Had an interesting discussion with an investor last night and learn some different views which I would like to share. An investor's view are always valuable as they usually have a better feel of the economy than an ordinary folk.
From recent news, the Singapore Government had halt some construction projects worth some S$2billion in the fiscal year (or next couple of years). Reasons for the postpone are due to:
- Lack of construction force as most companies have their hands full of projects for the next few years.
- High construction cost due to lack of construction materials.
- Competing with other on-going or upcoming development projects could be bad
In recent year or so, a lot of new projects have arisen. With two Integrated Resort (IR) projects, development companies are badly stretched with manpower, high development budget, deadline, etc. Other residential development projects are moving slowly too.
A lot of en-bloc exercise was seen in the last two years, ranging from East Coast to Central/Prime Districts. Many condominiums that underwent en-bloc had been vacant, but have yet to be torn down and these will be in the developers' pipeline for years to come.
A lot of home owners had to seek new homes after their properties had been acquired. The new found wealth of these owners caused an upswing in property prices as they are now armed with large funds.
As homes were acquired and no newly completed properties available, it leaves Singapore with lesser homes in the last one year. To make matter worst, Singapore faces an average of 100,000 migrants a year. These migrants needs to be housed too.
Some properties that underwent redevelopment, will start to fill the market in the coming two years. Does this ensure an adequate supply of homes? Singapore has an estimate of 1.2million homes (being more than 800,000 public housing, more than 300,000 private housing) occupied by the current 4.55million population. With influx of 100,000 migrants per year, we will need at least 10,000 new properties (assuming, half of these are construction workers housed in dormitories).
With the IR scheduled to open in Year 2009, rental demands will increase. Some redevelopment projects will be completed next year (2008) but this may not be able to fill the new demands.
With this, shouldn't the demand and supply cause property prices to continue growing? However, property prices has soften recently due to turbulence in global economy (especially US) and market talk had it that, next year (2008) will see a slight downward pressure on property prices due to the worrying signs of global economy.
Property prices had climbed fast in the last one year, but demand had started to slow down in the last three months. Based on current property prices, it leaves many average being unable to afford to purchase a home.
The government stepped in this week, announcing new public housing projects in the pipeline, plus two Executive Condominium projects also in the pipeline. This can help provide new housing for the average and public housing owners to upgrade.
What will really happen in the next two years? How will the economy be like? Property? Will the US' credit crunch affect Singapore drastically? Let's hope US is able to prevent their recession (I shall provide more info from Mr Ben Bernanke's comments in another post).
Friday, November 30, 2007
Thursday, November 29, 2007
Singapore's Property and Loan Market (not sub-prime prone)
As mentioned many times in the news, the America's sub-prime are caused by falling property value and increasing loan defaulters.
A recap of sub-prime
During better times (not long ago):
- Banks were providing high loan (up to 100% Loan to Value) against properties to home buyers
- Interest rates during the initial years was low
- Economy was doing well
The Meltdown (largely, in late Year 2006 onwards)
- Property value reach the peak and starts falling
- Loan to Valuation exits property value (loan being more than 100% of property value now)
- High interest sets in
- Borrowers starts to have problem paying
- Borrowers turns to other credit facilities, eg, credit cards
- All else fails, borrowers default on loan
- Value of property falls further (low demand, high supply)
- Other financial business faced the crunch together with home loans
Singapore's Property Loan
How Singapore deviate from such a loophole, has much to thank to the Monetary Authority. Property loan regulation disallow high loans such as 100% Loan to Valuation (LTV). Up to Year 2005, banks are only willing to provide 80% LTV and starts to relax towards 90% LTV in early 2006.
During the late 1990s, property prices was at an all time high (eg, $2,000psf in prime districts). During the triple economy downturn (Asian Currency Crisis, 911 and SARS) in Asia, especially Singapore, the same property's value fell to a low of around $1,200psf). Demand for property in 2003 and 2004 was at an all time low, with almost very little buyers against many sellers (who couldn't hold on any further).
The economy started recovering in Yr 2004, with Gross Domestic Product growth over Yr 2003 being 12.8% (source : http://www.singstat.gov.sg/pubn/reference/yos/statsT-income.pdf). Demand for property started recovering in Yr 2005 with value stablizing in Yr 2004.
Property value saw a steep climb since late 2006 with many en-bloc exercises spreading from East Coast. En-bloc exercises reached prime District areas (such as Orchard Road, Newton, etc) in Year 2006 till August 2007. Some property's value climbed 150%, e.g, The Sail was launch at about $700psf region and peaked at about $1,800psf, The Icon was launch at about $600psf and reached beyond $1,500psf.
The government scrapped the Deferred Payment Scheme for new developments recently (early November). This can work to stop the runaway by average speculators who are keen to jump into the bandwagon. Ever since, property's value and transaction has stablized.
Had Singapore's banking sector not had strong and sounding regulation, with strict lending policies, our tiny economy may face the same downfall of Sub-prime.
Credit Assessment
In order to obtain property loan, banks usually look at the borrower's Debt Servicing Ratio (DSR). As a general rule of thumb, the DSR shouldn't be more than 50% of the combined Gross Income. The 50% takes into account, all loans including property and car mortgage.
Banks also looks at the individual's past credit report. Any bad credit rating could mean that the individual may face a rejection in his application. Banks also are concern of any litigation the individual may have.
These are just some indicators before banks gives an approval for loan application.
As individuals, we should learn to be financially stable. Good financial sense may not make everyone richer, but it can help us be less poor. Good financial sense includes knowing how to stretch our dollar, setting aside a part of our income to investment, not be drawn to spend unnecessary, planning our finances, etc.
A recap of sub-prime
During better times (not long ago):
- Banks were providing high loan (up to 100% Loan to Value) against properties to home buyers
- Interest rates during the initial years was low
- Economy was doing well
The Meltdown (largely, in late Year 2006 onwards)
- Property value reach the peak and starts falling
- Loan to Valuation exits property value (loan being more than 100% of property value now)
- High interest sets in
- Borrowers starts to have problem paying
- Borrowers turns to other credit facilities, eg, credit cards
- All else fails, borrowers default on loan
- Value of property falls further (low demand, high supply)
- Other financial business faced the crunch together with home loans
Singapore's Property Loan
How Singapore deviate from such a loophole, has much to thank to the Monetary Authority. Property loan regulation disallow high loans such as 100% Loan to Valuation (LTV). Up to Year 2005, banks are only willing to provide 80% LTV and starts to relax towards 90% LTV in early 2006.
During the late 1990s, property prices was at an all time high (eg, $2,000psf in prime districts). During the triple economy downturn (Asian Currency Crisis, 911 and SARS) in Asia, especially Singapore, the same property's value fell to a low of around $1,200psf). Demand for property in 2003 and 2004 was at an all time low, with almost very little buyers against many sellers (who couldn't hold on any further).
