Tuesday, August 31

New restrictions on property market by Government

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Below is a summary of the regulations introduced by the Government over the National Day Rally and the increase of supply of flats by HDB.








  • For the purchase of a second property while still one is still servicing an existing mortgage, an upfront payment of 30% of the valuation must be placed - at least 10% in cash, the rest from CPF. Previously, it was 20% of the valuation with at least 5% in cash.
  • A minimum occupation period (MOP) for your HDB flat must passed before you can invest in private property. Previously, it was 3 years.
  • Private property owner who buys a HDB resale flat must sell the private property within six months of the purchase of the HDB resale flat.
  • Those who sell any private property within 3 years of buying it must pay a stamp duty of up to 3% of the sale price. Previously, the seller's stamp duty applied only for resale within one year of purchase.
  • HDB will offer 38,000 new flats in the next 2 years which includes BTO, DBSS and EC and the waiting time for BTO flats will be reduced by 6 months from 3 years to 2.5 years.
I do think that the restrictions are quite substantial. In my opinion, we are having a housing bubble now and bubbles can be irrational and unpredictable as it depends on how the market perceives and reacts to the news. Supply and demand has some influence over the price too but the price may take some time to adjust and correct. In the short term, the price may still hover near the high region. But as I have been blogging about how the Government is increasing the supply and lowering the demand for the past articles, the price is likely to fall over a longer period of time such as in a few years time.

Wednesday, August 25

Deposit products to interest the savers

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Deposit products to interest the savers
By Francis Chan, Companies Correspondent
The Straits Times, 25 Aug, 2010, Wednesday

BANK depositors are being warned that measly interest rates on savings are not likely to rise this year.

But they can take some comfort from innovative new deposit products at some banks that offer higher rates as a way to lure savers.

Besides offering promotional rates from time to time, more banks are rolling out special savings programmes with slightly higher returns to cater to different customer needs and demographics.

For instance, to celebrate its 75th anniversary, United Overseas Bank is offering to pay interest of 0.75 per cent a year for fresh deposits starting from $10,000.

That may still sound like a fairly modest return, but it compares favourably with basic savings accounts that typically pay as low as 0.1 per cent a year in interest.

Some of these new deposit products return as much as 1.3 per cent a year for two-year fixed deposits, while others come with a monthly savings plan or even free insurance coverage.

Interest rates for garden variety savings accounts have not risen above 1 per cent a year since August 2001, when banks were paying, on average, 1.28 per cent.

Monthly average savings rates have also been on a downward trend since 2006, falling from 0.26 per cent.

Based on latest figures compiled by the Monetary Authority of Singapore from 10 financial institutions, savings accounts earned an average of 0.16 per cent a year in January, before slipping to a dismal 0.14 per cent from February to last month.

Savers hoping for a higher yield from their hard-earned cash will have to look elsewhere as interest rates for run-of-the-mill savings accounts are unlikely to rise at least within the year, say industry experts and observers.

‘Banks here – especially the local institutions – are very well-capitalised, so they have little incentive to offer high returns when taking deposits from savers,’ said a former independent financial adviser-turned-private banker.

He added: ‘This is unless they have a sudden need to raise capital for a particularly large financing deal they are hoping to close.’

Despite the meagre interest rates from savings accounts, experts like Mr Brian Goh of iPac Financial Planning still see them as an important tool for any investor or saver, especially when coping with rising inflation.

‘When you take it out of the bank, it will be eaten up by inflation, which is going to rise by between 3 and 5 per cent,’ said Mr Goh, a senior vice-president at iPac.

‘We need to remember that capital preservation and the ability to handle loss of capital, especially if it is a permanent loss, is just as important as growing your wealth.’

A survey by The Straits Times has found that Malaysian lender CIMB Bank has one of the highest interest rates on offer in Singapore.

According to the bank’s website, its latest promotion offers a rate of 1.3 per cent a year for a 24-month fixed deposit, but customers will need to put in a minimum of $10,000 and maintain that amount over the next two years.

At Maybank, customers can enjoy a rate of 0.75 per cent if they deposit a minimum of $10,000 for one year.

And to cater to customers above 50 years of age, Maybank’s Privilege Plus Savings Account offers a rate between 0.4375 per cent and 0.5 per cent a year, with a bonus of free personal accident insurance coverage for eligible customers.

Local lender OCBC Bank pays 0.688 per cent for a nine-month time deposit or 0.788 per cent for a 14-month term.

Another offering from the bank is OCBC MSA 123, a monthly savings account that comes with terms of 13 months, 24 months or 36 months.

They offer rates of between 0.6 per cent and 1 per cent a year. Customers start earning interest by making monthly contributions of $50 to $5,000.

Head of deposit at OCBC Bank, Ms Chng Bee Leng, said such promotions can still help customers maximise their returns while staying liquid in a low interest rate environment.
For the latest auction result, the average yield of the SGS 3 months and 1 year Treasury Bill were at 0.24% and 0.42%. As such, the rates of the fixed deposits offered by the banks above are quite attractive.

