In old times, people invest in gold. As the nation develops, people starts to become savvy and started investing in many other vehicles. Many are investing in entry level investments that doesn't tie their finances down too much.
In the last couple of years, I have been considering the option of investing in properties. This mode of investment can be easy, but can be among the toughest for a few reasons (not limiting):
- Large amount involved (20% downpayment, partially in cash or fully in cash)
- Low liquidity
- Monthly maintenance
- Being on top of the curve of a product life cycle (lowest being raw land, highest point being homes itself), the curve fluctuates from there
With so much downside, why would property be worthy of consideration? A few simple reasons:
- Long term or even retirement plan
- Property price crashing
- Lower risk as compared to stocks, Unit Trust, or even savings (look at banks that collapse recently)
- Rental income to take care of monthly installment
Property Prices
Property price peaked during 1996. Thereafter, a spite of economical and social setbacks caused prices to erode. They include:
- Asian Crisis in 1998
- Terrorist Attack - 11 Sept 2001
- Sever Acute Respitory Syndrom (SARS) - Year 2003
- Tsunami - Boxing day, 2004 (this has minimal effect on us)
The economy only started to recover in 2005. Property price peak around the last quarter of 2007. Many said prices in 2007 reached the peak of 1996. Over the period of 1996 till 2007 (a period of 11 years), property price had not grown at all! It only reach the last peak (1996).
With the current global economical downturn, which is expected to last till 2010 (i hope), the next possible peak could be between 2012-2015, assuming the global crisis ease off by late 2009 and nothing else happens. But be wary, if the global financial crisis stablised and starts to clear by late 2009, the next possible recession can happen between 2012-2015. Read one of my post on Baby Boomers.
Assuming property price climbs to a healthy level by 2012, where is the growth since 1996? Even if prices reaches 1996 price in 2012, there is still room for growth (16 years growth).
The Right Price
Property (private) prices started to loose ground. Demand had fallen in recent times. Owners started to panic when the October 2008 market correction happened, wiping out many investors' savings. Some had to resort to selling their properties. This caused property price to plummer by about 20%.
Another group of owners will also resort to panic selling in coming months or a year. Some of these investors had over committed and bought more than they could chew. They are unable to secure a loan given their Debt Service Ratio.
As such, this group will end up dumping their property investment. Having paid 20% cash downpayment when they bought the property and property market softening drastically, in addition to their inability to secure a loan, they will be forced to sell their property at whatever price, which includes having to top up cash to sell.
For potential investors, there is no real right time. A savvy investor will be able to sniff out good deals. Some market research will be required to understand the price trend.
When people are buying, don't buy. When people are coughing, look out for the right gems, not germs.
Long Term Plan
Assuming, if one buys a second property as an investment, and assuming he owns it throughout his life, here is a few benefits that the investor can/may enjoy:
- Retirement plan (assuming, rental income being about current money value of $2,000 per month)
- No need to rely on childrens to give them allowance when they retire
- Fully paid by the time they retired
- Mortgage better be insured. In the event of a Total and Permenant Disability (TPD), insurance will pay off the balance mortgage
- During occurance of TPD, and having the property fully paid, the rental income will help the invalid to sustain his expenses.
- Inheritance for their childrens
The Mortgage and Rental Income
Assuming it is a 2 room condo. Here is some calculation:
- Purchase Price : $600,000
- Downpayment : $120,000
- Loan : $480,000
- Tenure : 30 years
- Interest : approximately 2% or lesser (current 3mths SIBOR = 0.92%, 12mths SIBOR = 1.243%)
- Monthly Installment : $1,774 per month (approx)
- Monthly Maintenance : $200 per month (approx)
- Rental : $2,000-$3,000 per month
With this, the monthly rental will take care of the monthly financial requirement (installment and maintenance).
The Downside
With the current economy, consumer confidence is extremely low, job security is at stake, income is uncertain. Property price may not recover in the next 3 years. 100% rental may not be available thus there may be months without rent.
The downside has to be addressed before deciding on any major investment. With most downside being addressed, the investment is one with "Calculated Risk".
Bare in mind, even in a bull market, there will still be people loosing money and make that person, Not Be YOU!
Thursday, December 18, 2008
Monday, December 15, 2008
Are Singapore's Banks Safe
Top banks admit huge losses in Wall Street 'pyramid' fraud
LONDON (AFP) - - Top world financial groups on Monday revealed massive potential losses from an alleged scam run by Wall Street trader Bernard Madoff, admitting they were fooled by a classic pyramid investment fraud.
British, French, Japanese and Spanish banks and funds said investments totalling billions of dollars (euros) could be wiped off their balance sheets by a scandal that is set to affect some of the richest people in the world.