The economy started recovering in Yr 2004, with Gross Domestic Product growth over Yr 2003 being 12.8% (source : http://www.singstat.gov.sg/pubn/reference/yos/statsT-income.pdf). Demand for property started recovering in Yr 2005 with value stablizing in Yr 2004.
Property value saw a steep climb since late 2006 with many en-bloc exercises spreading from East Coast. En-bloc exercises reached prime District areas (such as Orchard Road, Newton, etc) in Year 2006 till August 2007. Some property's value climbed 150%, e.g, The Sail was launch at about $700psf region and peaked at about $1,800psf, The Icon was launch at about $600psf and reached beyond $1,500psf.
The government scrapped the Deferred Payment Scheme for new developments recently (early November). This can work to stop the runaway by average speculators who are keen to jump into the bandwagon. Ever since, property's value and transaction has stablized.
Had Singapore's banking sector not had strong and sounding regulation, with strict lending policies, our tiny economy may face the same downfall of Sub-prime.
Credit Assessment
In order to obtain property loan, banks usually look at the borrower's Debt Servicing Ratio (DSR). As a general rule of thumb, the DSR shouldn't be more than 50% of the combined Gross Income. The 50% takes into account, all loans including property and car mortgage.
Banks also looks at the individual's past credit report. Any bad credit rating could mean that the individual may face a rejection in his application. Banks also are concern of any litigation the individual may have.
These are just some indicators before banks gives an approval for loan application.
As individuals, we should learn to be financially stable. Good financial sense may not make everyone richer, but it can help us be less poor. Good financial sense includes knowing how to stretch our dollar, setting aside a part of our income to investment, not be drawn to spend unnecessary, planning our finances, etc.
Tuesday, November 27, 2007
Online Shoppers/Spenders Out In Force
It was reported that there was a surge for online shopping over the weekend. This could imply that shoppers are choosing to bypass heavy advertising, logistical and rental cost of retailers that is pass onto customers.
Online shopping may appear cheaper than buying from shops but shipping cost may equal that or reduce the savings. As spenders starts tilting towards online shopping, it may be a good sign, that these shoppers are getting savvy with their money, to avoid paying unnecessary higher cost.
However, there are two things negative thoughts that crossed my mind. Would this mean retailers will start to suffer the blunt of lesser business, thereby less job creation? Also, as people shop online, they are spending on credit. This may attribute further to the credit woes of some. Credit card users often overspend due to the transparent credit spending till month end.
The US economy comprises of about 25% of the total world activity, with consumers being responsible for about 70% of US economy activity. Any pull back in spending could lower global growth, especially in countries relying heavily on exports to US. The impact of the US economy is a concern to many parts of the world.
Let's hope unemployment does not rise sharply as it will aggravate the economy further, and closer to a possible recession. "As to whether a US recession would spill over to the rest of the world, opinions are split,'' says Marco Annunziata, chief economist at UniCredit Markets. "Some strongly believe in decoupling and look forward to watching the giant collapse, while the rest of the world powers on, while others believe we would all be hurt.'' (source : http://news.yahoo.com/s/ft/20071124/bs_ft/fto112320072258005142;_ylt=ApxCE3zxyXbboav1Oi3mQryyBhIF)
Online shopping may appear cheaper than buying from shops but shipping cost may equal that or reduce the savings. As spenders starts tilting towards online shopping, it may be a good sign, that these shoppers are getting savvy with their money, to avoid paying unnecessary higher cost.
However, there are two things negative thoughts that crossed my mind. Would this mean retailers will start to suffer the blunt of lesser business, thereby less job creation? Also, as people shop online, they are spending on credit. This may attribute further to the credit woes of some. Credit card users often overspend due to the transparent credit spending till month end.
The US economy comprises of about 25% of the total world activity, with consumers being responsible for about 70% of US economy activity. Any pull back in spending could lower global growth, especially in countries relying heavily on exports to US. The impact of the US economy is a concern to many parts of the world.
Let's hope unemployment does not rise sharply as it will aggravate the economy further, and closer to a possible recession. "As to whether a US recession would spill over to the rest of the world, opinions are split,'' says Marco Annunziata, chief economist at UniCredit Markets. "Some strongly believe in decoupling and look forward to watching the giant collapse, while the rest of the world powers on, while others believe we would all be hurt.'' (source : http://news.yahoo.com/s/ft/20071124/bs_ft/fto112320072258005142;_ylt=ApxCE3zxyXbboav1Oi3mQryyBhIF)
Tuesday, November 20, 2007
Mortgage & Foreclosure
Mortgage Payment Problems
From online news, it is stated that the three most affected states (in U.S) reveal the two main causes of mortgage payment problems: economic weakness, as exemplified by Ohio, and speculative excess that led to high home prices and unaffordable mortgages, as represented by California and Florida.
Slowing Economy
All signs have indicated that the US economy is worrying. This range from sub-prime (and credit) to slowing economy (job losses). Some companies and plants have closed, job losses have risen, and both have hit some states' economy real hard.
Subprime Mortgages and Potential Defaulters
Statistics have show that there are about 7.2 million households with subprime mortgages, and more than 14 percent of those are in default. It projects that one of every five of those loans issued in 2005 and 2006 will end in foreclosure, with 2.2 million families losing their homes
Back Home - Singapore
Coming back to Singapore, the government recently intervent into the property boom, with runaway prices. To speculators/investors, this may not be a good sign, but for the overall economy, we have to agree that it will avoid our tiny city state from a property meltdown years down the road.
The problem is, a lot of people (ignorant speculators) bite more than what they can chew, forgetting that what they chew will bite them back when they have difficulties. Why live in self-deception that our salary will increase by the years (this is old school of the 90s) thus we can afford to live on the line and things will improve next year? These people are the ones hardest hit when there is a turn in the economy (for the worst).
Tips to Avoid Foreclosure Or Lender's Legal Suit
1. Don't Ignore The Problem
Identify the problem and deal with it sooner. The longer you drag, the more likely you'll get into trouble with your lender.
2. Contact the Lender
Lenders are not out to make a borrower a bankrupt or to seize your property. Negotiate with them a solution/package.
3. Open and Response to Mails from Lenders
Warnings/Reminders will be given by lenders before they take action. Act before they do.
4. Know your Option
Should a borrower be haul to Court, know what your options are. Bankrupcy is the last option and should be avoided.
5. Consult People With Better Insights
When one is in trouble, their mind is usually clouded. Consult someone or a professional who has a clear mind and more knowledgeable.
6. Reduce Liabilities While You Can
Why wait till you have lost ground before acting? Rid your financial burden (eg, car) to give yourself more financial ability to deal with the forecoming problem.
7. Prioritize or Restructure Your Spending
Refer to my other post, "Ways To Save" to see how you can reduce expenses/spending. The spare funds will go a long way.
