Time to slay the DBSS 'monster'

[Musicwhiz]

If yr parents have rented out the condo and stayed in HDB will the investment returns been much much better? Alot of my friends are waiting for the property correction and they are all very cash rich. Some hold multiple properties and only interest rate above 4.5% will push them to negative cash flow. There are really alot of rich people here that i myself am quite surprised. I dont believe interest rate will up to more than 4.5% in the next 3 years. Another way to crash the market is a war or highly infectious disease hit Spore. The latter is possible given our highly dense population and our open door policy.

Hi Bibi,

Therein lies the problem. My father did not want to downgrade to stay in an HBD as he was concerned about his pride and that he might "lose face" (he was holding a senior position in his Company at the time). If he had done that, on hindsight, he could have retired with much more money. I learnt a valuable lesson from him - instead of impressing people who don't care, you should quietly plan on how to enrich yourself instead.

Hmm, so your friends are leveraged on several properties and yet are very cash-rich? I think something which you may not have considered is the fact that once the economy plummets or demand dries up, those properties which are being "healthily" rented out may become vacant faster than you can say "Boo", resulting in instant negative cash flow whether or not the interest rate rises above 4.5%. Just as companies can restrict or stop dividends during bad times, companies can also pull their expats out of Singapore when things get tough. Even a 2-year rental contract may get frustrated and companies will pay the penalty but then your cash flow has dried up and it's hard (if not impossible) to find another tenant paying the same rate, at short notice. So I would conclude that your friends are playing a rather dangerous game!

[mrEngineer]

MW, to be honest I have not yet seen such a scenario before for my condo previously that tenants withdraw quickly when market plummets. I rented out to a new tenant but at a much lower rental rate (about 30%) cut. However, I must say my condo location was kinda good, less than 300m from MRT.

[Musicwhiz]

MW, to be honest I have not yet seen such a scenario before for my condo previously that tenants withdraw quickly when market plummets. I rented out to a new tenant but at a much lower rental rate (about 30%) cut. However, I must say my condo location was kinda good, less than 300m from MRT.

True, this has not happened yet, but I guess I am too conservative and I always view the worst possible scenario; which is probably why my friends say I "cry wolf" too often!

[kazukirai]

Alot of my friends are waiting for the property correction and they are all very cash rich. Some hold multiple properties and only interest rate above 4.5% will push them to negative cash flow. There are really alot of rich people here that i myself am quite surprised. I dont believe interest rate will up to more than 4.5% in the next 3 years. Another way to crash the market is a war or highly infectious disease hit Spore. The latter is possible given our highly dense population and our open door policy.

Hi Bibi-san,

Do you mean your friends are cash rich in the sense that they can easily pay off the remainder of the existing mortgages? Or that they can continue to service the mortgage and ride out the bad times? If they've catered for those scenarios, I guess it's not such a bad thing. However in the case of MW's friends who have more than 1 mortgage. I wonder what is their worst-case scenario? Have they contemplated it?

As they say, fortune favours the brave so I'm not begrudging those who have taken on more than 1 mortgage in seeking returns from property as an asset class. I'm just wondering the no. of such investors that have contemplated worst-case scenarios such as rising interest rates, declining economic conditions leading to a fall in general property prices and loss of tenants etc.

My personal view is that there are less and less chairs left in the game of musical chairs as far as property is concerned.

[etan]

They are the enbloc sellers; they need replacement homes. Depending on the size of the estates, the number of households affected could range from something like 10 – over a few 100s households. These people need to find a place to stay within a certain time frame. So in a way, as long as enbloc fever is still hot, I think property prices will continue to rise.

garment?

[Bibi]

Alot of my friends are waiting for the property correction and they are all very cash rich. Some hold multiple properties and only interest rate above 4.5% will push them to negative cash flow. There are really alot of rich people here that i myself am quite surprised. I dont believe interest rate will up to more than 4.5% in the next 3 years. Another way to crash the market is a war or highly infectious disease hit Spore. The latter is possible given our highly dense population and our open door policy.

Hi Bibi-san,

Do you mean your friends are cash rich in the sense that they can easily pay off the remainder of the existing mortgages? Or that they can continue to service the mortgage and ride out the bad times? If they've catered for those scenarios, I guess it's not such a bad thing. However in the case of MW's friends who have more than 1 mortgage. I wonder what is their worst-case scenario? Have they contemplated it?

As they say, fortune favours the brave so I'm not begrudging those who have taken on more than 1 mortgage in seeking returns from property as an asset class. I'm just wondering the no. of such investors that have contemplated worst-case scenarios such as rising interest rates, declining economic conditions leading to a fall in general property prices and loss of tenants etc.

My personal view is that there are less and less chairs left in the game of musical chairs as far as property is concerned.

Hi Kazukirai,
They are cash rich enough to pay off the monthly mortgages. Most of my friends are market timers and value investor. They do their homework and wont take too much risk. They bought properties at rock bottom prices and rent them out for cash flow. It is unlikely the whole year one cant find any tenants due to Spore open door policy. If that happens it must be due to a deadly disease spreading in Spore. Even if at -ve cash flow, their earnings power (govt related jobs) can pay off the mortgage loans unless interest rates break 4.5% which imo is highly unlikely given the fact that USA growth is bad. USA wont dare to increase rates by too much. They rather "force" IEA to pump out more oil to lower inflation. Most have stopped purchasing residential properties as of last year and are looking into commercial/industrial properties. Its just like people laugh at us or worried for us when we keep purchasing shares as their prices drop in a recession, but we know what we are doing.

[redcorolla95]

There's a whole lot of confusion here:

You can either be cash rich (assets ~ equity, or assets < 2x equity) or 'highly' leveraged (assets > 5x equity), you can't be both. Or you might by 'highly leveraged' but have lots of incoming cashflows.

'don't believe interest rates go above 4.5%'. Less than 5 years ago, nobody believed that Lehman Brothers & Bear Stearns would go bankrupt, that there would be civil war in Libya, or that interest rates would be this low.

The opposite of 'US won't dare to increase interest rates' is central banks don't dare to buy US treasuries. By the way, it's not so trivial to 'force' OPEC (not IEA - that represents the energy consumers) to pump oil to lower inflation - even the world's largest producer at 10m bbls of oil a day could barely pump enough to make up for Libya even with currently high oil prices.

[Bibi]

I didnt mention my frens are highly leverage. Some hold multiple properties yet cash rich waiting for the next downturn. I am holding on to > 50% cash as well. Like it or not, US interest rate wont touch 4.5% in the next few years. The probability of that happening within 5 years is just too low.

"Thursday's announcement of a 60 million-barrel release from emergency stocks - only the third in the IEA's 37-year history - came after consumer nations unsuccessfully applied pressure on the Organisation of the Petroleum Exporting Countries to increase its output at a meeting this month."

"The oil price hasn't shot up to $150. There is no reason to do this. The market is not short of supply. Kuwait and Saudi Arabia have been raising production, but there have not been many buyers. The IEA is just playing politics with the US," one Gulf delegate said."