Financial Queries

last SG · 2008-09-25T10:25:18+00:00

Really? HDB, condo, landed. You see a significant correction coming for all classes? Any good sources of reports / info on this? Hmmm.. Think of recent econo...

Sgwealthmanager SG

Hi TDurden,

I'm impressed that your mother managed to set aside funds for various purposes single-handedly. She must have been very frugal.

Let's take a look at your family's current financial situation:

W = $20K. This is the emergency fund that she has set aside, which is 3-6 months' of your family expenses.

X = $80K, for education funds. She might want to consider setting more aside since it's for you and your brother. In any case, should one of you decide to go for overseas university, the amount required will be more.

Y = $100K for her retirement funds. Assuming your mother retires at age 62, and lives to the average life expectancy for females which is 85, she needs money to last her for the next 20-25 years. $100K/25 = $4,000/yr which is insufficient.

Z = $300K bank savings/fixed deposit, not investment funds. If you factor in inflation of 3%, your mother is losing $6,000/yr, assuming fixed deposit interest rate is 1%.

Your mother should seriously think about how to maximise the use of this sum of money. Property investments are definitely favourable. However, considering the large amount of monthly cash repayment since your mother's CPF is depleted, property investment might not be so viable for your family at this point in time.

The monthly rental could be from $2,500 - $3,000. It depends very much on demand and supply.

You mentioned that the main reason your mother is planning this investment is because in the long run she wants to leave something for you and your brother so that in the case the unmentionable happens, you will not be at a lost. If that is the case, there is actually no necessity to look at property investments. There are other financial instruments which can take care of her concern.

Finally, it is unwise to leave all your money in the bank which is earning interests lower than inflation rate. Setting aside 3-6 months' of emergency funds, which what your mother has already done, is good enough. She should look at ways to make the rest of the money work harder for her, rather than she working so hard for money.

NoobUnited SG

Well well isn't all the recent financial turmoils caused by 1 word. Greed?

dinky1409 SG

Go for land banking if you dont need much liquidity and for long term purposes..

TDurden SG

Hi TDurden,

I'm impressed that your mother managed to set aside funds for various purposes single-handedly. She must have been very frugal.

Let's take a look at your family's current financial situation:

W = $20K. This is the emergency fund that she has set aside, which is 3-6 months' of your family expenses.

Z = $300K bank savings/fixed deposit, not investment funds. If you factor in inflation of 3%, your mother is losing $6,000/yr, assuming fixed deposit interest rate is 1%.

The monthly rental could be from $2,500 - $3,000. It depends very much on demand and supply.

Other ways to make the rest of the money work harder meaning? You left me with alot of thoughts to chew on man, it's looking bad. Can you explain to me more on these other ways? Shares & stock should be no, my mom sure don't want her hard earn money to just burn.

Go for land banking if you dont need much liquidity and for long term purposes..

Hi can you care to explain to me more on this? Thanks.

dinky1409 SG

Go for land banking if you dont need much liquidity and for long term purposes..

Hi can you care to explain to me more on this? Thanks.

Not really a pro on this so I might be wrong. Perhaps can google or wikipedia what land banking is all about.

Nevertheless, the concept of land banking is to purchase a piece of undeveloped/raw land that is strategically located near the boundaries of a potentially expanding city. Undeveloped land is relatively cheaper and over years, with development and the expansion of the city boundaries to include your land, the value of your land would have escalated. So basically you pump in 50k for a land, and over 25 years perhaps, you can sell it for 100 or 150k? or more? Depends but generally the idea is there. Heard of stories whereby old grandpas and grandmas, manage to sell their kampung land for million of dollars? Basically thats the same idea. However, in SG there's no more or not much raw land. But there are international companies here which you can do land banking with such as Walton International, Profitable Plots etc..

The risks are relatively quite low the way I look at it. Perhaps you may want to research more. I'm no expert on this like I said. =)

Another alternative perhaps is to go for Islamic banking? Because of compliance with the syariah law, I heard it's hardly or not much affected by the ongoing economic situations. Instead of fixed interests, it is based on profit sharing.

Just some suggestions =)

maurizio13 SG

If your mom's retirement funds are making less than 3.25% p.a., I would suggest you cash out and use the money to pay for the condo, it will go into reducing the amount of interest you have to pay.

Also, property prices are already at their peak, chances of it increasing is slim, while chances of it dropping is high (given the current financial crisis). Maybe you should just hold for 6 months to a year to assess the situation.

