Before i continue on with my story, i actually stumbled on an interesting website which clarify some of the concepts which i have been sharing in very simple terms and with illustration. Will add this to the useful property blogs at the side bar. I previously share my investment beliefs here and you may be able to see some similarities..
Let's continue with my earlier blog posting, where my first HDB purchase ended with a loss.
It was year 2005, we were still counting our losses and trying to figure out how much was left in our CPF account after the loss. The fortunate thing is we didn't have to top up the "CPF losses" suffered from the sale but the bad news is, there wasn't much money left anyway. :-) The loss has almost wiped out our CPF accounts and we each have a couple tens of thousands remaining that can be utilized.
There is a silver lining in that we have almost been working for more than 8 years and have been diligently saving up over this period but the combined amount isn't fantastic, probably around $100k. Coupled with the remaining $50,000 in the CPF, we have a capital of $150,000 to start with. Armed with $150,000, we started to look for properties which we can invest in.
In 2005, there is a wonderful wealth creating instrument called the "deferred payment scheme". This scheme was set up during the property doldrums and was withdrawn in Oct 2007.
Basically a deferred payment scheme ("DPS") works like a "call" option. You pay 20% of the purchase price (for the call option) and pays nothing till it TOP, which can be 3-5 years down the road.
Given that we had just suffered a big loss, we were very wary of getting into another debt situation and was certainly in no mood to pay for mortgages. The DPS suits us perfectly. By working backwards, we figure that ($150,000 divide by 20%) we can afford to pay for a $750,000 condo. We then worked out that a 1,200 square foot condo will meet the needs of a small family. In other words, we need to find a condo that can 'fit ' a small family for a budget of $750,000.
I got this chart below from Propwise to show you the various districts in Singapore.
Having learnt our previous lesson that location is very important, we set out to find condominiums in district 9,10,11. Oh boy, we realized that $750,000 really couldn't buy us a decent size unit in these high class districts. The new condos of a 1200 sq ft size were selling for at least $1m. We probably couldn't' afford it. To be honest, I don't think we tried hard enough, we weren't experienced enough and we definitely weren't creative enough. If you think about it, $250,000 x 20% = $50,000. If i can use some short term borrowings from the banks, i can possible fork out the extra $50,000 needed to secure a condo in a better location. We decided to give these districts a miss and moved to the fringe city area, district 8.
With the benefit of hindsight, the decision not to buy a condo in district 9,10,11 back then was definitely not a 'wise' decision because in the any market run up, the 'blue chips' always run first and this was exactly what happened in the subsequent run up. The condos in district 9-11 moved up first in a significant way before it spreads to other districts.
Lesson learnt - Location is important (once again) and prices in prime districts always move first.
There is one trait which a lot of Singaporeans have in common. We all like new things. New condo, new car, etc. but frankly, new things may not be the ones that offer the best value. The reason why i said we didn't try hard enough is because we were looking for new condo launches in these districts that offer defer payment scheme. We were probably 'blinded' by the glitzy brochures, the designer show flats but fundamentally, we like new things.
I have a friend who bought an old apartment in Cairnhill Mansion in 2005 from a bank sale. He paid $1.1m for a 2,000 square foot apartment. If you can see from the prices below, he is already sitting on excellent profits but he is waiting for it to be 'en-bloc' eventually.
Anyway, back in 2005, we didn't have much money and we have zero experiences in real estate, especially private properties. There wasn't anyone to guide us along or give us directions and we only want 'new stuff' and weren't even looking at the older apartments. In addition, probably there weren't many good property websites or blogs back then to guide us.
Lesson learnt - Widen your horizon, don't just focus on new property developments. The older developments may offer better value for your money.
In my next posting, i will share with you what happened when we were searching for a new condo in district 8 and the lessons learnt from that episode. It was an interesting episode because that was our first private property purchase and we had to choose between 2 condos that were newly launched at that time. Ciao and have a good weekend!
The next update to my story will take a while... has been pretty busy with my work... meetings after meetings...
STproperty recently did a relaunch of their website. but my favourite for browsing for properties is still propertyguru. The "joke" about property guru is that.... it is actually owned by angmohs! :)
While i am not actively looking for properties now, I always like to keep myself updated of the latest information and trend to feel the vibes of the market. :) Always keep yourself updated to the market, then it will be easier to pull the trigger when the time comes.
