How many billionaires are there in Singapore?

According to Wealth-X and UBS Billionaire Consensus 2013, Singapore has 27 billionaires, which makes it the fifth biggest billionaire population in Asia and 18th in the world.

The typical Singapore billionaire is said to be mainly from the “finance, banking and investments sector” (I think they probably put real estate in investment because most of the billionaires here are in real estate), has at least a degree and is above 60 years old.

The study also shows that as of 2013, the total number of billionaires in the world has reached a record of 2,170, with Asia being the fastest growing region.

Interestingly, if you look at the Forbes List of Billionaires, you will notice most of the billionaires from other countries own some real business, be it telecom, software, supermarket, etc. Of course, you still have your stock genius Warren Buffett and some hedge fund managers.

forbes billionaire-list

This really makes wonder what are supporting the wealth of our society. In my recent article Why is the ease of Total Debt Servicing Ratio (TDSR) restriction disappointing, I said that people have started to forget the virtue of hard work in pursuing fast money.  They cannot be blamed because if we look around and try to identify the “wealthy people” in this small island, we see real estate, real estate and real estate. Don’t believe me? Take a look at the Singapore billionaires below:

singapore-billionaire-2013-mar

By flipping a property from one person’s hand to another, you don’t create additional value for the society. You don’t provide essential services for the country like Carlos Slim Helu & family in Mexico; you don’t build the PC revolution like Bill Gates from Microsoft in USA; you don’t make people beautiful like Liliane Bettencourt & family from L’Oreal in France; you don’t improve people’s daily life by provide top class supermarket like the Wal-Mart.

Instead, you create or inflate bubble, you give people the false impression that they are sitting on some properties worth millions of dollars but forget that it is on paper. It is only a gain if a greater fool is willing to pay a higher price than what you have paid.

The sad thing is, if you are a middle class or even a successful entrepreneur and trying to mimic the success path of these rich, you are probably too late. Just keep an eye on what Li Ka-Shing is doing.

Why is the ease of Total Debt Servicing Ratio (TDSR) restriction disappointing

On Feb 10, 2014, The Monetary Authority of Singapore (MAS) announced to ease the restrictive Total Debt Servicing Ratio (TDSR) on certain property buyers.

What it says is that some of whose who bought a residential property before the TDSR measure (introduced on June 29, 2013) will be exempted from the TDSR threshold of 60% so they can refinance their house.

Why is this important to the home owners?

Mortgages in Singapore typically have a lower spread to the Singapore interbank offer rate (Sibor) in the first two or three years. Rates tend to spike from the fourth year dramatically. Due to the years of Quantitative Easing (QE) and low interest rate environment, refinancing is the lifeline for many property speculators. If they had to pay the high interest rate starting from the 4th year, many cannot afford the loan.

Under the original TDSR structure, home owners with debt levels close to the 60% TDSR threshold would be unable to refinance. Even if they can, mortgagees aged above 35 would be forced to refinance at a shorter loan tenor (cannot extend beyond age 65)

How bad is the situation?

Just google Total Debt Servicing Ratio, or check any financial textbook, you will know that if a personal’s Debt Servicing Ratio is more than 40%, the amount of debt is deemed to be excessive.

However, high debt servicing ratio in Singapore in a norm. In the December 2013 Financial Stability Review, MAS notes that 5% to 10% of households have a debt servicing repayment burden of more than 60% of monthly household income, and the number could increase to 10% to 15% if mortgage rates rise 3%.

In addition to the 20% borrowers whose TDSR of 40% to 60%, 25% to 30% of existing borrowers may already have TDSR more than 40% at current low interest rate environment!

Why is this disappointing?

If anything we can learn from US Subprime crisis and Euro debt crisis, is that bail out the bubble makers never solve the problem, it just encourages the bail out mentality. The let-go of Lehman Broker and the “unofficial default” of Greece may well be the reason of global recovery in the past couple of years.

When US government keeps raising their debt ceilings so they don’t have to default, do the debtors, who keep on borrowing money and enjoy their life, suffer? No, it is those who were prudently saving their nested eggs seeing their purchasing powers drop every day. Just take a look at the stock markets. The US equity has hit all time high but our Asian equities were still sluggish for the past few years.

