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25 Nov

Results and thinking: which should come first?

A recent conversation I had gave me insight into how, as Singaporeans, we place too much emphasis on past results, and that our way of thinking is shaped by these results and other experiences observed.

Innovative thinking is needed to solve Singapore's housing problems. (Image courtesy of ThinkStock.)

Innovative thinking is needed to solve Singapore's housing problems. (Image courtesy of ThinkStock.)

Too much emphasis is placed on funding performance history. Yes, it is useful for us to measure current housing performances against past performances, such as keeping tabs on the house prices. But relying on old methods to solve new problems can only take Singapore so far.

Like other problems that Singapore faces, issues in the housing market are dealt with using a heavy reliance on technical analysis, like comparing past and present rates of Build-To-Order (BTO) housing over-subscription, price hikes (and drops) and so on.

To effectively resolve our housing needs, our thinking and funding should not be entirely based on performance history and past results. Rather, creative thinking and efficient execution of policies should directly lead to positive results.

I believe this is partly the reason Singapore’s government housing policies have been stuck in a virtual limbo. Back when Singapore was struggling towards independence and naysayers doubted the country’s ability, it was then Prime Minister and current Minister Mentor Lee Kuan Yew’s vision to model Singapore after successful countries that made the country what it is today in just three decades.

Today, however, things are much different. Singapore is now one of the most successful Southeast Asian nations. The problem of rising housing costs we face now is a completely different set of problems that requires new approaches to solve. We cannot afford to be rehashing the same solutions in a situation that calls for innovative thinking.

National Development Minister Khaw Boon Wan’s solution of releasing a bumper supply of BTO flats is one way of quickly dissipating demand; but in the future, when there is no more land to release, even more creative thinking will be needed to fulfil housing demands. Policy makers have already begun exploring the construction of homes skywards and seawards, so what about doing so downwards for instance?

If Singaporeans and their government are looking to make a change, why not take a leaf from companies with exceptional visions? One such company is Apple, which did not start out in the mobile phone industry. While it took established mobile phone giants like Nokia and Motorola 10 years and hundreds of models and features to get to where they currently are, Apple accomplished similar achievements in half the time and with only one phone model.

If we encourage a culture of innovative thinking to solve not just Singapore’s housing problems, but other issues in transport and healthcare as well, we will certainly get positive results.

23 Sep

Predictions for the Singapore Property

There seems to be a lot of volatility in the global equity market as well as Singapore’s. Indeed, in the two weeks following National Day, billions were wiped out.

Singapore property prices will continue to rise

Singapore property prices will continue to rise (image courtesy of thinkstock)

A piece of interesting news is that the Swap Offer Rate (SOR) has gone into negative territory. US Federal Reserve Chairman Ben Bernanke has made an unprecedented move by guaranteeing that the SOR, which is highly correlated to the US interest rate and exchange rate, will not go up for the next two years. This is truly risk free investing if you know how to take advantage of it. Well, one way I can think of is to refinance your mortgage to a floating SOR rate with a two-year lock on it, reviewing the global situation to repackage it two years later if necessary.

Another piece of news that has grabbed the headlines is the downgrading of US debt by Standard & Poor’s. This has resulted in Singapore, which has one of the few remaining AAA-rated government debts, being thrown into the limelight as a safe haven during these turbulent times. However I think that there is a treat of the Singapore dollar appreciating too much, which will affect its exports. Currently it is trading close to a never seen before rate of 1.2 against the USD. The upside is that it is combating inflation since Singapore is a major importer, but the downside is deposit rates will remain low and investing overseas will be challenging, which will result in savvy investors turning to local property, perhaps even commercial properties, instead of the volatile equity market.

Taking these two factors into consideration, coupled with the stamp duty penalty of 16% for the first year, 12% for the second year and 8% for the third year, recent buyers have the advantage of a booming property market. In the interest of maximising their profits without any opportunity loss, they are unlikely to sell in the next two to three years to avoid being hit with stamp duty penalty and low interest rates. Also, the next two years will see less uncertainty in the market; with the Singapore dollar appreciating and overseas investment opportunities becoming scarce, property will remain attractive as it is less volatile than equities, especially since demand still exceeds supply, given that foreign investors are eying this market as well.