8. Forget About Pride and Ego
Many falls into this trap and not seek or listen to sound advise. I've come across such individuals till situation gotten so bad. There's no big deal in loosing it all today, as you can gain it all back one day if you buck up and learn how to better manage your finances.
From online news, it is stated that the three most affected states (in U.S) reveal the two main causes of mortgage payment problems: economic weakness, as exemplified by Ohio, and speculative excess that led to high home prices and unaffordable mortgages, as represented by California and Florida.
Slowing Economy
All signs have indicated that the US economy is worrying. This range from sub-prime (and credit) to slowing economy (job losses). Some companies and plants have closed, job losses have risen, and both have hit some states' economy real hard.
Subprime Mortgages and Potential Defaulters
Statistics have show that there are about 7.2 million households with subprime mortgages, and more than 14 percent of those are in default. It projects that one of every five of those loans issued in 2005 and 2006 will end in foreclosure, with 2.2 million families losing their homes
Back Home - Singapore
Coming back to Singapore, the government recently intervent into the property boom, with runaway prices. To speculators/investors, this may not be a good sign, but for the overall economy, we have to agree that it will avoid our tiny city state from a property meltdown years down the road.
The problem is, a lot of people (ignorant speculators) bite more than what they can chew, forgetting that what they chew will bite them back when they have difficulties. Why live in self-deception that our salary will increase by the years (this is old school of the 90s) thus we can afford to live on the line and things will improve next year? These people are the ones hardest hit when there is a turn in the economy (for the worst).
Tips to Avoid Foreclosure Or Lender's Legal Suit
1. Don't Ignore The Problem
Identify the problem and deal with it sooner. The longer you drag, the more likely you'll get into trouble with your lender.
2. Contact the Lender
Lenders are not out to make a borrower a bankrupt or to seize your property. Negotiate with them a solution/package.
3. Open and Response to Mails from Lenders
Warnings/Reminders will be given by lenders before they take action. Act before they do.
4. Know your Option
Should a borrower be haul to Court, know what your options are. Bankrupcy is the last option and should be avoided.
5. Consult People With Better Insights
When one is in trouble, their mind is usually clouded. Consult someone or a professional who has a clear mind and more knowledgeable.
6. Reduce Liabilities While You Can
Why wait till you have lost ground before acting? Rid your financial burden (eg, car) to give yourself more financial ability to deal with the forecoming problem.
7. Prioritize or Restructure Your Spending
Refer to my other post, "Ways To Save" to see how you can reduce expenses/spending. The spare funds will go a long way.
8. Forget About Pride and Ego
Many falls into this trap and not seek or listen to sound advise. I've come across such individuals till situation gotten so bad. There's no big deal in loosing it all today, as you can gain it all back one day if you buck up and learn how to better manage your finances.
Year End Bonus
As we approach December, many are looking forward to their year end bonus. With a better economy over the last 2 years, some are looking at more than 1 month's bonus.
An unplanned windfall will likely be squandered away unknowingly. Some plans a year end holiday, some shopping, buying some stuff they've been waiting for (money from bonus), save, etc.
While we should reward ourselves after a year's hard work, we should also plan to leave some money aside to reward ourselves later. With money set aside and invested, we will have more to reward ourselves while others are waiting for another year's bonus.
Time to relook at how we could best stretch our dollar and make a new year's resolution to be more savvy financially.
An unplanned windfall will likely be squandered away unknowingly. Some plans a year end holiday, some shopping, buying some stuff they've been waiting for (money from bonus), save, etc.
While we should reward ourselves after a year's hard work, we should also plan to leave some money aside to reward ourselves later. With money set aside and invested, we will have more to reward ourselves while others are waiting for another year's bonus.
Time to relook at how we could best stretch our dollar and make a new year's resolution to be more savvy financially.
Thursday, November 15, 2007
Taxation Helps Rich Get Richer
Governments generates their revenue from taxation. There are two main category of tax, Corporate Tax and Individual tax. For Individual tax, it includes direct income tax and consumption tax. Income tax is calculated based on the amount earned during the year while consumption tax (e.g. Goods & Services Tax) is based on what you consume.
The Singapore GST originated on 1 April 1994, at 3%, but later increased to 4% on 1 Jan 2003 and 5% on 1 January 2004. it was raised again to 7% on 1 July 2007.
Looking at the timing of GST, during early 2003, Singapore was slowly and painfully climbing out of the economy scars of the terrorist act on 11 Sept 2001, where unemployment was high. On 1 Jan 2004, the country was just recovering from Sever Acute Respiratory Syndrome, SARS.
History evidenced that taxation was punishing the average. During election time, the government usually promises reducing tax or not increasing tax and many will be silly to be taken in. The rich on the other hand doesn’t really care as they does not suffer from the blunt of taxation. They could jolly well afford it anyway.
Reading from news, Nov. 14 (Bloomberg) -- Warren Buffett called on Congress to maintain the estate tax, saying that plans to repeal the levy would benefit a handful of the richest American families and widen U.S. income disparity. Buffett said that in the last 20 years, tax laws have allowed the ``super-rich'' to get richer.
I’ve brought up tax in my post not as a voice of disconsent towards the government but asking many, you work so hard to make that little money just to be taxed and be left with little. Why not look at ways to make your money work hard for you so that tax is no longer painful?
Remember, your savings in the bank depreciates by 3% (inflation) each year while it depreciates a further 7% when you spend it (GST). Why not find avenue to invest and grow this money into something double or triple of what you many loose, so that at the end of the day, you gain more than you lost?
Many choose to remain stubbornly 'ignorant' by refusing opportunities. The choice is yours. I've choosen mine. Each day we procrastinate, is our own lost.
The Singapore GST originated on 1 April 1994, at 3%, but later increased to 4% on 1 Jan 2003 and 5% on 1 January 2004. it was raised again to 7% on 1 July 2007.
Looking at the timing of GST, during early 2003, Singapore was slowly and painfully climbing out of the economy scars of the terrorist act on 11 Sept 2001, where unemployment was high. On 1 Jan 2004, the country was just recovering from Sever Acute Respiratory Syndrome, SARS.
History evidenced that taxation was punishing the average. During election time, the government usually promises reducing tax or not increasing tax and many will be silly to be taken in. The rich on the other hand doesn’t really care as they does not suffer from the blunt of taxation. They could jolly well afford it anyway.
Reading from news, Nov. 14 (Bloomberg) -- Warren Buffett called on Congress to maintain the estate tax, saying that plans to repeal the levy would benefit a handful of the richest American families and widen U.S. income disparity. Buffett said that in the last 20 years, tax laws have allowed the ``super-rich'' to get richer.
I’ve brought up tax in my post not as a voice of disconsent towards the government but asking many, you work so hard to make that little money just to be taxed and be left with little. Why not look at ways to make your money work hard for you so that tax is no longer painful?