In my article “How much Cash-Over-Valuation (COV) should you pay for your HDB flat?” in Jan 2012, I said

Singaporeans are lucky that the tragedy of US subprime did not happen here. However, that is not because Singapore property owners are more prudent. In October 2008, some 33,000 flat owners owed HDB arrears of three months or more. They make up less than 8 per cent of the 420,000 households with outstanding HDB loans, nearly reached US housing default rate of 9% at that time.

Fortunately, HDB is much more lenient than the banks and they did not force sell those houses; but unfortunately, the lesson was never learnt. Why blaming the government where you could be the person who paid the high COV just because it was asked for? How many people have been living beyond their means?

True enough, not people become less prudent, but more greedy and demanding. High property price becomes acceptable and a new norm. People were willing to pay $900,000 for a executive condominium and yet blaming the government for “subsidy not enough”.

The chart below shows the Singapore private property index since 1975. When Asia financial crisis struck in 1997, the property bubble was burst. The government did not, or might not have the ability to “bail out” the property speculators. the property markets crashed for more than a decade, but guess what? Singapore stock market, indicating Singapore’s economy and represented by the Straits Times Index, has hit all time high.

What happened after Global Financial Crisis 2008? The property markets were saved (you did not hear often that people were chased out of their house because they could not pay the loan right?), the stock market and economy are still  struggling.

Singapore-Property-Price-Index-and-STI-2014-01

Why? Because people started to ask themselves, why should I work when flipping property is the fastest way of making money? Just like the Sure Win Scheme investing in Gold, people started to play the greater fool’s game.  After all, how bad can it be by investing in property since Singapore is always short of land?

How bad can it be? Well, the new rich generation may have to ask their grand parents who have gone through Asian Financial Crisis. But even so, they may not fully accept  it. If you never eat a lemon, you won’t know how sour it is.

Clearly, the regulators are also concern a sharp correction of property market and the spiral effect. Balancing the interest of the minority and keep the health economy for the nation is indeed challenging on the road ahead.

Below is the full statement from MAS:

The Monetary Authority of Singapore (MAS) has received feedback from borrowers who face challenges refinancing loans for owner-occupied properties which were bought before the introduction of the Total Debt Servicing Ratio (TDSR) rules. MAS has decided to broaden the existing exemption from the TDSR threshold of 60 percent for such loans to ease the debt servicing burden of these borrowers.

Refinancing of owner-occupied property loans

2. Under the revised rules, a borrower who bought a residential property before the TDSR rules were introduced – i.e. the Option to Purchase (OTP) of the residential property was granted before 29 June 2013 – will be exempted from the TDSR threshold as long as he occupies the residential property that is being refinanced. This is a concession compared to the current rules, which also require that he does not own any other property, or have any other outstanding property loan.

3. The Mortgage Servicing Ratio (MSR) will also not apply to the refinancing of loans for HDB flats and Executive Condominiums (ECs) that are owner-occupied and were purchased before their respective MSR implementation dates.

4. A similar concession will apply with regard to loan tenures, for residential properties purchased before the respective implementation dates for the loan tenure limits. In such cases, borrowers whose loan tenures for their owner-occupied residential properties exceed the current regulatory limits will be allowed to maintain the remaining tenures of their loans at the point of refinancing.

Refinancing of investment property loans

5. The TDSR threshold of 60 percent will continue to apply to the refinancing of all investment property loans. This is to encourage borrowers to right-size their loans and thereby reduce their vulnerability to adverse economic conditions or changes in interest rates. However, MAS recognises that some borrowers may face challenges in right-sizing their debt obligations in the short term; the starting level of debt may be too high and there may be significant costs involved if they had to sell their properties to reduce their leverage.

6. Therefore, MAS will allow a transition period until 30 June 2017, during which a borrower may refinance his investment property loans above the 60 percent threshold, provided he meets the following conditions:

(a) the OTP of the property was granted before 29 June 2013;

(b) the borrower commits to a debt reduction plan with the financial institution (FI) at the point of refinancing; and

(c) the borrower fulfils the FI’s credit assessment.

