Are Singapore properties becoming hot potato investments ?

 

Right now, I am experiencing flu-like symptoms like a sore throat and a runny nose and had to cancel my ERM previews tonight, so there is some time to write something about my thoughts on property ownership in Singapore. I don't intend this article to be one where I use a lot of data, I just want to share one data point from the POV of a Singaporean who has been living in landed property for the greater part of my life.

Today, I want to address 1M65's critique of many Singaporeans who are asset rich and are not cash rich. His idea is that there is something somehow foolish about grabbing onto a piece of landed property and holding it for dear life. For the most part of his life, my dad belonged to this category of being an asset-rich/cash-poor Singaporean. In my adult life, I helped free up some cash to create a more balanced life for my dad using dividends counters, which stunned his broker, but I am now seeing the logic of being asset rich. 

Before I begin, I hope readers don't troll Mr Loo because of this article. I respect him even though I don't fully agree with his financial ideas especially the one about buying property in JB.

Let me share with you guys my story of living in an asset-rich household. After my dad sold off his shares in Pet Lovers Centre, he had lukewarm success with another pet shop. After the Pet Shop shut down in the 90s and my parents left the pet business, my dad became a production operator for a packaging factory in Sungei Kadut and my mum drove a car to clean plates for the food court proprietor and even cooked clay pot at CCK.  Her horrible boss basically paid her as and when she has cash flow. Because we lived in a semi-D, my mum was constantly fending off colleagues who wanted to borrow money from her. One colleague even asked to plunder her cash card in our car.

In spite of how all these sounds, we were a very happy nuclear family. My parents loved hanging out with their colleagues. My teenage years, I had zero travel and zero fashion, but I spent a lot of time on the beaches with some folks who hung out with my parents at the pet shop. My old pal now lives near me in Senja/Segar area in Bukit Panjang, but we both had a lot of angst that our children cannot enjoy the childhood we had. 

So you can imagine how quixotic the scene is, to support me through my first degree, my parents took up manual work roles while living in a fully paid semi-detached house. I took public transport to NUS and so did many of my neighbours. When the MP paid us a visit, we largely complained about municipal issues that affect the heartlands. Particularly painful for our housing estate after Kranji MRT was established, TIBS removed bus number 182, which allowed us convenient access to Orchard Road.

We are asset-rich, cash poor, but nowhere as pathetic as painted by 1M65. 

Eventually, we did not downgrade because we were poor, we downgraded because my dad had a stroke and moving to a flat in Woodlands provided better access to a Polyclinic. But that downgrade gave us so much passive income, it did not take long to start enjoying the HDB lifestyle. 

My parent's means of primary support for me during my Uni days was a shophouse in JB which is giving me a lot of angst right now. It currently yields 6.1%, but Malaysian property has been getting cheaper years before COVID and the ringgit has depreciated 1.7% against SGD for the past 5 years. Not getting rid of it and moving funds to say, Netlink Trust, would be financially irresponsible. Selling it is like pawning my dad's Rolex, does not feel right even if you move it into a blue-chip like DBS. This is why I'm taking steps to finalise the paperwork to press the trigger while delaying this as long as I can. 

We were so dependent on the shophouse during my Uni days. It actually burned down a few weeks after I got my degree and I has to beg Procter and Gamble to take me in a month earlier so that I can start work. 

I began to address my dad's asset-rich problem after I cleared the CFA exams. I was able to more confidently tell him to ignore his broker and start focusing on dividend stocks with his six-figure portfolio. It immediately began to have a positive impact on his cash flow. As I did not need to pay rent, I also aggressively tried to buy as many "virtual shophouses" as I could, but in the form of dividend stocks and REITs. That story of my life as an early FIRE adopter will not be repeated here.

There is some kind of logic, albeit perverse, as to why it's wise to be asset rich.

Firstly, your pals who sell landed property early in the 80s and 90s are highly likely to wind up salty and poorer than you. Only one of my dad's pals ended up with a larger net worth but he invested in a network of karaoke pubs in Orchard Plaza. Everyone else frittered their wealth away, even those with a pension. Why? The money was theirs, it was not inherited, what could take a decade to build up can be spent in about 3-5 years without investment knowledge. 

Secondly, it's a fairly safe way to use leverage. I paid $170,000 for my EC. My condo price breached $1.6M this month in SRX. For every month I have my expensive $3k mortgage (with my dividends), and my net worth goes up $20k-$40k in a bull market, at least according to SRX. The wealth gain is academic, but theoretically, I can get a home equity loan and load up on more REITs and banks and exploit the cessation of interest rate rises by the Fed. 

Thirdly, when you stick around in Singapore, you are betting on a stable government and currency. Over the short term, sure, we are making money from a construction shortfall thanks to COVID. But as I've pointed out, the SGD is ridiculously powerful because of not just the way we manage our exchange rate, we also can open and close the tap to foreign talent to keep getting ourselves richer. The government will try to stabilise prices, but they will not impoverish a generation of GenXer and Boomers because a few Millenials can't get the flat they want. 

Fourthly, a downgrade from living landed property is irreversible. It's generally very hard to amass enough funds even using an investment strategy to get back to that world. I decided not to track the value of my old home because I value my mental health.

Fifthly, prior to selling a piece of landed property, it helps to learn and already have a local stock market operation. You should be best able to understand how to generate dividends from an underlying stock portfolio so that you can instantly benefit from a spike in passive income after you achieve the proceeds of the sale. I emphasise dividends more than anything else because it is forgiving, but if you put your wealth into a fixed deposit, you are instantly destroying your wealth from inflation. 

There is the ultimate way to realise your gains. Emigrate to somewhere like Australia. You can realise all your gains and find a less stressful lifestyle. But this is irreversible. The Singaporeans who left for Australia may not have a high probability of 5x-6x investment gains from an executive condominium, this is even though Oz never had a recession for 20+ years. This is why I use the metaphor as a hot potato. As your property gains in value, you will have this urge to realise your gains by selling it and dropping it like a hot potato. 

Now I will end with a summary of my opinions on being "cash rich" vs "asset rich":

1. You should strive to have one house, preferably an EC, that can shapeshift from HDB to a private condominium. But make sure that you have the financial power to maintain it for at least 15 years, where the probability of losing money on an EC will hot almost 0%. Don't listen to your agent pals who want you to kill your golden goose.

2. Don't be greedy and try to execute the decoupling nonsense to buy two homes. It sells seminar tickets for some people, but it violates the simple policy of diversification. You can earn a lot, but a serious cost to your quality of life as a couple supporting two mortgages.

3. Our stock markers have a PE ratio of 11-12, which is a higher earnings yield compared to any property. Use the stock market to get enough cash flow to support that one mortgage you have and after that, use it to offset your simple heart lander expenses.

With an appreciating asset and dividends yielding equity, you'll get some kind of barbell those expensive bankers like to talk about. With dividends portfolios not doing well since March last year, I'm glad my net-worth is still trending higher from my residential home. 

Between your property, stock portfolio, and CPF, I'm pretty sure that at least one of them should bring you joy every year.

Sometimes in a good year, you can profit from all three.