For the rest of the news, please refer to
http://sg.news.yahoo.com/afp/20081215/tts-us-finance-fraud-world-972e412.html
This is the problem with an overly free market where government gives a free hand to the institutions to run the show, with minimal government policy and controls. There is insufficient checks and balances in place, even tho America produces among the world largest audit firms.
All these talk and financial bailout promised by the Bush Administration sounds like, a tall tale. I have little faith in their government's 'intervention'. I keep my fingers cross and hope this is among the final few skeletons in the closet. If a lot more skeletons have yet to be revealed, I worry the global financial powerhouse may not be able to sustain the collapse and that US Economy will really go into bankrupcy.
The US financial system is a financial Titanic that is a make believe and since disaster of this magnitute has struck, the ship is sinking fast and smaller rescue boats (money) from all over the world are trying to save as many lives (financial system) as possible... an up-mountain task
Back in Singapore, prior to the Asian Crisis back in 1998, banks are not run as tightly as it is today. Should the Asian Crisis not happened 10 years ago, our economy and banking system, including some of financial companies may be in deep trouble, to the extend, some banks may even collapse given this magnitute of global financial crisis.
The Asian Crisis taught the banks a dear lesson. Huge price was paid back then and not mentioned to the public. Banks take had to write off huge debts and many people went bankrupt (banks were unable to recover debts). New governing policy were put in place, by the institutions and MAS alike.
Here's an example. Before Asian Crisis, bank branch Managers were able to approve loans up to a certain amount (let's say, $2mil). There were no proper checks. Managers approve loans are their discretion, even if it means, the borrower actually couldn't afford to pay it.
Post Asian Crisis (not sure which year), the Credit Bureau were set up by the banks. Credit Bureau will list down any individuals who has loans, credit cards, OD, etc, with any member bank. With that, banks are able to better assess if the borrower are over exposed. Tho there is limitation to the system, it still acts as a first screen.
In conclusion, local banks are definitely safer than most other banks globally, due to the changes and checks in place. MAS also makes it mandatory for financial institutions (including banks, insurance co, etc) to have fixed assets of a certain percentage to their liability.
LONDON (AFP) - - Top world financial groups on Monday revealed massive potential losses from an alleged scam run by Wall Street trader Bernard Madoff, admitting they were fooled by a classic pyramid investment fraud.
British, French, Japanese and Spanish banks and funds said investments totalling billions of dollars (euros) could be wiped off their balance sheets by a scandal that is set to affect some of the richest people in the world.
For the rest of the news, please refer to
http://sg.news.yahoo.com/afp/20081215/tts-us-finance-fraud-world-972e412.html
This is the problem with an overly free market where government gives a free hand to the institutions to run the show, with minimal government policy and controls. There is insufficient checks and balances in place, even tho America produces among the world largest audit firms.
All these talk and financial bailout promised by the Bush Administration sounds like, a tall tale. I have little faith in their government's 'intervention'. I keep my fingers cross and hope this is among the final few skeletons in the closet. If a lot more skeletons have yet to be revealed, I worry the global financial powerhouse may not be able to sustain the collapse and that US Economy will really go into bankrupcy.
The US financial system is a financial Titanic that is a make believe and since disaster of this magnitute has struck, the ship is sinking fast and smaller rescue boats (money) from all over the world are trying to save as many lives (financial system) as possible... an up-mountain task
Back in Singapore, prior to the Asian Crisis back in 1998, banks are not run as tightly as it is today. Should the Asian Crisis not happened 10 years ago, our economy and banking system, including some of financial companies may be in deep trouble, to the extend, some banks may even collapse given this magnitute of global financial crisis.
The Asian Crisis taught the banks a dear lesson. Huge price was paid back then and not mentioned to the public. Banks take had to write off huge debts and many people went bankrupt (banks were unable to recover debts). New governing policy were put in place, by the institutions and MAS alike.
Here's an example. Before Asian Crisis, bank branch Managers were able to approve loans up to a certain amount (let's say, $2mil). There were no proper checks. Managers approve loans are their discretion, even if it means, the borrower actually couldn't afford to pay it.
Post Asian Crisis (not sure which year), the Credit Bureau were set up by the banks. Credit Bureau will list down any individuals who has loans, credit cards, OD, etc, with any member bank. With that, banks are able to better assess if the borrower are over exposed. Tho there is limitation to the system, it still acts as a first screen.
In conclusion, local banks are definitely safer than most other banks globally, due to the changes and checks in place. MAS also makes it mandatory for financial institutions (including banks, insurance co, etc) to have fixed assets of a certain percentage to their liability.
Friday, December 12, 2008
Bailouts Bailouts and Skeletons Out of US' Closets
In recent months, Bailout is the biggest word of the year (surveyed). What is wrong? What else will go wrong?