We had a lesson on "Knowing yourself" last Sunday. Today I want to share on the topic of Time Frame. (pardon me if you get multiple emails on this).
Knowing one's time frame is very important. Do you intend to hold this position (be it any asset class) for years, months, weeks or days. For forex or day traders, it can even be hours or minutes.
Knowing the time frame is important because it determines the position size and risk which you are willing to take. Let's just use the various asset classes as examples. When I invest in real estate properties, my time frame is in years. This is because I am prepared to ride the market cycles to fully maximise my returns. The quantum involved is large and the use of leverage is inevitable. In addition, I view properties as a natural inflation hedge, hence I am willing to be vested in at least one property at any time. As such I hold a pretty long term view on this asset class. My parents bought their house for only $160,000. After 26 years, the same house which they stay in should be worth at least $2.2 million. They rode through the various peaks and troughs during this period but it definitely served as a good inflation hedge for them. This is inevitably more so in land scarce Singapore.
When I invest in SRS stocks, my time frame is also pretty long because I am looking to create a portfolio generating passive income. The time frame is years unless there are fundamental reasons that change my views on the portfolio companies. I have held stocks in my SRS portfolio such as Starhub, Starhill, SPH etc for years. (This is investing)
When i trade, i usually swing trade. Hence my time frame is between days and weeks. I seldom hold positions for too long because the positions size i take is much bigger than that of the SRS. Hence each position can be between $20-$50k and the cut loss is tight at around $1-2k. You can see that in my trades in Sakari and Ezra. I could have improved my trade in Sakari by using a 'trailing stop' instead of getting out when it hits my target of > $1.40. I acknowledged that riding the profits till the trend end is one key area I need to improve on. Sometimes for trading positions, i will get out after a while if the trades did not pan out as what i envisaged it to do but I will not let a winning position turn into a losing one. (This is trading). You can either be a discretionary trader or a system trader. I am more a discretionary trader than a systematic one but i am also trying to learn how to be less discretionary and more system based. As always i am still learning. Hence what i wrote here today may change as i gain more experience.
I will elaborate more on the differences between investing and trading next time. It is important that you know the differences for yourself. They are very different concepts and can cause you a lot of confusion if you mix them up and make you "走火入魔". :-) The worst thing that can happen to anyone is a person buying a stock with an intention to 'trade' it and hold it for a few days. The stock then fall below his or her purchase price and the short term trading position become a "long-term" investment holding...hahaha I have seen too many such incidents hor..
As for IPOs, you know how i feel about them. It is usually a hit and run for me unless the stock is so compelling. The time frame is usually between day and days. IPO punting is very sentimental driven and sentiments can change very quickly.
That is it for today as I am "celebrating" National Day (another excuse not to work).
Have a good weekend!
I welcome letters or emails from readers. :-) Feel free if you have questions and I will try to answer them via the blog or emails.
Today is Singapore 47th birthday. This is the view of the Marina Bay with its the casino on the left and new marina bay financial centre at the far end.
This is one piece of real estate that is prime of the prime. If you are one of the investors who bought The Sail at around 900-1000psf back in 2005, you would have done very well if you are still holding them. I couldn't touch it back then as I was still holding HDB and thereafter nursing a capital loss of $100k. Hahaha.
As mentioned in my first posting, i will share with you my property investment journey. My first foray into the property market is via the most obvious and common one. The HDB. There weren't any HDB grants during my time and we couldn't afford one near our parents as we have only started working. We couldn't afford the Executive Condo either. My starting pay was only $1,850 per month to be exact. During our time, there were only 3 choices, Woodlands, Jurong or Sengkang. Not much of a choice, so we selected the "cheapest" location in the north zone as Sengkang was much more expensive.
The problem with picking the north zone is that it is very far from our parents' place and once the baby came, we have to move near to the care-givers. In the end, we hardly stayed in the flat there. The problem is that under HDB rules, we cannot buy any property within 5 years and cannot lease it out either. The rules were extremely strict even back then. In the end, we kept it empty for almost 5 years. To top up our stupidity, we spent $40k on renovations.
The picture shows you the various points where we buy our flat. We bought exactly at the peak and sold at the bottom. What "perfect timing"!
We bought the HDB executive flat for $380,000, add another $40,000 on renovations = $420,000. We hardly stayed there. You can see the market was in a doldrums from 2001-2005.
Lesson 1 - Buy a property only if you intend to stay in it or rent it out.