Remember, your savings in the bank depreciates by 3% (inflation) each year while it depreciates a further 7% when you spend it (GST). Why not find avenue to invest and grow this money into something double or triple of what you many loose, so that at the end of the day, you gain more than you lost?
Many choose to remain stubbornly 'ignorant' by refusing opportunities. The choice is yours. I've choosen mine. Each day we procrastinate, is our own lost.
Wednesday, November 14, 2007
Splurging on Luxury Items Up - The Forgotten Lesson
Was reading The Business Times today (14 Nov 07) and an article caught my eye. The article "Splurging on luxury items up 29% in Q2" (source http://www.businesstimes.com.sg/sub/news/story/0,4574,256422,00.html) goes to reflect consumer's confidence in the economy. I ponder over that confidence. Still water runs deep, and peace before the storm, rings in my head.
The Business Times article stated
1) "Sales of luxury timepieces, jewellery and designer fashion items, as well as takings at fine dining establishments, were 29 per cent higher in the second quarter of 2007". Does luxury timepieces, jewellery and designer fashion appreciate in value that one can pawn away for money during bad times?
2) Apart from tourist spending on luxury items, the locals accounted for 64 per cent of luxury watch sales, 71 per cent of high-end jewellery sales, 72 per cent of designer fashion sales and 74 per cent of fine dining billings
In the last 1-2 years, we have seen a lot more luxury cars (e.g. Lamborghini, Ferrari, high end Merc, 7-series BMW, etc) on the road. While businessmen are making more money, the average are taking extra month(s) of bonus. With the little extras the average gotten, their spending increased tremendously. Spending has gone up, cost of goods have gone up too (due to recent inflation). That largely means, as they make more, they spend even more and save even lesser.
I am not suggesting that, the economy will collapse or turn into a recession in the next few months or a year. I just wonder, has people not learnt from the Asian Crisis and two other impact that brought our economy near its knees.
I recall reading in Robert Kiyosaki's book, Cashflow Quadrant, that suggested people will quickly forget painful lessons learnt when times are good and start spending again. This seems to be a childhood story of the hardworking ants and lazy grasshopper.
While some are happily spending and pampering themselves now, I shall look closely at growing my money and spending it later. Another thing came to mind, spending later, when the economy isn't doing as well, means, I won't have to pay the premium like everybody is paying now (Demand and Supply).
The Business Times article stated
1) "Sales of luxury timepieces, jewellery and designer fashion items, as well as takings at fine dining establishments, were 29 per cent higher in the second quarter of 2007". Does luxury timepieces, jewellery and designer fashion appreciate in value that one can pawn away for money during bad times?
2) Apart from tourist spending on luxury items, the locals accounted for 64 per cent of luxury watch sales, 71 per cent of high-end jewellery sales, 72 per cent of designer fashion sales and 74 per cent of fine dining billings
In the last 1-2 years, we have seen a lot more luxury cars (e.g. Lamborghini, Ferrari, high end Merc, 7-series BMW, etc) on the road. While businessmen are making more money, the average are taking extra month(s) of bonus. With the little extras the average gotten, their spending increased tremendously. Spending has gone up, cost of goods have gone up too (due to recent inflation). That largely means, as they make more, they spend even more and save even lesser.
I am not suggesting that, the economy will collapse or turn into a recession in the next few months or a year. I just wonder, has people not learnt from the Asian Crisis and two other impact that brought our economy near its knees.
I recall reading in Robert Kiyosaki's book, Cashflow Quadrant, that suggested people will quickly forget painful lessons learnt when times are good and start spending again. This seems to be a childhood story of the hardworking ants and lazy grasshopper.
While some are happily spending and pampering themselves now, I shall look closely at growing my money and spending it later. Another thing came to mind, spending later, when the economy isn't doing as well, means, I won't have to pay the premium like everybody is paying now (Demand and Supply).
Tuesday, November 13, 2007
Ways to Save (3) – Reduce Spending
A lot of times, people doesn't stop in their track and ponder where they could save but more often than not, people complaints about not having enough to spend or save. I shall share some pointers here.
Your Home Spending
1. Spend Lesser on Home Improvement
We flip the newspaper and everyday throughout the year, we see advertisements with sales after sales. Most of us here in Singapore would love to have a huge (43”) LCD TV in our hall or room, new audio system, new computer, new furniture, etc.
Do we really need a new and better (LCD) TV when we already have a 29” conventional TV? Is the computer giving us problem or are we finding excuses to get a faster PC? Do we need to change to new furniture when the current set is only 3 years old?
Cut back on home improvement spending and you see several thousands of dollars in your bank account.
2. Cut Back on Lightings and Electricity Bills
With raising oil prices, electricity cost would have gone up as well. Two years ago, an average household may be incurring $100 utility bills a month but will be paying $130-140 a month now.
Sometimes we have too much lights switched on, and not turned off when we are done. Singapore is among the most well led country in the world (that we can hardly see stars in the sky, partly due to our cloudy sky, but also attributed to the brightly lid roads). Do we need so much lights on if we are not doing any reading?
Use the fan if it is not warm and turn on the air-conditional just before you sleep instead of turning on immediately when you enter the bedroom. Raise the air-conditional’s temperature to 25 Degree Celsius and it will still be comfortable.
3. Cut Back on Grocery Shopping or Buy House Brands
Reduce spending on tibits and snacks. It not only keeps you in shape, but also your wallet too. Buy house brands instead of imported goods (import duties), get cheaper brands, etc.
Avoid over-stocking as there is a tendency to try consuming everything faster, or some will end up in the thrash. We should be buying what we need and not always what we want. This measure could save us approximately $50 per household.
I recall there was a Governor in US living on a mere allowance for a week or month (in 2006). He had to forgo chips, his favourate coffee, no premium food stuff, no beer, etc, and found it miserable living on that little money. After the period was up, he realized that there are indeed many ways to cut down on grocery shopping and food. Kudos to him, he had to reduce his allowance to less than 20% his usual spending and still made it.
Lifestyle Spending
1. Get rid of Extra Cell Phones or Change Package
Interestingly, we are the most (or 2nd most) connected people in the world. Our population as at July 2007 stands at 4.55 million but we have 4.789 million (2006) mobile lines. (source : CIA Factbook)
Some are carrying more than 1 line to keep their bills down. In actual fact, it is cheaper to use only one line than multiple lines. Look at your 3 months bills (all phone lines) and average the total outgoing minutes per month. This will allow you to find a suitable package suiting your needs.
2. Cut down on Premium Coffee
Why spend $5 on a cup of coffee (not to mention any pastry) in a café when you can get local coffee at the coffee shop at $0.80 a cup? Instead of two trips a week to the café, reduce it to once a week, or fortnightly, this will save us a few dollars.
