the pressure and all the fear based selling and NOT commit to mistakes?”

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And I also like this talk by Lauren Templeton (see below) – the video was published on Mar 6, 2017:

Lauren Templeton: “Investing the Templeton Way” | Talks at Google (click here)

In it, Lauren talks about The Marshmallow test. The child is given the choice to either eat the marshmallow now or he can wait and not eat. If he succeeds in not eating it, he will be rewarded with a second marshmallow.

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Basically, it is about delay gratification. People have trouble controlling themselves. It is difficult dealing with all these stress hormones (emotions) in times of panic (eg. very difficult to buy at the bottom of the market).

Interestingly, some of the bigger companies in the US (including Berkshire Hathaway) are sitting on an awfully big pile of cash.

Warren Buffett reveals what’s holding him back from putting Berkshire’s $90 billion in cash to work (read here)

Apple’s cash hoard swells to record $256.8 billion (read here)

US corporate giants hoarding more than a trillion dollars (read here)

 

As for me, despite the feeling mentioned at the start of the post, I think now is a good time to ‘tidy up’ my stock portfolio. To sell the stocks whose fundamentals and growth stories have deteriorated. I don’t think I will sell all my stocks… I still any overall ‘collector’ of stocks for the long haul.

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room HDB flat.
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