The US$800 billion rescue package is not going to be easy on the plate. It is the current US Administration's quick escape till the Obama Administration takes over and clear the shit done by his predecessors.
The latest bailout facing problem is the rescue of Automakers. The current Administration is only interested to bailout GM till March 2009 and said that it's up to Obama's ability to rescue the economy. Creating a mess and letting others clear it is so common from the giant.
What is wrong with the American economy and how more wrong can they get? Their economy is near bankrupcy. Their world debt is in excess of a TRILLION dollars. If they can't get out of this mess, their economy will go into bankrupcy and their Developed Nation status will be thrown out and becomes a Undeveloped Nation. More squatters will roam the streets, more in food ration queues, more tent homes, lesser cars on the road, lesser jobs available, etc.
The US may be the World's No 1 economy currently, but not for long. With a broke economy, come 2010, the retiring Baby Boomers will not be able to get their retirement pension, 401K. That will attribute to more problem for the scrapegoat President Obama. He is taking over a sinking ship. If he fails to salvage, he gets more blames, if he salvaged it, he will go down history as one of the best President ever (no prize for guessing who is the worst).
If Middle-East and China doesn't come rescue US, brace up for a rough ride all thanks to Uncle Sam.
Year 2009 will be worst than 2008. How 2009 performs can affect if the global economy will drop further into recession or even a onset of the next Great Depression. If another Great Depression occurs, it will be many times worst than that of 1929.
The US$800 billion rescue package is not going to be easy on the plate. It is the current US Administration's quick escape till the Obama Administration takes over and clear the shit done by his predecessors.
The latest bailout facing problem is the rescue of Automakers. The current Administration is only interested to bailout GM till March 2009 and said that it's up to Obama's ability to rescue the economy. Creating a mess and letting others clear it is so common from the giant.
What is wrong with the American economy and how more wrong can they get? Their economy is near bankrupcy. Their world debt is in excess of a TRILLION dollars. If they can't get out of this mess, their economy will go into bankrupcy and their Developed Nation status will be thrown out and becomes a Undeveloped Nation. More squatters will roam the streets, more in food ration queues, more tent homes, lesser cars on the road, lesser jobs available, etc.
The US may be the World's No 1 economy currently, but not for long. With a broke economy, come 2010, the retiring Baby Boomers will not be able to get their retirement pension, 401K. That will attribute to more problem for the scrapegoat President Obama. He is taking over a sinking ship. If he fails to salvage, he gets more blames, if he salvaged it, he will go down history as one of the best President ever (no prize for guessing who is the worst).
If Middle-East and China doesn't come rescue US, brace up for a rough ride all thanks to Uncle Sam.
Year 2009 will be worst than 2008. How 2009 performs can affect if the global economy will drop further into recession or even a onset of the next Great Depression. If another Great Depression occurs, it will be many times worst than that of 1929.
Thursday, December 4, 2008
Next Downturn or Prolong of Current Downturn
There is something to note where the 'next downturn' could be foreseen. The Baby Boomers!
Baby Boomer generation started in 1946, after WWII.
Each year, more than 4 million babies (now oldies) were borned in America alone. That did not take into account, Japan, Europe, UK, etc. By year 2010, these boomers will start hitting 65 years old, the 'official' retirement age.
With more than 4 million retiring each year, in America alone, we will see 20 million retirees by 2015. Rather often, these older folks are the ones with money power as compared to young aspiring new entrance to the working society.
The younger generations are unlike able to sustain the vacuum left by the older folks, that pulled out of the stock market, sells off their expensive apartments or condos in the cities, etc.
With the current economy downturn, some of these older folks may be forced into retirements (retrenchment) and with the weak economy data and stock market, things can get worst than it is today.
It may take a lot more to ride out of this economy downturn than the governments of many countries had tried to paint to us.
Baby Boomer generation started in 1946, after WWII.
Each year, more than 4 million babies (now oldies) were borned in America alone. That did not take into account, Japan, Europe, UK, etc. By year 2010, these boomers will start hitting 65 years old, the 'official' retirement age.
With more than 4 million retiring each year, in America alone, we will see 20 million retirees by 2015. Rather often, these older folks are the ones with money power as compared to young aspiring new entrance to the working society.
The younger generations are unlike able to sustain the vacuum left by the older folks, that pulled out of the stock market, sells off their expensive apartments or condos in the cities, etc.
With the current economy downturn, some of these older folks may be forced into retirements (retrenchment) and with the weak economy data and stock market, things can get worst than it is today.
It may take a lot more to ride out of this economy downturn than the governments of many countries had tried to paint to us.
Subscribe to:
Posts (Atom)
