The Returns of the Supplementary Retirement Scheme

The Businesstimes published an article in November 2021 titled " More Young Investors Turning to SRS Retirement Needs". 

It wrote.

" The share of younger people with Supplementary Retirement Scheme (SRS) accounts has risen steadily over the years, according to data from the Ministry of Finance. As at end-2015, 11 per cent of SRS account holders were between the age of 18 and 35. This share had risen to 19 per cent at the end of 2020. "

18 year olds putting money into SRS already? 

Assuming an 18 year old invested $1000 every year into his SRS account. Let's assume the 18 year old has a marginal tax rate of 7% every year and so pays less tax of $70 every year till age 62. A marginal tax rate of 7% means the chargeable income of the 18yo is between $40,000 to $80,000 already which is pretty high in my opinion at that age!

The SRS account has a base interest rate of 0.05% pa and he leaves money in the SRS account uninvested. 

The interest rate pa (IRR) he would be getting over the 45 years with the yearly 7% tax savings and 0.05% pa SRS base interest rate is only 0.34%pa if he just left the money in the SRS uninvested.

The table below shows the different interest rate pa ( IRR) based on his marginal tax rates if he did not invest his SRS.

IRR(age 18 to age 62)

What the table means is that, if the 18 year old were to diligently place $1000 into a normal bank savings account every year and this savings account gives 0.34% pa every year till age 62, he will be getting the same returns as simply contributing into his SRS account without investing it.

Of course the funds in the SRS account would most likely be invested in some approved investments, say in the stock market which more likely than not yield him about 6%pa for the next 45 years. Add this 6%pa  to the 0.34%pa and he gets 6.34% pa if he is at the 7% marginal tax rate compared to if he had invested using cash, getting only 6%pa.

Is the "extra" returns due to the tax savings resulting in the additional returns of  0.34% pa  justified for a lock-up in liquidity and policy risk over such a long period?

At a marginal tax rate of 22%, he would be getting 6.89%pa using SRS compared to 6% pa if he had used cash. 

Let us look at a 40 year old  and a 50 year old and the interest rate he will get from the tax savings and SRS interest till age 62 if he had just simply left the money in SRS uninvested.

IRR ( age 40 to age 62)

IRR ( age 50 to age 62)

Probably one has to see whether the price of locking up one's cash is worth the additional interest rate ( as shown in the table above) one would get from simply the tax savings and SRS base interest over the years.

Leaving one's SRS uninvested at all will yield one the above interest rates in the tables. Please do something about it if you haven't!

I use the following for my SRS investments.

Use my Endowus referral code to get $20 in access fee credit. 

I use the following for my cash investments:

Use my IBKR referral code to get free IBKR shares.

Use my Tiger referral code to get free apple shares.

Use my Moomoo referral code to get SGD200 Stock Cash Coupon

[I am not a financial advisor]

How much did the top property agent in Singapore earn 2020 - 2021?

Following the announcement by the Council for Estate Agents (CEA) that they have published a complete record of all residential property transactions facilitated in the past 24 months by property agents in Singapore, i just had to fulfil my curiosity to know how much they are making. 

This is not just an issue of being a 'kaypoh' which i won't deny but yours truly did consider being a property agent many many years back. You see, from my adolescent eyes back then, i have observed that property agents drive nice cars. Usually their cars are continental ones and i can't be faulted for thinking that a property agent career is a one worth considering right?

Until i went for my first NS reservist and had a conversation with a property agent who drove a Audi TT back then who told me that their managers " persuaded " their downlines to drive flashy cars because a salesperson in debt is a hungry one. 

From the CEA data from the years 2020 and 2021, the transactions by the top property agent are as follows. 

2021 has not ended, so transactions in 2021 are up to October, inclusive.  

https://data.gov.sg/dataset/cea-salesperson-residential-transaction-record

I don't know how this salesperson did it but its amazing. 

There are a total of 607 transactions in 22 months. This means on average,  there are 27.6 transactions in a month. 

Basically, this salesperson is closing a deal every day. Respect.

The data from CEA is only for residential properties and it does not contain data for commercial properties, so the number of property transacted may actually be higher.

In Singapore, there is no fixed rules for commission rates. But for HDB and private properties, the industry practice for commissions are generally different. For HDB resale, the buyer has to pay 1% while the seller has to pay 2% in commissions. For private property, only the seller has to pay 2% commissions. The commission may also have to be shared if there is co-broking involved. 

For simplicity and to be conservative, the commission rates will be assumed 1%. For rental, the industry practice is 0.5 months for 1 year of rental which will be used for the calculation. 

Due to the very varied prices of property, let's further assume that the average HDB transacted cost $600,000. The average condominium and apartment transacted cost $1.2 million and the average landed property cost $3 million. 

Accordingly, let's assume the rental for HDB is $2000 per month. Based on the CEA data, this property agent does whole room HDB rentals only.

The rental for condominium and apartment cost $3500 per month and the rental for landed cost $8000 per month.

These figures above, in my opinion, are very very conservative. 

This makes the one month revenue to be $1.73 million. If one is to take into consideration the number of lock downs and covid restrictions for 2020 and 2021, this figure is even more supreme.

Of course, their actual earnings are much lower after considering marketing fees, petrol and so on.

Before you jump on the property agent band wagon after salivating at the earnings above, it would be better to delve deeper and check if it is indeed a rosy career...as rosy as for the agent above who made 607 transactions.

There are a total of 19,742 agents that transacted in these 22 months in the CEA data. Transactions in the data also include one room rentals which the alpha agent above did not do. 

The alpha agent did 607 transactions in 22 months but the median number of transactions sold by property agents are 6, which may include one room rentals as some of the transactions. 

All is not what it seems.

I use the following for my SRS investments.

Use my Endowus referral code to get $20 in access fee credit. 

I use the following for my cash investments:

Use my IBKR referral code to get free IBKR shares.

Use my Tiger referral code to get free apple shares.

Use my Moomoo referral code to get SGD200 Stock Cash Coupon

[I am not a financial advisor]