3. Cigarettes
Everyone knows that smoking has no benefits yet many smokes habitually. Instead of one large pack ($11.40 a pack?) a day, reduce to one pack in 3 days or even further. This will save more than $220 a month.
4. Alcohol and Clubbing/Pubbing
How often do you go partying? At least $50 goes down the drain each time one goes out partying. Why not use time wisely, find a income source, do some reading and self-improvement, etc.
Your drinking buddies are usually not the ones who stands by you when you are in trouble (except rowdy behaviours when partying). When you are down and out, your so-called buddies will shun you faster than lightning.
5. Meals
Cut down on fast-food and restaurant dining. Each fast-food meal will set you back by $6 while a meal at the local food centre will cost you $3. besides being more costly at fast-food, it has been proven that fast-food are usually less healthy (often associated to obesity).
6. Credit Cards
The convenience of Credit Cards is also a convenient way for the bank to make more money out of you. For individuals with little spending discipline, get rid of your credit card before it gets rid of you. Do not roll over any amount, pay what you spent at the end of the month. Countless of people goes bankrupt each month from credit card debt.
7. Unnecessary Memberships
Do you have any under-utilized memberships? Club membership, night spot membership, gym, car grooming, etc. All these membership cost you money with almost no privilege but additional income for such organization. Membership is a thing of the past.
8. Personal Grooming Treatments
It is important to be well-groomed. How often do you pamper yourself with Manicures, Spas, Facial, Expensive Hair Styling, etc. How much does it cost you each time you go for such packages? There’s something called, Do-it-Yourself, the DIY way.
9. Car Washes
Instead of spending $5 per wash, twice a week, why not do your own washing. It is good exercise and saves you $40 a month. We need to exercise at least 3 times a week, at an interval of 10mins each time. Car wash will take you 30 minutes each time doesn’t it?
10. Spending on Lottery
Let’s face it, how often do you strike it lucky? In contrast, how much do you spend on lottery a week? If you spend $200 a month on lottery, you could save $2,400 a year. Stop buying habitually and it is as good as a sure win of $2,400 a year.
Singaporeans are one of the most ‘committed’ gamblers in the world. We have 22 out of 30 days in November 2007 with some form of lottery. The lottery days are, TOTO on Mondays and Thursdays, 4D lottery on Wednesdays, Saturdays and Sundays, Big Sweep once a month (not to mention, horse race on Fridays, Saturdays and Sundays). How about soccer bettings?
Did I show you how you could have save more than $200 a month? Why not invest this money? You will be a lot richer, or at least not poorer.
Your Home Spending
1. Spend Lesser on Home Improvement
We flip the newspaper and everyday throughout the year, we see advertisements with sales after sales. Most of us here in Singapore would love to have a huge (43”) LCD TV in our hall or room, new audio system, new computer, new furniture, etc.
Do we really need a new and better (LCD) TV when we already have a 29” conventional TV? Is the computer giving us problem or are we finding excuses to get a faster PC? Do we need to change to new furniture when the current set is only 3 years old?
Cut back on home improvement spending and you see several thousands of dollars in your bank account.
2. Cut Back on Lightings and Electricity Bills
With raising oil prices, electricity cost would have gone up as well. Two years ago, an average household may be incurring $100 utility bills a month but will be paying $130-140 a month now.
Sometimes we have too much lights switched on, and not turned off when we are done. Singapore is among the most well led country in the world (that we can hardly see stars in the sky, partly due to our cloudy sky, but also attributed to the brightly lid roads). Do we need so much lights on if we are not doing any reading?
Use the fan if it is not warm and turn on the air-conditional just before you sleep instead of turning on immediately when you enter the bedroom. Raise the air-conditional’s temperature to 25 Degree Celsius and it will still be comfortable.
3. Cut Back on Grocery Shopping or Buy House Brands
Reduce spending on tibits and snacks. It not only keeps you in shape, but also your wallet too. Buy house brands instead of imported goods (import duties), get cheaper brands, etc.
Avoid over-stocking as there is a tendency to try consuming everything faster, or some will end up in the thrash. We should be buying what we need and not always what we want. This measure could save us approximately $50 per household.
I recall there was a Governor in US living on a mere allowance for a week or month (in 2006). He had to forgo chips, his favourate coffee, no premium food stuff, no beer, etc, and found it miserable living on that little money. After the period was up, he realized that there are indeed many ways to cut down on grocery shopping and food. Kudos to him, he had to reduce his allowance to less than 20% his usual spending and still made it.
Lifestyle Spending
1. Get rid of Extra Cell Phones or Change Package
Interestingly, we are the most (or 2nd most) connected people in the world. Our population as at July 2007 stands at 4.55 million but we have 4.789 million (2006) mobile lines. (source : CIA Factbook)
Some are carrying more than 1 line to keep their bills down. In actual fact, it is cheaper to use only one line than multiple lines. Look at your 3 months bills (all phone lines) and average the total outgoing minutes per month. This will allow you to find a suitable package suiting your needs.
2. Cut down on Premium Coffee
Why spend $5 on a cup of coffee (not to mention any pastry) in a café when you can get local coffee at the coffee shop at $0.80 a cup? Instead of two trips a week to the café, reduce it to once a week, or fortnightly, this will save us a few dollars.
3. Cigarettes
Everyone knows that smoking has no benefits yet many smokes habitually. Instead of one large pack ($11.40 a pack?) a day, reduce to one pack in 3 days or even further. This will save more than $220 a month.
4. Alcohol and Clubbing/Pubbing
How often do you go partying? At least $50 goes down the drain each time one goes out partying. Why not use time wisely, find a income source, do some reading and self-improvement, etc.
Your drinking buddies are usually not the ones who stands by you when you are in trouble (except rowdy behaviours when partying). When you are down and out, your so-called buddies will shun you faster than lightning.
5. Meals
Cut down on fast-food and restaurant dining. Each fast-food meal will set you back by $6 while a meal at the local food centre will cost you $3. besides being more costly at fast-food, it has been proven that fast-food are usually less healthy (often associated to obesity).
6. Credit Cards
The convenience of Credit Cards is also a convenient way for the bank to make more money out of you. For individuals with little spending discipline, get rid of your credit card before it gets rid of you. Do not roll over any amount, pay what you spent at the end of the month. Countless of people goes bankrupt each month from credit card debt.
7. Unnecessary Memberships
Do you have any under-utilized memberships? Club membership, night spot membership, gym, car grooming, etc. All these membership cost you money with almost no privilege but additional income for such organization. Membership is a thing of the past.
8. Personal Grooming Treatments
It is important to be well-groomed. How often do you pamper yourself with Manicures, Spas, Facial, Expensive Hair Styling, etc. How much does it cost you each time you go for such packages? There’s something called, Do-it-Yourself, the DIY way.
9. Car Washes
Instead of spending $5 per wash, twice a week, why not do your own washing. It is good exercise and saves you $40 a month. We need to exercise at least 3 times a week, at an interval of 10mins each time. Car wash will take you 30 minutes each time doesn’t it?