We couldn't stay in it and we couldn't rent it out due to the rules. It was basically a white elephant. We could have 'secretly' rent it out but it was illegal to do so. Having said that, if you own a HDB flat today and is eligible to rent it out, my advice is that you keep the goose that lays the golden egg unless the offer is too compelling and you have better use for the proceeds. The yield from HDB flat is one of the best you can find.
Lesson 2 - Don't buy a property that comes with so many restrictions
The second lesson I learnt was that try to buy a property with less restrictions. The fact that I cannot buy another property or sell within 5 years are restrictions imposed to ensure that I do not abuse the "market subsidy"which i supposedly received when i bought the HDB executive flat.
Lesson 3 - Don't be greedy when buying HDB flat!?
It was very funny to see the reactions when i tell people i lost money from HDB. They basically couldn't believe it. I have to tell you that i was greedy. I thought to myself, "HDB sure can make money if you buy directly from them". I cannot be more wrong. hahaha. I bought the biggest flat available to me instead of 4 or 5 room flats and as you know, executive flat received the lowest "market subsidies"from the government. After 5 years, i decided to sell my flat at a loss and move on but the joke was that there were many unsold units at my flat even after 5 years. At the time when i was selling my flat, HDB was selling the unsold units in my block for between $220k to $280k. It took me more than 10 months to finally find a buyer and the buyer was a PR family and they offered me $295k for my HDB executive flat. But the real joke was HDB writing a letter to me, wanting an explanation from me why i sold my flat for $295k when the valuation was $340k. I gladly replied that i would love to sell it to them for $340k if they are willing to buy. (As a side note, my bro-in-law bought a 4 room flat in Sengkang and after 5 years, sold it for a good profit).
Lesson 4 - Cut loss and move on
By 2005, i have lost enough money from the stock market to know how to cut loss and learn about market cycles. I wanted to free up my CPF to buy into properties at better locations and catch the next property cycle. The fact that I don't even stay there and couldn't rent it out provided the catalyst to do something about it. As you can see, my first foray into the property market is a painful one. Lost at least $100k if i include part of the renovations. Sigh. It was painful lesson which i will never forget but I will treat the $100k as an expensive school fees. There are no better schools to teach you about what life really is. Enjoy the life journey.
Here it is for this round. Will update the chart with more pictures next time.
I will start the first post on the 2Y Real Estate Fund today and share some of my beliefs on the property market. I will share my journey in a subsequent post.
First of all, let me begin by stating that I personally believe that property investments will help you get out of the rat race faster and achieve true financial freedom. There are a few reasons why i favor this asset class over the rest such as stocks, bonds and others.
The cost of borrowings is low.
The risk is relatively lower vis-a-vis other asset classes
I am able to get leverage returns from it and knowing how to make use of "good debt" is one of the most important lessons you must learn to reach financial freedom.
There are enough examples of ordinary people making it rich and retiring early through property investments. The Fragrance Group founder is a billionaire today and he made it through investing in property. I haven't even mention those tycoons in Singapore and Hong Kong who became extremely wealthy through properties.
My personal beliefs:
Property markets moved in cycles and there are a few cycles in one's life. Catch it well and you will achieve your financial freedom. Having said that, if you catch it wrongly at the peak, it will set you back and take you a much longer time.
You need at least 2 properties to make it rich. If you have only one property, you will always be "upgrading" at the wrong time. By the time you managed to sell your property in which you stay in, you will also be buying the next property at a higher price.
Always be prepared and make sure you are able to service the debt even during a downturn.
Go for value.
Timing and location are very important.
Let me share with you what i used to time the market. It is a chart from URA. There are many great tools at the website, such as the recent property transactions etc. Do make good use of them.The chart below is one that i look at it every Sunday in the classified ads. A picture tells a thousand words.
My first foray into any asset classes always ended with a loss. My first foray into stock and shares market ended with a loss. My first foray into the property market also ended in a loss and you won't believe what property was that. hahaha. Anyway, that is why i always believe that you have to pay school fees to learn something and you must never give up.
My view on the property market - likely to go sideways with slight downward bias and consolidate in the next 6-8 quarters. In the meantime, I will continue to save up my cash so that it can be deployed at the most optimal time.
I will share with you more about my property investment journey next time and some of the invaluable lessons which i have learnt. Timing is important and catch the right cycle.