7. The changes are intended to help borrowers ease their immediate debt servicing burdens, while encouraging those who have taken on high leverage on their investment properties to right-size their loans as early as possible.

8. Borrowers should be aware that the current low interest rate environment will not persist indefinitely. When interest rates rise, borrowers will face higher mortgage repayments. Borrowers engaging in refinancing should therefore exercise prudence and review their debt commitments.

9. The revised rules will take immediate effect.

You can download MAS press release here.

HDB Cash Over Valuation lowest since January 2011

In Jan 2012, I wrote an article “How much Cash-Over-Valuation (COV) should you pay for your HDB flat?” I explained the worrying “greater fool” situation of HDB buyers trying to outbid each other by paying a higher cash over valuation.

In Apr this year, I told you HDB is going to “show hand” by just looking at the demand and supply of the market.

If you read today’s paper, it is reported that “Overall Housing Board cash-over-valuation (COV) continued a steady decline in July to $20,000, its lowest point since January 2011.

Overall HDB COV, or cash premiums over a flat’s valuation, has also dropped 43 per cent in the half a year since it peaked at $35,000 in January 2013. Overall HDB resale prices also dropped for the third consecutive month, slipping 0.5 per cent.

Who says property price will never come down? The Japanese have said, the Hong Kongese have said, but a simple chart will say it all

Japan-Real-Estate-Prices

The five “suspected” asset bubbles in 2013

Most of the articles you read will try to tell you what to invest, but today will share with you what not to invest.

I am inspired by this twitter post. Though I cannot verify if it is indeed from UBS’s report, but I agree most of the points.

A consequence of ultra-loose monetary policy

By now we all know what the world has become. By pushing risk free rates to an unprecedented low level, central banks run the risk of creating a disorderly return for many assets around the world. The real danger will come when central banks start to “normalised” their policy.

Many people mistakenly take the bankers’ words for granted, mid 2014, end of 2016, whatever. It may just come much sooner than you can imagine.

The “Five Suspects”

#1 Risk Free Rate

Treasuries or Sovereign Debts have departed from fundamental value. To accept a deal to lock your money for 30 years and get a 2 to 3 percent interest may seems insane in the past, but is reality today.

As founder of US$21 billion Elliott Management hedge fund Singer pointed out, Fed’s monetary policies are distorting the prices of long-term bonds and the global recovery. “Everyone wants a safe haven. There is no such thing in today’s markets”.

Japan’s “to do whatever it takes” to get inflated policy just make a large sell-off in JGB (Japan Government Bond) a distinct possibility.

Collapse of Japanese Government Bond

#2 Credit

In desperation to search for yield, and thanks to all the brilliant bankers, junk bond is renamed as “high yield bond” and become a “essential asset allocation” to many investors.

The junk bonds are selling at record high. on May 7, Barclays US High Yield index closed at 4.97%, the first time in market history that the average junk-bond yield has fallen below 5%. That is lower than what the Treasury’s yield used to be!

In credit space validations do not look unreasonably stretched but the lack of liquidity in the market could engineer an adjustment that looks like a bubble bursting.

#3 Physical Real Estate in Asia

You and I know about this and the government knows it too. In Singapore, it takes 7 rounds of property cooling measures to sort of slowing down the market.

But the problem is, will you swallow the fact that you missed the boat when your neighbour has just made $1m selling his house? Will your neighbour goes on exploring other investment opportunities when he thinks he is a property guru now?

If the bubble does not burst but just leak. People will just patch it up and think everything is going to be ok. We will see the how the great rotation of gold will end.

#4 A number of Emerging Market Equity

Namely Indonesia, the Philippines, Thailand and Mexico. I do not fully agree this part but I admit the volatility will be high just like initial years of China’s stock markets.

I just do not think the markets have reached the hysterical level to call it a bubble.

Stock Index Indonesia vs Singapore vs Philippines

#5 Australian Banks

I do not have much comments of the banks per se, but in general, the recent collapse of commodity price put great pressure on Australia. Australia dollar has collapsed and below US$1 now. Australia was one the few countries survived the global financial crisis well but if you read Citibank’s 145 pages report “From Commodities Supercycle to Unicycles”, you may have to worry for the Australia’s business.

Last word, take note stock markets are nearly not mentioned here.

