Why property is no longer an excellent investment (Part 1-to be continued)

Been debating with a friend on whether property is a good investment for ages!The problem with this debate is both of us just throw out qualitative statements about the good and bad of it. I gave up. Took out a spreadsheet and did a property calculator. Let this spreadsheet be the end of such meaningless debate. I have inputted the new rules implemented this January 2011. The following parameters are what have been placed into the model. I would like to add that this model serves as the best case scenario for residential private property investment. Therefore, one would very likely get less than the returns stated.

Parameters based on government rules
- 40% downpayment is needed.
This is because we are looking at property as an investment and very likely this investor has an outstanding home loan already.
- Seller stamp duty (SSD) of 16%, 12%, 8%,4% in the 1st,2nd,3rd and 4th year respectively if property is bought and sold within these years. No SSD if sold after 4th year.
- Buyer stamp duty(BSD) of 1% on first $180000, 2% on next $180000 and 3% on remaining property price.
-Property agent commission of 2% paid by seller
-Property tax of 10% of annual property value

Assumptions ( I would really appreciate it if you would tell me if i had made any unrealistic assumptions...i am open to constructive criticism. Remember this is a model)
- Net rental yield of 3.5%. This is calculated by taking the monthly rent minus maintenance minus monthly property tax divided by property price Monthly property tax is derived from the annual property tax divided by 12 months. ( i feel i might be quite optimistic about the yield already given the way i calculate it)
- Mortgage is fixed at 2% per annum. (Very good already)
- Loan tenure is 30 years
- Property is rented out 100%.(best case scenario)
- Rent amount is constant. ( best case scenario)
- Buyer legal fees is $2500 ( Is this fair?)
-Seller legal fees is $2000 ( Is this fair?)

What i have not included (because it varies greatly from individual to individual)
- i have not included the property agent's commission for renting out the property
- i have not included the renovation or repairs or furniture cost
- i have not included home insurance

The Horror Story
Mr Dick Albaross, who has a hearing problem, has $380,000 to invest. He eats fish every meal and likes to go to the wet market to buy silver pomfret from Auntie Chuck Hubert. In the wet market, he hears Auntie Chuck Hubert chant " buy pomfret", "buy pomfret". Being hard of hearing, he thought she meant " buy property" , buy "property". Since Auntie Chuck Hubert sounded so earnest, she could be right!!! Hmm, should i buy a property.....Dick pondered.

Scenario 1 (Property price stays stagnant)

( This post will be continued to show the annualised percentage gain for the different years when the property is sold......Gotta go gambling now....).

The happy problem of excess cash

With not much value left to be found in the stock markets and possible risks including stagflation(inflation coupled with anaemic economic growth in developed countries), increase in oil prices or food prices hurting corporate profitability (thereby reducing general stock market upside due to an already large profit base reported), very possible continued increase in interest rates to stem inflation, the wild card in middle eastern unrest and the general optimistic mood of " uncle and aunties" ...its wise to store up some cash for a possible correction. The stock market could possibly go higher due to ample liquidity, yet it also serves to heighten the danger of a reverse of liquidity back to developed nations.....risks is greater than reward.

Given the above backdrop, i am at my wits end to place this excess cash i have. I did explore Traded Endowment Policies (TEPs) but at 4%-8% per annum returns with a possible 10% loss of capital, having to fork out cash monthly to serve these policies and having to face the volatility of exchange rates as these policies are priced in pounds, i feel i can definitely do better than that in other things. Having said that, i think it is a good place to park your money if you are one who don't know what to do with your money and need some enforced money discipline. Way better than investment-linked insurance policies or certain whole-life plans or endowment policies. Residential property investment is a no go definitely. The risks are higher than the rewards. Any meaningful upside will be capped by the government(election year, remember!) as residential property is still a public good. The above average supply of HDB flats being doled out and TOP-ing in 2013-2015 and also of private residentials, means rental rates will fall. Coupled with higher interest rates, there will be lesser meat. Its more likely to go slightly downhill or stagnate. It is ONLY suitable for those with strong holding power to realize the meat..PERIOD. Other forms of property like commercial and industrial is out of my sphere of knowledge but i would hazard a guess that the recent "popular" mentioning of commercial and industrial as a good investment means that it isn't anymore or at best, not much meat left. Anyway, its best left to experts.