10. Spending on Lottery
Let’s face it, how often do you strike it lucky? In contrast, how much do you spend on lottery a week? If you spend $200 a month on lottery, you could save $2,400 a year. Stop buying habitually and it is as good as a sure win of $2,400 a year.
Singaporeans are one of the most ‘committed’ gamblers in the world. We have 22 out of 30 days in November 2007 with some form of lottery. The lottery days are, TOTO on Mondays and Thursdays, 4D lottery on Wednesdays, Saturdays and Sundays, Big Sweep once a month (not to mention, horse race on Fridays, Saturdays and Sundays). How about soccer bettings?
Did I show you how you could have save more than $200 a month? Why not invest this money? You will be a lot richer, or at least not poorer.
Monday, November 12, 2007
Ways To Save (2) - Your Vehicle
Here in Singapore, it is too common to see car owners changing for a new car every 3 years. Take a blink and the next car you see passing you by is no older than 3 years. Is new car really cheaper than your existing 3 years old car? Here's what my views are.
Car Sales Exec's Take
1) "Oh, COE price has fallen. Your car's COE is $25,000 while the current COE price is only $15,000. Why pay the extra $1,000 each year to the government"? What they hide from you is, 'yes another con job, you change car and i'll be $1-2k richer. What $1k savings than paying the government? You will end up paying import tax (abt 170%), shipping charges, company's profits, etc'. You think they really care if you pay more? If it makes more sense to change new car, is your SE changing car every 1 year?
2) Your car is 3 years old, you need to export your car before the export value drops. There is no resale value for used cars. (Who says you need to export or sell your used car? You can drive it on).
3) You will save on your monthly installment. You are currently paying $700. If you buy this new car, you end up paying $500 a month. What they failed to share with you is, you have paid 3 years of installment, with 4 years to go (total $33,600) while a new car will mean you are into a new 7yrs debt ($42,000).
Reasons to Change Car
It's human to justify their reasons and here's 2 common ones that I like:
1) My car is old. What they failed to say is, my friends are changing cars, I want to be seen with a new car too. Why not spend a little to do up the car to give it a new feel, eg New coat of paint $1.5k), sun-roof ($1.5k), leather seat ($800)? Do some modifications to the engine to give you better performance and fuel consumption, eg, changing to lighten belt pulley, lighten flywheel, etc.
2) My car is giving problems. New car comes with 3 years warranty. Is replacing old/worn out parts more costly than the 'warranty'? Set aside $2-3k to replace worn out parts and the car will serve you well for the next few years again.
Potential Loss
If you drive on your existing 3yrs old car (current paper value $30k. 10yrs paper value $8k), you will only need to suffer a depreciation of $3143/yr for the next 7yrs. If you change to a new car (new car price, $52k while 10yrs paper value $8k) now, you will suffer a depreciation of $4,400/yr for the next 10yrs. That's more than $100/mth for 10yrs.
If the new car is scrapped/exported after 3yrs, assuming the paper value at $30k, you will have lost $22,000 over this period of 3yrs (or $7,333/yr). This is almost $350/mth for the next 3 years.
If the potential losses are so much more than the savings, why not stick to the same car?
Trade down vehicle
Alternatively, you could have opt for a older car. Cars are built to last at least 20 years (conservative figure) under normal usage. My first car was 26yrs old when i bought it. Older cars can be reliable too.
Besides lower depreciation (usually less than $3,000/year for a 1.6l car), you also save on insurance, lower installment (or even, fully paid up car), etc.
Conclusion
I still cannot understand the need to change car with the simple excuse of old car. If one is well off, it doesn't matter how often he changes car as he can jolly well afford it. However, >80% of the car owners doesn't fall into this category.
With the lower COE value (pre 2000 COE price was as high as $60k, while COE in 2003 was >$30k), a lot of car owners are tempted to change car and forgotten to calculate true mathematics, but choose to calculate the new car's depreciation.
Think twice, think three times. If you are stuck whether to change car or not, you are definitely better off with your current ride. I suggest you consider keeping the car and invest your money wisely.
Friday, November 9, 2007
Warning of 'Serious' US Economic Correction
George Soros Forecast
NEW YORK (Reuters) - Billionaire investor George Soros forecast on Monday (2 Nov 07) that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending. "We have borrowed an awful lot of money and now the bill is coming to us," he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails." Asked whether a recession was inevitable, Soros said: "I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing."Soros said that, for now, China is the "absolute winner" in economic terms, and will continue to see its economy soaring during the next few years. "Now it is going through this fantastic transformation but in 10 years time I think you may well have a financial crisis in China," he said.
(Soros was famous for his speculative attack on the Bank of England that made him >US$1billion, and his organization was linked to speculation on Asian currencies during Asian Crisis in 1997)
(http://biz.yahoo.com/rb/071105/soros_economy_slowdown.html?.v=1&.pf=banking-budgeting)
2 Million Empty Homes in America
NEW YORK (CNNMoney.com) -- The number of vacant homes for sale rose in the third quarter, according to the latest government reading that casts new harsh light on the weakness of the housing market. The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the period, up about 2 percent from the second quarter, and 7 percent above year ago levels.
"It's really striking how high that is compared to historic levels," said Dean Baker, co-founder of the Center for Economic and Policy Research. "It's a lot of homes sitting there vacant. It's very hard to see how we're near a bottom, when you have that much excess supply."
There are estimates that about 2.8 million homeowners could see the payments on their subprime mortgages reset higher in the next two years. If they can't afford the new payments or be able to refinance due to the significantly tighter mortgage market, that could cause an additional flood of empty homes onto the market.
"It's very hard to see how this doesn't get worse," Baker said. "It's certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)"
(http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm)
The Business Times (Singapore)
It is said the current US credit problem will take "a long time to work its way out. You don't cure a (credit market) bubble in five or six months, it takes five or six years", quoted by Mr Jim Rogers, of co-founder of Quantum Fund with Mr Soros. (7 Nov 07)
Further comment by Mr Sakakibara, former Japan's vice-minister for finance and international affairs, now professor at Tokyo's Waseda University, warned that global financial markets are likely to face further bouts of volatility. "what we have seen thus far "is only the tip of the iceberg" and the problem will probably linger for 6-18mths. The world economy is highly integrated now, and is highly possible that the US will slow down sharply or even go into recession. In such an event, Asia cannot be unaffected. (2 Nov 07)
Economic Correction, Sub-prime and Credit Woes
With data shared in my recent post, there are reasons to be cautious in our investments. Are we installed for a huge correction that may last for a long time? If the reports above are true, wouldn't that lead the way into 2010 when the first baby boomers retires? I should avoid being overly pessimistic over the economy, but facts are keeping me worried. Signs will show hints of a correction, but it takes observation and careful actions (plus conservative thinking) to avoid falling into it.