Is buying London property a wise choice for Singaporeans?

Singaporeans just love to put their trust in properties. After 7 rounds of property cooling measures, the local market finally become quieter (temporarily?). It is because of these cooling measures in recent years, many Singaporeans flocked overseas to hunt for “bargain”. People go to London,  Australia, USA and most recently Iskandar to “snatch” properties just like Great Singapore Sales.

However, is buying overseas properties really a good investment? Today I will just use London property as an example to discuss.

These newspaper titles are familiar to you: “Investors flock back to London property”,  “London homes draw overseas investors”. Is the land in London really greener?

First of all, most people have the wrong impression that property investment can make a lot of money in short term. You may be shocking to know that worldwide, average property yield is merely 3%-4% per year. But how can it be? I am sure your cousin or your neighbor just sold his house and made hundreds of thousands of dollars.  That is not the topic today but you can contact me and we can work out the sums.

Below is the London property index chart extract from UK Land Registry website. From Jan 2008 to Jan 2013, the property index moved from 381.14 to 405.4, that is only 6.4% increase in 5 years! Not to mention hefty estate duty, not to mention that Britain’s latest budget contained extensive measures to raise stamp duties and counter stamp duty avoidance.

You may argue that you have collected some rental from the property. That is fine. After deducting property management fee and maintenance fee, etc, you will have another 3% rental yield if you are lucky.

However, look at the chart below, in the past 5 years, the currency of your London property, Great British Pound (GBP) has depreciated nearly 35% against Singapore Dollar (SGD)!

It is highly unlikely a Singaporean who converted his hard earned money to Pound and purchased a London property 5 years ago will make any real profit in his own currency SGD.

Ironically, the biggest selling points given the property promoters are always the weak sterling and UK recovery story.

Five years ago, you would have been told that Pound was weak, seize the opportunity! Three years ago, it could have been the same story; Today, with the record low exchange rate, I am sure some will find the opportunity irresistible.

I still remember that one of my client converted his SGD to GBP in mid 2009 because his colleague had made 10% from GBP appreciation. (look at the chart above, that is exactly where GBP started a free fall again.

In fact, there has always been strong correlation (price moves in tandem) between property price and stock market and economy. In addition, the prolonged deprecation of the pound has real economic reasons and everyone should know a cheaper price is not necessarily a bargain. For example, Moody’s Investors Service has recently cut the U.K.’s AAA credit rating, sapping demand for the nation’s currency.

Therefore, it has always been puzzling to me when the newspaper features some “investment gurus” whose best investment are their properties while their worse investments are stocks.

The chart below shows private property price and Straits Times Index has as high as 0.91 correlation. (correlation measures how two prices move in relation to each other, which ranges between -1 and +1. +1 implies that as one price moves, either up or down, the other price will move in lockstep, in the same direction.)

A private property sitting on London’s land can only earn revenue (rental) from London and valued in sterling. On contrary, most of the FTSE 100 companies derive at least 50% of the profits from overseas. If I have to  invest in UK recovery story. I’d rather buy their stocks.

Summary of 7th round of property cooling measures

Last Friday (11th Jan 2013) evening, the Singapore Government announced a sweeping 7th round of property cooling measures since 2009, with a series of policies including:

  1. Raising Additional Buyer’s Stamp Duty (ABSD) by 5%-7%
  2. Imposing ABSD on second homes for Singaporeans and first homes for permanent residents (PR)
  3. Lowering loan-to-value limits
  4. Increasing minimum cash payments to 25% (from 10% currently)
  5. Within the public housing segment, tighter loan requirements have been introduced, and restrictions regarding PR ownership of HDB flats and the development of Executive Condominiums have been implemented
  6. In the industrial space, the government will impose a Seller’s Stamp Duty (SSD) of between 5%-15% for the sale of industrial properties within 3 years of purchase

The new round of cooling measures does not come as a complete surprise, given that the Singapore government has repeatedly reiterated its intention to stabilize the residential and industrial markets. However, this round of measures is probably the most punitive and comprehensive set of cooling policies released thus far, and is likely to be effective in dampening both market sentiment and investment demand.