It could be a good time to clear certain debts.Will update. Meantime, Happy Chinese New Year!

Private Shield - is it worth a buy?

Let's talk about the single most important thing in one's personal finance, Hospitalisation and Surgical Insurance.  Read this and this and that on such H&S insurance matters.

Having read the articles above, i somehow had this impression that Medishield gives more value to those Private Shield plans. (Note, i use the word value, not cheap and i use the word impression , so it is just my opinion. Just for the record, I am an absolute newbie in insurance,

Prices

 Comments
I have used Enhanced Income Shield (BASIC) insurance as comparison as it's the most " apple to apple" .
Medishield covers grade B2/C wards. Incomeshield covers B2/C wards AND B1 wards.
85 years above is not covered under Medishield. Honestly, i have damn good genes...and i think i will live till above that age, barring any suay events like slashing or stabbing incidents by the 369 gang or ang soon tong or 18 sio li ho or Kuti PiSai Motorcycle gang linked to Columbian Drug lords .(Eh Ah Beng reading this ...relak la bro..just joking ). At most, Incomeshield is only 2.87 times more than the premium of medishield  and it is covered by Medisave, money one can't touch.

Coverage ( Very General and Brief)

 Comments

In term of coverage, Incomeshield (Basic) trounces Medishield big time.The above table is just a portion of the difference in coverages, if you have so much time to spare for analysing, look here for Medishield and here for NTUC incomeshield.

Honestly, i think a limit of $50,000 for a policy year for Medishield is kinda low. So, do you think paying 2.87 times ( at most) for the 'as charged' ( means unlimited in a sense) feature and the coverage beyond 85 years of age is worth it?

Sabana Reit and Mapletree Industrial Trust

Lockup period
Sabana Reit-Period of 180 days from listing date. Thereafter, 50% will be locked up for the following 360 days from the end of the 1st lock up period.
MIT - Period of 180 days from listing date.

Gearing/Leverage
Sabana Reit - 26.5%
MIT-38.5%

Performance fee Paid to manager
Sabana Reit - 0.5% per annum on Net Property Income if DPU grows at least 10%
MIT-3.6% per annum on Net Property Income

Sabana Reit's Alignment with Unitholders
The Manager has elected to receive 80.0% of the base fee in the form of Units for the Forecast Year 2011 and the Projection Year 2012 and (if payable) 80.0% of the performance fee in the form of Units for the Projection Year 2012, except that where the issue price (which is equal to the Market Price (as defined herein) of each Unit) is at a discount of at least 20.0% to the NAV per Unit, the Manager shall receive the base fee for the Forecast Year 2011 and the Projection Year 2012 and (if payable) the performance fee for the Projection Year 2012 wholly in the form of cash.

Honestly, comparing MIT and Sabana, it seems that Sabana is more aligned with their Unitholders. I like that they will choose to receive their base and performance fees in cash instead of Units if the Units are undervalued ( underlined above).

I also like that Sabana set an extremely high performance target of being paid a performance fee if they grow the DPU at least 10% from the year before, unlike MIT's target which is so, well, duh! MIT will still get paid performance fee as long as they have some income. I think my grandma can do that!

Gearing of Sabana looks good too and their dividend yield of 8.22% is pretty attractive........i must say..BUT...here's the catch before you go blindly into such an investment...Read below
http://www.investmentmoats.com/money-management/reit/why-reits-and-business-trust-are-not-always-good-investments/

Which bank will benefit the most from a rise in SIBOR?

A wrong move made!And another wrong move!Its so hard to find good investment opportunities these days. Anyway, with all the talk about how interest rates are so low now and the only way forward is for it to move up gradually, let us try to position ourselves for this expectation shall we?

SIBOR stands for Singapore Interbank Offer Rate - simply put,interest rates for deposits,loan e.t.c rise if SIBOR rises.

NIM stands for Net Interest Margin which is measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders(for example, deposits), relative to the amount of their (interest-earning) assets. )

Development Bank of Singapore (DBS)
See how it correlates with the SIBOR......when sibor goes up, DBS NIM ( net interest margin goes up)

United Overseas Bank ( UOB)

Hmmph, NIM seem to be negatively correlated with SIBOR....

Overseas Chinese Bank of Singapore (OCBC)

There don't seem to be any correlation between SIBOR and NIM. Is there?

With hyperinflation and a gargantuan wave of hot money coming in, are you ready?