NEW YORK (Reuters) - Billionaire investor George Soros forecast on Monday (2 Nov 07) that the U.S. economy is "on the verge of a very serious economic correction" after decades of overspending. "We have borrowed an awful lot of money and now the bill is coming to us," he said during a lecture at the New York University, also adding that the war on terror "has thrown America out of the rails." Asked whether a recession was inevitable, Soros said: "I think we are definitely in for a slowdown that I think will be a bigger slowdown than (Fed Chairman Ben) Bernanke is seeing."Soros said that, for now, China is the "absolute winner" in economic terms, and will continue to see its economy soaring during the next few years. "Now it is going through this fantastic transformation but in 10 years time I think you may well have a financial crisis in China," he said.
(Soros was famous for his speculative attack on the Bank of England that made him >US$1billion, and his organization was linked to speculation on Asian currencies during Asian Crisis in 1997)
(http://biz.yahoo.com/rb/071105/soros_economy_slowdown.html?.v=1&.pf=banking-budgeting)
2 Million Empty Homes in America
NEW YORK (CNNMoney.com) -- The number of vacant homes for sale rose in the third quarter, according to the latest government reading that casts new harsh light on the weakness of the housing market. The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the period, up about 2 percent from the second quarter, and 7 percent above year ago levels.
"It's really striking how high that is compared to historic levels," said Dean Baker, co-founder of the Center for Economic and Policy Research. "It's a lot of homes sitting there vacant. It's very hard to see how we're near a bottom, when you have that much excess supply."
There are estimates that about 2.8 million homeowners could see the payments on their subprime mortgages reset higher in the next two years. If they can't afford the new payments or be able to refinance due to the significantly tighter mortgage market, that could cause an additional flood of empty homes onto the market.
"It's very hard to see how this doesn't get worse," Baker said. "It's certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)"
(http://money.cnn.com/2007/10/26/news/economy/vacant_homes/index.htm)
The Business Times (Singapore)
It is said the current US credit problem will take "a long time to work its way out. You don't cure a (credit market) bubble in five or six months, it takes five or six years", quoted by Mr Jim Rogers, of co-founder of Quantum Fund with Mr Soros. (7 Nov 07)
Further comment by Mr Sakakibara, former Japan's vice-minister for finance and international affairs, now professor at Tokyo's Waseda University, warned that global financial markets are likely to face further bouts of volatility. "what we have seen thus far "is only the tip of the iceberg" and the problem will probably linger for 6-18mths. The world economy is highly integrated now, and is highly possible that the US will slow down sharply or even go into recession. In such an event, Asia cannot be unaffected. (2 Nov 07)
Economic Correction, Sub-prime and Credit Woes
With data shared in my recent post, there are reasons to be cautious in our investments. Are we installed for a huge correction that may last for a long time? If the reports above are true, wouldn't that lead the way into 2010 when the first baby boomers retires? I should avoid being overly pessimistic over the economy, but facts are keeping me worried. Signs will show hints of a correction, but it takes observation and careful actions (plus conservative thinking) to avoid falling into it.
Tuesday, November 6, 2007
Next Credit Woes in the Brewing?
Sub-Prime
Sub-prime (about US$900 billion) was largely attributed from America’s high Loan to Valuation (LTV), high interest rates and falling property valuation. Loan package was so attractive during the first year of loan (possibly 0%) and escalate on the 2nd year onwards (potentially 7-8%), that caused borrowers to default on payment.
Fed Reserve’s Rate Adjustment
With US Federal Reserve’s interventing action on 18 Sept 07, to reduce subsidized lending rate from 5.25% to 4.75%, it helped cushioned a the fallout and near recession. The more recent adjustment on 31 Oct 07 saw interest rates going down to 4.5% now. But with the latest adjustment, it has not done good as another problem has surfaced.
Credit Problem
The new problem was expected even before Sub-prime was an issue. A lot of people are living on borrowings or future earnings. This sign is even prominent here in Singapore and we have to be wary of a potential late 1990s financial problem (not just Asian Crisis). This new problem is related to their credit cards debt (about US$915 billion)
Payment Defaulters
What will happen next? Before borrowers became mortgage delinquents, some had relied on their credit cards facility to help them pay for their installments. Now that they had exhausted their credit lines and looming mortgage, the problem in America’s financial market can be worst than August 07 (Sub-prime). We are seeing a domino effect.
Those securities (homes) would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.
Credit card debt is different from subprime debt. Unlike mortgages, credit card debt is unsecured, so a default means a total loss.
(source http://finance.yahoo.com/banking-budgeting/article/103811/The-915B-Bomb-in-Consumers'-Wallets)
America’s Economy
How do I relate America’s economy woes to the world? America is the World’s No 1 Economy, with California being World’s 10th largest Economy. With these figures, wouldn’t we be worried about the health of their economy? (Source : CIA’s World Factbook, 2005 estimates).
Household Income
The 80% of American household income (pre-tax) are no more than US$65,000 per annum. This means they have less than US$4,800 per month per household (after 12% average income tax). How much disposable income would the household have (not forgetting, mortgage payment, car loan, credit card, daily expenses, etc).
Annual income parking ramp
Income level (percentile) --> Median income (rounded)
Level VI (90 to 100) --> $170,000
Level V (80 to 89.9) --> $99,000
Level IV (60 to 79.9) --> $65,000
Level III (40 to 59.9) --> $40,000
Level II (20 to 39.9) --> $24,000
Level I (less than 20) --> $10,000
(Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey)
Sub-prime (about US$900 billion) was largely attributed from America’s high Loan to Valuation (LTV), high interest rates and falling property valuation. Loan package was so attractive during the first year of loan (possibly 0%) and escalate on the 2nd year onwards (potentially 7-8%), that caused borrowers to default on payment.
Fed Reserve’s Rate Adjustment
With US Federal Reserve’s interventing action on 18 Sept 07, to reduce subsidized lending rate from 5.25% to 4.75%, it helped cushioned a the fallout and near recession. The more recent adjustment on 31 Oct 07 saw interest rates going down to 4.5% now. But with the latest adjustment, it has not done good as another problem has surfaced.
Credit Problem
The new problem was expected even before Sub-prime was an issue. A lot of people are living on borrowings or future earnings. This sign is even prominent here in Singapore and we have to be wary of a potential late 1990s financial problem (not just Asian Crisis). This new problem is related to their credit cards debt (about US$915 billion)
Payment Defaulters
What will happen next? Before borrowers became mortgage delinquents, some had relied on their credit cards facility to help them pay for their installments. Now that they had exhausted their credit lines and looming mortgage, the problem in America’s financial market can be worst than August 07 (Sub-prime). We are seeing a domino effect.