In my opinion, the new financing rules may have the biggest impact. As I have repeatedly expressed, “amateur” speculators are the one who pushed up the price and these people are always the most leveraged. That means when the tide goes out, these people will be in the most devastating state. Below is the summary of the new financing rules.

Residential New Financing Rules with effect from 12 Jan, 2013 Source: http://www.icompareloan.com

What will happen to your Malaysia property if you die?

With prices of properties in Singapore rocketing, many Singaporeans have chosen to invest in Malaysia properties. However,  when many Singaporeans own millions of property assets in Malaysia, few have bothered to think about this question:

“What will happen to your Malaysia property if you die?”

 

Inheritance Laws in Malaysia

Previously, I talked about How are assets distributed if a person dies without a will in Singapore. Although Malaysia is also a common wealth country, the intestacy law is slightly different. For example, under Singapore law, surviving parent(s) will not receive anything if the deceased leaves surviving spouse and children, but parent(s) will be entitled 25% in the same situation under Malaysia law.

Many Singaporeans have “invested” millions of dollars in Malaysia properties with their spouse, parents and even friends. If not careful, the distribution under the law may be very undesirable to the deceased’s family. 

For West Malaysia and Sarawak, the law governing the distribution of estate upon intestacy is the Distribution Act 1958 (Amended Act 1997). However, this law is not applicable to Muslims and natives of Sarawak.  

INTESTATE LEAVES SURVIVING

ENTITLEMENT TO ESTATE

Spouse

Parents

Issue

Spouse

Parents

Issue

Yes

No

No

100%

-

-

No

No

Yes

-

-

100%

No

Yes

No

-

100%

-

Yes

Yes

No

50%

50%

-

Yes

No

Yes

1/3

-

2/3

No

Yes

Yes

-

1/3

2/3

Yes

Yes

Yes

25%

25%

50%

Issue refers to children and descendents of children

If a person passes away without a will and do not have any surviving spouse, parent or issue, then the following will  have priority:

  1. Brothers / Sisters
  2. Grandparents
  3. Uncles / Aunts
  4. Great Grandparents
  5. Great Uncles / Aunts
  6. Government

Prolonged Process of Asset Administration

When a person passes away without a will, an administrator must be appointed and every beneficiary must agree to the appointment and renounce their rights to petition. This can at times be a problem when the beneficiaries cannot agree on whom should be the administrator. This dispute can sometimes turn into a legal suit that can drag on for many years.

Even if all the beneficiaries agree to the appointment of the administrator, the administrator has to find two sureties. The purpose of the sureties is to protect and secure the creditors and beneficiaries against losses caused by the improper administration of the estate. These two sureties must have assets equivalent to the value of the deceased’s estate and will stand guarantee in the event that the administrator runs away with the deceased’s assets.

Most of the time, It is almost impossible to look for two sureties, especially if they were have to guarantee million dollars for the properties.

You can easily understand how badly the whole process will be delayed, not to mention the additional hefty legal fees involved.

There are many other factors to be considered such as Foreign Investor Scheme restriction to the beneficiaries. I will discuss them in another post.

In a nutshell, if you are buying a million dollar property in Malaysia, invest a couple of hundred dollars in a will and it will save your family the day. Contact me if you need will and estate planning services.

 

How is property gifted by spouse treated upon divorce

Released on Thursday, the Court of Appeal made this clear in decision grounds in the case of a woman who had been given shares to three properties by her husband during their 36-year marriage.

GIFTS between spouses in the course of a marriage will be treated as matrimonial assets to be totted up and split between them if they divorce.

In the case of a woman who had been given shares to three properties by her husband during their 36-year marriage.

The husband sought for all three properties to be put on the list of matrimonial assets to be divided between him and his estranged wife.

But of the three, only one – an apartment in The Riverwalk by the Singapore River that he bought with his own funds – was to be included in the list, the court has decided.

The other two in the upscale condominium of Hampton Court near the Tanglin Club are to be excluded as they were gifts the man inherited and “re-gifted” to her.

Perhaps the other important aspects for many readers to ponder are Justice Rajah’s notes

“there are many couples who hold all or most of the assets which they acquire during the marriage in just one name, without having had any serious prior discussion or agreement as to how those assets… ought to be divided in the event the marriage fails”.