Sgwealthmanager SG

Simply put, making your money work harder for you means to gain higher rates of risk-adjusted returns. Your mother should explore financial instruments suitable for herself (based on her risk profile) to earn higher interest rates as compared to bank interest rates.

Buying into stocks and shares (S&S) doesn't always mean you'll burn your money, though personally I feel one should only consider it as one of the last few options. It is perfectly fine if you invest in S&S after doing thorough research on the companies and with a long term view in mind. However, if you are buying with a speculative mind, also known as gambler's mind, then you are digging your own grave.

Besides S&S, there are other financial tools which can be used to address your mother's concern, without putting her money in unnecessary risk.

Land banking can potentially give good returns if your land is included as part of an expanding city. However, there are still risks involved because you would never know how the city expansion plan would change. One example is the conversion of a neighbouring plot of land into a cemetry. What's more, you are not familiar with the surroundings, unless you are prepared to travel there a few times to get a good feel of the ground. Another recent example in Singapore would be the setting up of foreign workers' quarters in Serangoon Gardens. Who would have expected such a plan to be proposed?

www.SgWealthManager.com

Aling5 SG

Landbanking is not risky. Landbanking with Walton could well be. You entrust your money into someone's hand and hope they will 1 day return you with lots more. Hope. You think they will? Anyway, some of the exits could well be created, i believe. I saw some of my friends letter of offer. The lands were bought by company 12321314 ltd. what kind of company is that? hahaha Think twice people when you decide to give up your steering wheel. Don't be an idiot.

Helensunjing SG

TDurden,

it is not advisible for you to buy a new condo which price is so high at this moment. based on the condition of your family, you may consider a 2nd hand condo 2br which is more reasonable and should be no higher than 500k in total price, for investment purpose, you are allowed to loan about 80% from bank, or 400k loan in total. i believe you can find such condo near bt batok or jr west.

1. will the bank willing to grant loan? is one issue at this weak mkt.

2. 3.25% may float up to 6%, it happened to me once!

3. your mum would got tremendous pressure once she buy the condo, it may

affect herself emotionally, let alone about the inflation risks mentioned above by people.

Let's say ur mum decided to go for this 2br 2nd hand condo. total purchase price at 500k, you need to pay 5% cash, the rest 15% either by cash or CPF, (CPF has a certain amount reserve aside compulsory, cannot use for housing).

with 80% bank loan, or 400k for 20yrs, the total interest based on 3.25% would be total 137k after 20yrs, (after 20yrs, the total asset should worth more than 637k, otherwise, you never earn, but the bank does.)

and monthly installment would be around 2240, managment fee would be around 300 a month, unless you can rent out for 2500 per m, otherwise, how to cover this loan?

all my calculation here havn't included the property tax which is a few thousand per year.

Think twice before you invest, or may need to wait either of your brother start to work.

mazz25 SG

Property is a good investment. However the risks involve is:

- The amount you rent out the condo may be lower than you expect to repay mortgage loan

- Not as liquid as stocks or unit trusts

- You need holding power. Making money on property is about timing.

Property is always slow at following the stock market by 1-2 years. The stock market typically has its worst months Sept-Oct. Jan-April is usu. good months for stocks (meaning the market tend to rally according to history).

Property prices will probably fall further this year. Do not go into it yet, get advice from a realtor and a financial planner.

Stocks is not the most risky investment instrument. Nothing is risky as long as there is research done.

Stocks' advantage:

- High liquidity (As long as you are not into penny stocks and stay on blue chips in Singapore)

- Ownership in a company, you earn dividends when the company makes a profit

Stocks' Disadvantage:

- If you invest $1000 in the shares of a company and the company goes solvent overnight, you only lose $1000. To be safe, seasoned stock investors always exit if their share prices drop by 20% or depending on their research. It is never advisable to hold and wait for the price to appreciate.

Unit trusts works like stocks except it is a basket with various stocks and alot more investors having a share in this basket as opposed to you being an individual owner.

As the stock market has dropped considerably, it is like going to a 50-70% sale in a shopping store. Some trustworthy stocks you can purchase in Singapore are the blue chips like ST Engineering, Cosco Corp, Sembcorp Marine. I purchased Sembcorp Marine at $0.90 a few years ago during recession. It peaked at $4-5 last year. Not to mention the dividend I received from Sembcorp, it was extra savings.

In regards to land banking, instead of researching on a company like buying stocks, you will have to research on the government of the country companies like Walton is investing in. Personally I find it hard to determine the value of a land, thus I did not invest in land banking. Though if I have extra money, I might put a little into it.

Hope the information helps.

« Previous Page