Monday, August 16

Why rising property prices are not healthy for the majority

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HDB's Historical Resale Price Index (RPI) Chart

At the end of the previous month, HDB just released the latest update of the Resale Price Index (RPI) and this latest update shows that the RPI has increased by another 4.1% in the Q2 of 2010. The chart above shows the historical RPI and as you can see, the RPI is some way above the previous peak already.

I noticed that many have the misconception that rising flat prices are beneficial since it makes them richer, or at least on paper. After all, the current flat prices are way higher than the original buying price. But that is only true if you own more than one property.

Let's say you own a 5 room HDB flat and that HDB flat is the only piece of property you own and you are currently staying in it. The market price is much higher than the original price which you have bought it. Thus you can sell it and profit from the difference between the market price and the original price which you have bought it. But after selling your HDB flat, where are you going to stay in ? Assuming all things equal, it is not possible that you can get another 5 room HDB flat at a lower price. Well, you can buy another 5 room HDB flat at a cheaper location at a lower price and profit from the difference but the similarity ends here. The profit that is gained does not come from the rising market prices but from the disparity between the locations.

Well, it is possible that you can buy a 4 room HDB flat and since a 4 room HDB flat is cheaper than a 5 room HDB flat, you can profit from the difference. But it is the same as the previous example since the profit that is gained comes from the disparity between the size of the flats and not from the rising market prices.

As such, only those who own more than one property has the potential to benefit from rising market prices. This group of people are not bounded by where they are staying in. As such, they can stay in one property and use the other properties they own to sell at a higher price and not be forced to buy another one at a high price so that they can have a place to stay. Thus, they can capitalize on the market by selling their other properties at a higher price and wait for the market to fall so they can buy properties at a lower price. Unfortunately, the majority of the public do not belong to this group.

Wednesday, June 30

BP: Short-sightedness of the stock market

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I'm sure that everyone is familiar with the oil company, BP even before the recent oil spill disaster in the Gulf of Mexico, which has been making the headlines beside the World Cup. The oil spill disaster has and will cause BP to pay billions in damages. With such a consequence, it is not surprising that the share price has taken a huge tumble from its recent peak of around $60 to its current price of around $28.



From a general point of view, without doing an in-depth analysis of the financials and business model of BP, I would say that the market is short-sighted with regards to the share price of this company. Why ? The main question for me will be, is the long term profitability of this BP being threatened ?

We don't have to look far back to see examples that are analogous to this. The SARS period that occurred in 2003 caused a decline in the stock market. This was because SARS represented a health threat worldwide. Companies that were affected by this includes those in hotels, tourism and aviation industries since people were very reluctant to travel and venture out due to the fear of catching SARS. On the other hand, there were companies who benefited from SARS and these companies are mainly in the healthcare and services segment. On hindsight, the market is rather short-sighted. This is because, all crises will eventually end although the time taken for the crises to end may be rather long. And if the crises only affects the companies temporarily but the long term profitability of these companies are not affected, the depressed stock prices of these companies may prove to be a bargain. As the SARS crisis ended, the stock market began to bounce back. Thus, those who managed to pick up bargains, benefited from the short-sightedness of the stock market.

Now given this example of the SARS period, do you think that the stock market is being too short-sighted on the long term profitability of BP ?

(The opinion expressed by the writer does not constitute an endorsement of the purchase or sale of the stock mentioned in the article. One should do a thorough research and analysis before deciding on any investment decisions)

Monday, June 7

Credit Card Debts

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I read with interest on the article titled "Younger Singaporeans biggest debt defaulters" posted on Channel NewsAsia. This article talks about percentage of default for the age group ranging from 21-29 years old has the highest rate of defaults among the other age groups.

This is the age group where most of them have just graduated and are heading to the working force. It is at this stage they suddenly have much more disposable income to spend on as compared to before thus they may not have experience in dealing with credit cards and doing budgeting. Besides, they may not be well informed in the area of personal finance and it is not a wonder that this group may be the most susceptible to the ills of credit cards usage. Here are some opinions of mine regarding the usage of credit cards.

1. Spend only what you have
As the title suggest, it means that one should not even own a credit card. Otherwise, one can stick to using a debit card instead, which means that one only spend within their means. Well, it may not be reasonably practical to refrain from using a credit card since nowadays, credit cards come with a lot of privileges and perks which may save you money such as discounts at restaurants and shops, reward points and other promotions. In that case, that will bring me to my next point.

2. Pay off all outstanding balance in full
The killer here is the exorbitant interest rates which cause many to default on their debts once they are unable to keep up with the interest payments. Generally, the interest rate is around 2% monthly or 24% yearly on the outstanding balance and that is very hefty. As such, make it a point to always pay off the outstanding balance and do not let the banks earn any interest at all.

In the event that you are not able to keep up your credit card debts and the outstanding balance is beginning to snowball, do not use another credit card to pay off the debts of another credit card. Try to seek help immediately from your loved ones or friends since frankly speaking, loans from them usually carry no interest. In this sense, you are changing your debtors from the banks to that of your loved ones, who are more likely to help you out.

Otherwise, you can give the Credit Counseling Singapore here. I believe they can work out a practical debt payment plan with the banks and can also try to negotiate for a lower interest rate, which will be helpful in solving your credit card debts.
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