With the introduction of additional stamp duty late last year, many people started to buy property under either the husband or wife’s name instead of joint name to work around the rules. While technically there is nothing wrong, many people did it without any planning.

The complications do not only rise upon divorce. If a person passed away without a will nor a plan, the family not only have to be burdened with high distribution costs and administrative delay, but may even end up going to the court due to discrepancy and arguments among the the family members and beneficiaries.

Many people have always planned for everything in life, but leave their final wishes unplanned.

How to become a millionaire by investing in properties?

Most of the time, investors focus on how to “make quick money”. The idea of “becoming next door millionaire” is all time gimmick and never fails to attract followers.

I am not surprised to read from Sunday Times article that people actually paid nearly $3,000 to attend a 2.5 day course, hoping to become a property guru overnight.

While I do not know how many of them have succeeded, it certainly made the organizer millionaire! According to the newspaper article “To go or not to go for property investment talks”, it says “300 people paying about $3,000 each”. That is eye dropping $900,000 course fee!

It seems that “Sometimes, you need to spend some money to learn” is the mentality of the people who joint the seminars but “do my own research with the software” is what the students have learnt.

Worse still, according to the article, “an agent accused an organiser of giving the course participants a 5 per cent discount off a property when she received 12 per cent bulk discount from the developer”, “a check with the Council for Estate Agency (CEA) shows that investigations are ongoing for some of these seminars”.

I’ve attended some sort of investment seminars or previews, mostly are FREE or at nominal cost with various topics such as stocks, futures, forex and properties. What I noticed is that many participants are eager to get “tips” from the speakers instead of developing or improving their skills.

For example, in the recent Invest Wisely in 2012 with Dr Alexander Elder, some of the audiences were just interested in getting a yes or no answer of whether certain stocks were good buys, paying no attention to Dr Elder’s repeated key message, “the process of thinking”.

That is why seminars with “system” or “proprietary software” are so sellable and people are willingly paying big bucks for them.

This is really unfortunate!

If I tell you that I have spent $3,000 for a two day course, with the help of a computer program, I now have winning strategies to make millions of dollars in the shortest time, now please invest all your money with me! You must think I am insane.

However, you may believe that after spending $3,000 for a two day course, with a help of a computer program, you will become the next millionaire!

Learning is a process, and success comes from hard work.

Where Is Property Price Heading To?

Singaporeans just have this obsession about “investing” in property.

In January this year, Singapore government has already pushed hard to curb property speculation.  Unfortunately, the public never got the message and property prices continued shooting up.

Until mid of the year, new minister Khaw Boon Wan has publicly expressed his “worries about property buyers”. He wrote In his blog, “I must keep an eye on the medium term for possible pitfalls. Sharp property price increases cannot go on forever. Gravity cannot be wished away. … Those who borrow to go into properties thinking that prices will continue to rise, will be thrown into financial hardship should prices drop and banks start calling.

Even with the DBSS Saga, it seems that the public still cannot resist the temptation of “healthy market” illusion created by “experts”. Just look at the chart of Private Property Index (PPI) and HDB Property Index.

Don’t fool yourself that property prices are only driven up by foreign demands and for luxurious projects.

Are you saying  that the foreigners are also the culprits behind the sharp rise of HDB prices (blue line)? Are you saying that, after global financial crisis, with high unemployment rates and euro debt crisis, the property prices rose because of supply and demand? Have you noticed that the current property price index is far higher than where it was in 2008 peak?

Since beginning of the year, many of my clients have talked about buying a second property for “investment”.  Some only dare to buy fixed deposits but yet are willing to risk millions into one single property. Some received a windfall from their first property bought in 2009 (just because they got married and needed to buy one, how lucky!) and believe the only way of property price is to go up.

Thanks to the public media who untiringly features “successful investors” who, although always lost money in stock market, have made fortunes with their faith in properties.  This is most ironical to me because it is not rocket science to see the strong correlation (price moves in tandem) between property price and stock market and economy.

If indeed that curbing foreign speculators from buying Singapore property works, it should be more devastating news for recent property buyers.  Foreign buyers are well informed and professional, the fall is always as fast and furious as when it rises.