People Are Forgetful...

Its amazing how property prices in Singapore have moved up so quickly so fast ever since the last crisis caused by a property bubble bursting in US. Guess people are forgetful. People have forgotten how a $980,000 property bought in 1997 is valued only at $450,000 in 2003. 

Monthly repayments for home is affordable now because the crisis since 2008 is not fully resolved. Too much  money have been spent on resuscitating the economy to risk another collapse and most government is wary about rising interest rates too fast too soon. This has driven cheap money into the economy giving people the ability to buy more expensive houses, driving up the demand. Of course this always brings out the emotions in people and making them blind to the fact that property is still an asset and there is a possibility of prices going down.

With the cooling measures just introduced, it does not have much effect on the market. People seem to be still wanting more exposure into property.. its probably because monthly repayments are still affordable. 

Lets take for example, Buying a property that cost $1 million. Lets say being a first owner, you get to purchase your property with a 80% loan. The bank lends you $800,000. Your monthly repayment based on an interest rate of 1.5% for a 30 years term is estimated to be about $2,757.

An increase of 0.25% in the loan interest rate will move the repayment up to estimated $2.849. Bring the interest rate up to the point where it was in 2007 where lowest interest rate is probably 3%, monthly repayment estimated about $3,364 (3% is only for first year then)

This is for first timers, I do not even want to mention for those who buying second property having shorter repayment terms and higher duties. 

Inevitably when the interest moves up there will be less people being able to afford houses thus driving down demand thus bringing down the property prices, thus causing people to panic sell, thus having fire sales when people cannot pay up (we hope there is less fire sale compared to 2003), unless of course the government sticks to the promise of 6.9 million population which so many property owning Singaporeans are so against....

So when will interest rates move up? Its when economies are doing well, inflation is increasing, to cool an overheated economy governments increase interest rates as one of the strategies. When interest goes up, cheap money is taken out of the economy, causing less spending bringing down inflation. When this is happening which asset class is going up? Equities! Which asset class is slowing going down, property! So doesn't diversification make sense? Then again this is in theory, but again I maintain that diversification is the way to go. 

I just can only hope that what happened in 2003 does not happen again... then again people are forgetful...

Investing? Diversify!

Just sold off some investments I did 2 years ago in funds. Did these investments with a bank I was before. Been sometime I looked at it and thought now is a good time with the whole Cyprus issue and all.

Walked into the bank and asked for my portfolio. I glanced at the printed copy of my portfolio and was dismayed to find a particular fund that showed -12% under the rate of return column. Looked at the fund that was at negative 12%, Global Property. Alamak since when I have this fund man! Probably I did, it was one of those decisions I made that since global property has been going down the only way is up. Wrong call....

Glanced at the other funds I had. An asian managed dividend paying fund and a Singapore fund. 5% (excluding the dividends I got over 2years) and 29% respectively. Woohoo! Whatever losses I made in the property fund is nicely covered by my other 2 funds.

I have been an advocate of long term investments (though 2 years ain't that long term, but this is tactical asset allocation), diversified asset allocation and dollar cost averaging. This strategy has helped give potential returns of about 10% per year. Though like they say past experience is not indicative of future performance, but diversification has helped all the time.

Some of you may argue that Tang 10% could be something I do in an hour. Sure but will you tell me if you lost 10% in an hour? The fact is if something can give you a potential return of 10% in an hour it also potentially can give you 10% losses in the same hour. And that, like I have mentioned in my previous post is not investment but speculation.

And again it is not wrong to speculate, but do so only when you have core financial planning done then go speculate, knowing that losing 10% in an hour is not going to affect future plans. In fact, even if you lost all your money in the casino or spent it on all the quick picks in every Singapore Pools in Singapore for the 10 million price draw, you are rest assured that future plans will not be affected, then go ahead do it! Come on admit it, we all dream that one day when we tio the Toto we will throw resignation letter in our bosses face.

I have secretly dreamed that if I did tio the Toto, I will photocopy and blow up my Toto ticket and paste it behind me in my work station, then chill and do minimal work just to hit KPI, just to justify my existence. My winnings left in a dividend paying fund drawing 4%, for every million it is $40,000, can sustain my daily living and working is just getting more money from the company. Boss walks out of the room and say Tang your performance not up to standard, without looking at him, I use my thumb to beckon him to look at my winning ticket. Boss no choice walks back into room. If only....

Sigh...

But that was corporate life. Now I am the boss, resignation letter I throw in my own face :).

So before you foray into investments ask yourself some questions:

1. How long is my time horizon?
2. Is my core financial portfolio in place?
3. How much am I able to lose?
4. Is the investments I am going into diversified?

There are many solutions that fit different needs and risk profile so start taking action, because what you do today will impact your future.

Chinese New Year is Over

Well CNY 2013 was gone in a flash. The kgs put on also came in a flash. The season is changing once again and the heat seems to be back.

And I am going to Korea tomorrow! Stay tuned for my next escapade to Korea! Its great that most of my airfare and some of my accommodation is paid for. Woohoo!