Should HDB owners take a private property loan?

Assuming a HDB home loan of  $350000 to be paid back in full in 30 years at the HDB loan rate of 2.6%.

Total payment after 30 years = $504,428.04. 

Interest paid after 30 years = $154,428.04

Assuming a bank loan instead to be paid back in full in 30 years at the following rates : 1.2% first year, 1.45% second year and 1.95% thereafter. (Based on 3-month Sibor + 0.5%, 3-month Sibor + 0.75% and  3-month Sibor + 1.25% from a local bank).

Total payment after 30 years = $457,747.21

Interest paid after 30 years = $107,747.21

By taking a HDB loan, the customer actually pays $46,681 in interest more over 30 years.

(I have excluded the miscellaneous cost, such as legal fees e.t.c, focusing on interest only. )

Reasons for taking a HDB loan is that HDB is more lenient and you can miss a few payments. (From hearsay)Taking a bank loan is a one way street and you lost the chance of taking a HDB loan forever. 

It makes me wonder whether if you miss payments on a bank loan, can the bank take back your HDB given that it is actually the property of the government and HDB owners are not actually owners but long term tenants with a lease period of 99 years. Maybe the difficulty could be so onerous for the bank that one could be allowed to miss a few payments too.(Maybe)

Especially when interest rates have been so low for so long but the prospect of it rising is a real possibility but when it finally do rise above the 2.6% rate, your outstanding balance would be so small that a lump sum could be paid to settle it. Think about it.

Another reason why equities are a good investment



I have tried my hands in selling bear call credit spreads/ bull put credit spreads in the US market before to earn some premium income using time decay but the decrease in the value of the US dollar often reduces or negates the return. The occasional big moves which results in the prices moving out of the strike prices really sucks. This strategy indeed sucks. A classic example of low probability of losing but big consequence when one loses. I condemn it.

 

Having said that, Warren Buffet has been known to sell options for the premium too.

(Taken from his 2008 letter to shareholders.)But what is suitable for him may not be suitable for a small fry like me.

 

 

Another thing i  contemplated was to own US shares so as to be able to sell call options and earning additional income, on top of the usual dividends and capital appreciation. But alas, damn it, im a small fry which means i am not able to own enough of the shares to earn any meaning income using this strategy and again the reduction in US dollar makes things more sucky. In addition, now, i have to pay custodian fees which again makes things worse.

 

It came as a pleasant surprise that SGX is eyeing single-stock options within 2 years. This reduces the currency risk and complements my boring strategy of holding dividend-yielding stocks, as now i can earn additional income.  I think its good for retail investors also as it, to a small extent, helps people reduce their human instinct of selling when low and buying when high because with this strategy, people would only sell when the higher strike price is reached. Even if it is not reached, one still earns some income. Either way, one is better off.

 

With this initiative, my returns from stocks are from:

• Capital appreciation
• Dividends
• Lending fees - some of my shares have been borrowed for people to short
• Selling call options ( based on new initiative, hopefully)

 





On a side note, many of my shares which people use to short have been returned. Theoretically, this implies that the stock market should see a rally, especially when it coincides with the much publicised year-end or christmas rally. Would i use this knowledge to speculate and trade on shares then?

Nope. I still miss the good old days of 2008 when i entered the market with vengence and without a single uncertainty in my mind. I do not feel it now and anything i do, has doubt. As someone said, if you dont know what to do, just do nothing. Doing nothing is also a strategy.

What to do with your asset allocation?

With the latest property cooling measures, another avenue for investing one's money is reduced. With the negative perception of Gold Investing (Genneva, Gold Guarantee e.t.c), less money will flow into those avenues. There is a possibility that equities could do well given that  it's one of the few remaining avenues where money could flow into, especially given the monthly money printing by the United States and the ultra low interest rates. As our name implies and having always given a consistent message since the inception of this blog, dividend yielding stocks is still the right way to go. As usual,if in doubt, keep a 50% cash and 50% Equity of dividend yielding stocks. How about Gold and non-dividend yielding stocks with a high beta that could see capital appreciation? I feel that investing is to buy into something that gives a return immediately and not based on the whims and fancy of the dynamic market which is so darn difficult to read and easily manipulated by some big fish, even if one is an excellent technical analyst. Buying Gold and non-dividend yielding stocks is more of gambling instead of investing in my dictionary.

A friend asked me what she should do with the money.

If one is putting funds aside for retirement:
A possible avenue to 'invest' could be dumping some cash into SRS to enjoy  an immediate risk-free guaranteed gain of a reduction in taxes based on one's income bracket and waiting for any Equity correction to use the SRS funds to snap up some dividend yielding stocks. But one can only dump about 12Kyearly due to the cap. Optimum age group to do this are for those above the age of 45 years old whose income bracket is generally higher, shorter lock-in period and the 12K yearly deposit from 45 years old could possibly attract no taxes at all when one is to stretch out their yearly withdrawal. Anyway, if you are 45 years old and above, you are probably greatly affected by the new property rules.

If one is putting funds aside for property investment while waiting for a major correction(happy waiting....):
A possible avenue to 'invest' could be dumping some cash into CPF OA to enjoy a risk-free 2.5% which can be used to pay for a property investment or possibly even snapping up some dividend-yielding stocks if a major correction should occur.

The above 2 options faces some restrictions so if one wants maximum flexibility, put in bank!

Options options options. Thats the beauty of life!