Vicious Cycle in Property Market

Recently months, Singapore property market had witness a slow down in transaction volume. Although prices have remained somewhat stable, most experts in the sector have predicted that property prices are set to fall. They have indicated that property prices will fall between 10% to 15% before the end of the year.


These experts are not only from the property sector, even financial experts from Banks are singing to the same tune. They strongly recommend buyers to withhold their purchases if they can until the price drop.


From the way I see things, its going into a self fulfilling vicious cycle. Basically, prices are not moving at the moment. By encouraging buyers to hold back, demand is essentially cut. This leads to more people staying in the side line, as they do not want to buy a property that will lose value straightaway. This in turn further cuts the demand for property and a vicious cycle ensures. This is exactly the opposite of what happens in a bull market.


As no one really knows when the market will bottom, so I think the best way to approach this issue is to buy when you have a real need for it. When you are living in the property that you purchase, near term price fluctuation will be less meaningful, as you are in no hurry to sell anyway. And over the long term, I still believe that Singapore's Property market will remain strong, as long as our economy is doing well, as land is definitely a scarce product here.

Power of Compounding Interest

Investment advisors often advocate us to start investing while we are young, so that we can benefit from the power of compounding interest. But a lot of you may ask, "what is that"?


The idea behind this is very simple. After the investment of an initial principal sum, you will receive some interest from it on an annual basis. Subsequently, you will reinvest this interest in the product so that you can receive even higher interest on the next year. This cycle is repeated until you stop your investment. Lets do some simple calculation.


Imagine that you have a principal sum of $10,000 and the annual interest from your investment is 5%.


End of year 1, you will have obtained interest of $500, from a principal of $10,000.
End of year 2, you will have obtained interest of $525, from a principal of $10,500.
End of year 3, you will have obtained interest of $551, from a principal of $11,025.
End of year 4, you will have obtained interest of $578, from a principal of $11,576.
End of year 5, you will have obtained interest of $607, from a principal of $12,154.
End of year 6, you will have obtained interest of $638, from a principal of $12,761.
End of year 7, you will have obtained interest of $670, from a principal of $13,399.
End of year 8, you will have obtained interest of $703, from a principal of $14,069.
End of year 9, you will have obtained interest of $738, from a principal of $14,772.
End of year 10, you will have obtained interest of $775, from a principal of $15,510


At the end of 10 years, your principal plus interest will amount to $16,285.
This is effectively about 62% of your initial investment amount.


However, if you do not reinvest the interest, you will only be getting $5,000 of interest over 10 years, which amounts of 50% of the initial investment amount.


So comparing the 2, you will have obtained about 12% more of the original invested amount over 10 years just by reinvesting the interest! So it certainly pays to reinvest your interest if possible. The hard part is to make sure that your investment can constantly generate yield at that percentage.

Investing in Foreign Currencies ( Forex )

Wealth manager always advocate diversification of investments and the 2 classic groups for investment diversifications are usually bonds and equities. In recent years, investors have been chasing for yield and more classes of investment products are popping into the view of everyday investors. Some examples include precious metals, art pieces, wine and foreign currencies, or forex in short.

In this article, we will look at the possible ways of investing in forex (short form for foreign exchange). Forex is the largest market in the world with the longest trading hours. In fact, the exchange rate for various currency pairs produces quotes for 24 hours every weekday. What I will try to discuss is to invest and not speculate in forex, so forex trading platforms will not be covered.

Why invest in foreign currency?

Forex has long been recommended as an investment product with low correlation with bonds and equities . This means foreign currency price movement has very little relationship with the movement of stocks or bonds and this complements the goal of diversity for investors.


As with all investment, you will need to understand it and have a long term view of the product to have success in investing, and of course, having a long investment time horizon will also help. In a very simplistic view, if you believe that a certain country is likely to enjoy economic boom, the currency will most likely appreciate and it will be good to invest in it.


But of course, the world does not operate in a simple environment. There will be intervention by government to control their currency through price pegging, interest rate manipulation or implementing monetary policies. So you will need to adjust your views accordingly.

How to invest in forex?

Many banks have introduced multi-currencies saving accounts. After you have deposited money in this account, you will be able to exchange them to another currency at the prevailing foreign exchange rate quoted by the bank. The spread rate (i.e. the different between the buying and selling price) of the banks are using very high, so its not a good platform for short term buying and selling. But if you are looking at long term appreciation of the currency, then this spread will be insignificant and this becomes a viable way.


Another method is to open a foreign currency fix deposit account with your local banks. They also offer better interest rates when compare to the foreign currency savings account. So this is worth considering if you want to hold on to that foreign currency for quite some time. This is also useful for people who needs to spend in that currency in the future, such as paying for education fees.