Therefore, my analysis is that Singapore property prices will continue to increase over the next two years at least. However there is the potential that this will come crashing down if interest rates start increasing, as today’s buyers will start off-loading as a result of lower stamp duty penalty and an oversupply of homes.

 

9 Aug

Don’t be penny wise, pound foolish

Let me share a story about two couples in their late 50s whom I recently met.

Couple A are typical savers. They have worked hard their whole lives and have paid off the mortgage on the HDB flat they bought 20 years ago. Now 55, they have a decent amount of CPF savings as well as cash savings from their fixed deposit accounts, which they set up because they did not want to take any risks with their money.

Scrooging on small expenses is not the answer. (iProperty)

Scrooging on small expenses is not the answer.

However Couple A are afraid that given the current low interest rates, their savings might not be enough to pay for their children’s tertiary education and any costs incurred after. Thus even though they have retired, they have had to take up odd jobs to maintain an income.

Like Couple A, Couple B also have children and they have also finished paying the mortgage on their HDB flat. However even though they earned less than Couple A when they were still working, savvy property investments have helped them avoid the situation in which the latter now find themselves. Indeed, when it was announced many years ago that CPF savings could be used to purchase property, they immediately jumped at the opportunity and used their CPF to buy two private properties.

Even though they do not have much savings left in their CPF accounts, they have two fully paid assets that have more than doubled in value. In addition, a steady stream of rent coming from the two properties means they do not have to worry about income.

These couples exemplify the importance of looking at the big picture. While scrimping and saving on daily expenses may pay off in the short term, neglecting to consider the future can have dire consequences.

By looking ahead, Couple B were able to be financially free even though what they did was neither complicated nor risky.

This does not necessarily mean that investing in property is the best way of securing one’s financial freedom. Rather, what these examples serve to illustrate is the importance of having long-term financial investments instead of just focusing on short-term small expense savings.

8 Aug

Agree to Disagree

In ‘The Little Boy And The Dollar Notes’, the allegorical tale of a young boy being presented with the option of taking either a $100 bill or a $10,000, the boy chooses dollar bill. This goes in the face from the advice he receives from people around him to take the larger denomination, but the boy is suspicious of whether the stranger who presented him with this unlikely choice would in fact hand over such a large amount as a $10,000 bill.

This reminded me of situations where everyone has a view and thinks they are correct or have the best answer. Ultimately, only one side may be correct, but does that make the other side incorrect?

Yes and no.
It’s possible to say “yes the other side is incorrect” because subsequent results show them to be so. However, in the case of the allegory it could be argued that based on the information the boy and the crowd had available to them at the time, they both made valid points. ‘The Little Boy And The Dollar Notes’ exemplifies how when presented with a set of limited facts, many different points of view can be expressed.

Sometimes it is important to step back and consider other people’s point of view. Walk in their shoes and take time to understand their frame of reference rather than facing off in an argument. You can still disagree with them, but there is no need to put down their point of view.

Just agree to disagree.
I believe that this point of view – agreeing to disagree – happens in a transparent and open environment like the stock market.

In a property transaction, for example, there is a buyer and there is a seller. The buyer believes that the current price is cheap, while the seller thinks that the price is expensive. They agree to disagree and the transaction is settled.

The buyer’s point of view could be based on oversold markets, good valuations, recovery, TA ‘buy’ signals, analyst recommendations, and so on. Similarly, the seller also has their set of reasons, whether they be overheated markets, overbought situations, recessionary forces, bearish indicators, TA ‘sell’ signals, or analysts with sell calls.

Reading a newspaper the other day I came across two articles. One was titled ‘Markets Sell Off Due to Greek Debt Crisis’, and then, on the same page, there was another article – this one entitled ‘Oil Prices Ease Due to Impending Greek Debt Resolution’. This frank contrast of views on the very same page epitomised to me how two different results or opinions could be gleaned from the same information. I concluded that price is defined, as the amount the next greater fool is willing to pay.

In a previous post of mine I talked about how supply and demand affects on the HDB market and how, although prices may seem high, sellers will price their product at a rate they believe someone is willing to pay. This is especially true in Singapore where, everyone has their point of view on property prices.

The sellers feel the market will enter a price correction in the future. The buyers feel that the sky’s the limit – and that prices will continue to climb. If the correction never comes, the sellers will be cursing themselves. If a reversal occurs, the buyers have overpaid. Only time will tell, so right now, I agree to disagree.