Those securities (homes) would decline in value as consumers defaulted, leading to bank losses as well as portfolio losses in the hedge funds, institutions, and pensions that own the securities. If the damage is widespread enough, it could wreak havoc on the economy much as the subprime crisis has done.
Credit card debt is different from subprime debt. Unlike mortgages, credit card debt is unsecured, so a default means a total loss.
(source http://finance.yahoo.com/banking-budgeting/article/103811/The-915B-Bomb-in-Consumers'-Wallets)
America’s Economy
How do I relate America’s economy woes to the world? America is the World’s No 1 Economy, with California being World’s 10th largest Economy. With these figures, wouldn’t we be worried about the health of their economy? (Source : CIA’s World Factbook, 2005 estimates).
Household Income
The 80% of American household income (pre-tax) are no more than US$65,000 per annum. This means they have less than US$4,800 per month per household (after 12% average income tax). How much disposable income would the household have (not forgetting, mortgage payment, car loan, credit card, daily expenses, etc).
Annual income parking ramp
Income level (percentile) --> Median income (rounded)
Level VI (90 to 100) --> $170,000
Level V (80 to 89.9) --> $99,000
Level IV (60 to 79.9) --> $65,000
Level III (40 to 59.9) --> $40,000
Level II (20 to 39.9) --> $24,000
Level I (less than 20) --> $10,000
(Source: Before-Tax Family Income, 2001 Federal Reserve Board Survey)
Thursday, November 1, 2007
Ways to Save (1) - The Right Loan, or Refinance
There are more than 100 loan packages out there in the market. Which is the most suitable package for the property buyer/owner? Many a times, property buyers are ignorant of their options or overly rely on a property agent that claims to know the best bank. The hidden agenda, best bank can also means best referral fees they may get. If a Property Agent claims to know which is the best loans, Mortgage Consultants will know properties as well as these agents.
True or Lies? If those claims are true, we won't need lawyers or doctors anymore as we are just as good as they are isn't it?
The Right Package
There are more to packages than lowest rates. Lowest rates may not necessarily means best package. There are a few considerations before a Mortgaage Consultant recommends a series of packages that suits the borrower. A bank may have the lowest interest rates for one type of package, but does not means they have the lowest rates for another type of package. Most suitable package is dependant on the borrower's needs more than just rates.
There are 4 categories of packages. They are:
- Fixed Rates
- Variable Rates
- Combo Package
- Curent Link Account
Each category has it's own set of purpose and each property owners needs are different from another. It is very important to understand the borrower's needs before recommending suitable packages.
New Loan
The government has recently scrapped "Deferred Payment Scheme" for new developments (Building Uncomplete). This leaves property buyers with only "Progressive Payment Scheme", unless they are rich enough to pay in full (but why pay in full when there are a lot more your money could work for you).
For new property buyers, they could check on their financial eligibility before deciding on their purchase. This will take into account their current financial commitments and their income. Be careful not to over stretch.
Refinance Existing Loan
Some property owners perceive that their existing lender offers them the best package. Misconception! Most of the time, promotion packages (usually much more attractive) are offered only to new customers. Existing customers does not qualify for promotional packages. Lenders are more keen in new customers, thus existing customers may end up paying for their 'loyalty'.
Valuation Limit
When one buys a property, they should not based their decision on 5 years plan (I hear this often) to sell the property for a profit and move to a larger property. What if the plan doesn't materialize?
If the property buyer is using funds from their CPF Funds (Ordinary Account) towards the purchase (downpayment) and installments, they need to be aware that the Withdrawal Limit is based on 120% of their purchase price or valuation, whichever is lower (at the time of purchase).
By the time the property owner utilized this 120% limit, remaining installments will need to be paid in cash.
Illustration
- Purchase Price : $500,000
- Loan Amount : $400,000 (80% of PP)
- Interest Rates : 4%
- Loan Tenure : 30 years
- Monthly Installment : $1,910
- Principle & Interest distribution : 30.18% and 69.82%
- Lower Loan Tenure : 20 years
- Monthly Installment : $2,424
- Principle & Interest distribution : 44.99% and 55.01%
Conclusion
The illustration shows how much we are actually paying towards interest (Month 1 of loan) for a longer loan tenure.
A properly sourced package will save you substantial money and problem, while wrong package means you end up paying for it.
Relying on property agent for your loan can have undesirable consequence. Do not be a victim of their claims, and pay heavily later.
True or Lies? If those claims are true, we won't need lawyers or doctors anymore as we are just as good as they are isn't it?
The Right Package
There are more to packages than lowest rates. Lowest rates may not necessarily means best package. There are a few considerations before a Mortgaage Consultant recommends a series of packages that suits the borrower. A bank may have the lowest interest rates for one type of package, but does not means they have the lowest rates for another type of package. Most suitable package is dependant on the borrower's needs more than just rates.
There are 4 categories of packages. They are:
- Fixed Rates
- Variable Rates
- Combo Package
- Curent Link Account
Each category has it's own set of purpose and each property owners needs are different from another. It is very important to understand the borrower's needs before recommending suitable packages.
New Loan
The government has recently scrapped "Deferred Payment Scheme" for new developments (Building Uncomplete). This leaves property buyers with only "Progressive Payment Scheme", unless they are rich enough to pay in full (but why pay in full when there are a lot more your money could work for you).
For new property buyers, they could check on their financial eligibility before deciding on their purchase. This will take into account their current financial commitments and their income. Be careful not to over stretch.
Refinance Existing Loan
Some property owners perceive that their existing lender offers them the best package. Misconception! Most of the time, promotion packages (usually much more attractive) are offered only to new customers. Existing customers does not qualify for promotional packages. Lenders are more keen in new customers, thus existing customers may end up paying for their 'loyalty'.
Valuation Limit
When one buys a property, they should not based their decision on 5 years plan (I hear this often) to sell the property for a profit and move to a larger property. What if the plan doesn't materialize?
If the property buyer is using funds from their CPF Funds (Ordinary Account) towards the purchase (downpayment) and installments, they need to be aware that the Withdrawal Limit is based on 120% of their purchase price or valuation, whichever is lower (at the time of purchase).
By the time the property owner utilized this 120% limit, remaining installments will need to be paid in cash.
Illustration
- Purchase Price : $500,000
- Loan Amount : $400,000 (80% of PP)
- Interest Rates : 4%
- Loan Tenure : 30 years
- Monthly Installment : $1,910
- Principle & Interest distribution : 30.18% and 69.82%
- Lower Loan Tenure : 20 years
- Monthly Installment : $2,424
- Principle & Interest distribution : 44.99% and 55.01%
Conclusion
The illustration shows how much we are actually paying towards interest (Month 1 of loan) for a longer loan tenure.
A properly sourced package will save you substantial money and problem, while wrong package means you end up paying for it.
Relying on property agent for your loan can have undesirable consequence. Do not be a victim of their claims, and pay heavily later.
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