For the more affluent, there is also dual currency investment, where it lets investor enjoy extra yield based on their view of the currency movement. This is usually not available to normal retailer due to the nature of higher risk

UOB Delight Credit Card

There is a new credit card in town for those who loves discount at the supermarket. It is called the UOB Delight Credit Card.

One of the key benefits include getting 10% SMART$ rebate when you shop at Cold Storage, Market Place, Jasons, Giant and Guardian. This is a huge increment over the next best card for supermarket, which is the SingPost Credit Card by Standard Chartered, which only offer 6%. However, as with all other such credit card, there is a monthly minimal spending before you are entitled to this huge rebate. Below is a table describing the rebate earned with the corresponding spending level

Consolidated monthly spend on your UOB Delight Card	Rebate earned at Cold Storage,  Market Place, Jasons, Giant and Guardian (Rebate issued in the form of SMART$)
S$1 – S$499	1%
S$500 – S$999	3%
S$1,000 and above	10%

On top of this, you will be able to enjoy another 10% discount off house brand when buying things at Cold Storage, Giant and Guardian. This is the must have card if you do shop at these places frequently.  

Time to buy Equities?

STI has dropped from a high of 3174 on 2 Jan 2014 to 3039 as of writing (on 29 Jan 2014). This represents a 4.25% dropped in a matter of 1 month. Although its not yet a bear market, the drop is deeper than a normal correction. Those who have been eyeing to buy some shares can consider nibbling into the market bit by bit. Value is starting to emerge if this drop continues.


Some blue chips have emerged with good yields. With their stable business nature, they can be a good long term investment. Among those with current yield of more than 4% are Singtel,SPH and Keppel Corp. Beside providing the possibility of capital appreciation, they have been distribution regular dividends to share holders and these easily beats the low interest that banks are giving at the moment.

Promotional Deposit Interest Rate for the Lunar New Year

Its the time of the year where Chinese are preparing the Lunar New Year celebrations. Shops are coming out with all sorts of promotions to entice consumers to part with their money and banks are no exception. The only difference is that banks want you to leave your cash with them by giving you a higher interest rate for your money.


By giving you a few tenth of a percentage more in interest, the banks hope that you will leave more of your hard earned cash with them, so that they can use that funds to earn more money for themselves. This is why most of these promotions are only applicable if you deposit fresh funds with them. Fresh funds, in this case, are money that do not originate from the banks. Some of them may even add in conditions to the promotion that funds withdrawn and re-deposit within X amount of weeks cannot be counted as fresh funds.


What are some of the available promotions for cash deposit at this point in time?

OCBC

The bank is offering a promotional interest rate of 1.1% p.a. for a 12 month SGD time deposit with a fresh fund of at least $20,000.


They also have a Bonus+ account that offers 0.9%p.a. effective interest rate for 3 months with $10,000 fresh fund. Their premier customer will be offered a 1.0%p.a. effective interest rate for 3 months with $100,000 of fresh funds

UOB

UOB is offering a 1% p.a. 13 month SGD time deposit with a fresh fund of at least $20,000. In addition, their savings account can earn extra bonus rate of up to 0.9%p.a. until 28 Feb 2014 if you top them up with fresh funds

CIMB

CIMB is offering interest rate of 1.1% for a 12 month SGD time deposit of at least $25,000. For normal saving accounts, CIMB still offer a good rate of 0.8% p.a. if the monthly increment is more than $100

Interesting account that rewards banking relationship with DBS, the new DBS Multiplier Programme

Just came across this new program from DBS that rewards total banking relationship for their average retail clients, called the DBS Multiplier Programme. Ok, I admit that I am a little slow and this programme is actually not so new, as it was launched in December 2013. Nevertheless, it promote a interesting concept of total banking relationship with a bank that was previously only available to the affluent segment of the banking customer.

How it works?

Basically, the bank will track your monthly cash flow on the following segments

1. Salary credited to the bank
2. Credit card spending
3. Home loan
4. Dividends from CDP

At the end of the month, it will tally to see how much cashflow is involved in the above activities.
From this final cashflow figure, interest rate of various tiers will then be paid out.

Below is an extract from their website on the type of interest rate that you can expect when your cashflow hits certain level.

Total Monthly Cash Flow#	Higher Interest Rate (p.a.)*
S$7,500 to <S$10,000	0.98%
S$10,000 to <S$12,500	1.28%
S$12,500 to <S$15,000	1.38%
S$15,000 to <S$20,000	1.48%
S$20,000 and above	1.58%

My thoughts

The interest rates being offered are actually pretty good for the current low interest environment. Those who are interested can check out the information at http://www.dbs.com.sg/personal/deposit/multiplier/default.page

As with all other banking products, there are certain fine prints associated with it. Do check out the T&C and make sure that you understand them before opening the account.


UPDATE
Follow-up article can be found at
http://moneychatroom.blogspot.sg/2014/03/dbs-multipler-programme-has-increased.html