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CCR, RCR or OCR for rental income? AK talks to himself.

Saturday, July 19, 2014

When we buy properties in Singapore, there is often this idea that if we buy one in CCR (Core Central Region), we should do OK. It is like amateur watch collectors gravitating towards Rolex watches because the brand is deemed safe. To a certain degree it is true as many foreign investors naturally gravitate towards properties in CCR when they invest in properties in Singapore.

Those who are more familiar with Singapore will be braver in venturing out of CCR and into RCR (Rest of Central Region) or even OCR (Outside Central Region). This is probably a prudent choice if they are investing for rental income as well since it is not uncommon to hear of properties in CCR with rental yields of 2% or lower. Sheesh. Why bother?

According to the Singapore Real Estate Exchange Property Index, rental for private non-landed properties in CCR peaked in the months of July and August 2013, post GFC (Global Financial Crisis). It was some 30.8% higher compared to January 2009.  Since August 2013, rental has declined by some 6% by June 2014.

Click to enlarge

For properties in RCR, rental peaked in the month of February 2013 and was 38.6% higher compared to January 2009. Since then, rental has come down some 6.7% by June 2014.

Click to enlarge

For properties in OCR, rental peaked in the month of January 2013 and was 33.8% higher compared to January 2009. Since then, rental has come down some 7.5% by June 2014.

Click to enlarge

From these numbers alone, it would seem that there is more resilient rental demand in the CCR and buying a property in CCR provides greater resilience in rental income. It is also probably because there is more limited new supply of properties in the CCR compared to RCR and OCR.

In terms of percentage growth from January 2009 to June 2014, rentals in CCR, RCR and OCR were higher by 23.2%, 29.3% and 23.7%, respectively. Interestingly, these numbers show that, in general, properties in RCR are clearly the winners when it comes to growth in rental income for the real estate investor, not properties in the CCR.

Also, if we should look farther back to the peaks achieved in January 2008 for all three regions, we would see a startling outperformance for properties in RCR and OCR compared to those in the CCR.

Rentals in RCR and OCR surpassed their peaks achieved in January 2008 by a wide margin while rental in CCR barely recovered to the same level. So, in the last few years, people who bought properties in RCR and OCR before the GFC for rental income would have done better and are still doing better than those who bought properties in the CCR during that time.

Buy a new condo in Queenstown?

Of course, we are only looking at rental indices here. We have not looked at purchase prices. For sure, if we managed to buy an undervalued property anywhere in Singapore, we would do better than the average property investor because we would have a margin of safety.

Where do we find undervalued properties in Singapore? You tell me. I am sure there are some around but they are just harder to find these days. Sounds like a lot of work and we might not even find anything for all our efforts.

So, I prefer to ask another question. When do we find undervalued properties in Singapore? If I were looking to invest in a property for rental income in Singapore now, I would wait. (Hint: Read related post #5.)

Then, CCR, RCR or OCR? You decide.

Source: URA


Related posts:
1. Don't think and grow rich.
2. Real estate: Affordability and value for money.
3. Apartments with rental yields of 4.95% to 7%.
4. Where to buy a shoebox apartment for investment?
5. Smaller apartments' prices more resilient.
"we expect the private vacancy rate to rise ... to 9.9 percent in 2016," ... noting that historically when vacancy rates hit 8 percent, rents and prices start declining.
(Source: CNBC)

The best insurance to have in life.

Friday, July 18, 2014


"Income investors love them and growth investors rarely expect them, but just what are dividends?"

I have blogged about how having passive income that equals our earned income over time will give us the option to work because we want to and not because we have to.

I have also blogged about why there is a higher purpose to having passive income in our lives.




Personally, I find all these reasons very persuasive and make working towards having a passive income stream in my life worthwhile.

Over the years, I have made contact with people who are not convinced. One example:

"I make so little money. Can't save much. Invest so little, what is the point?"





Aigoo... (I have been watching K-drama).

Actually, having passive income is also really a form of insurance.


It is an insurance against the possibility of an economic recession and a pay cut.

It is an insurance against the possibility of retrenchment.

It is an insurance against the possibility of disability which restricts us from active employment.




Insurance is important because bad things happen in life. Passive income is important and it is not just something that is nice to have.

Passive income is the best insurance to have in life because it is able to free up the most valuable resource we have in life and that is the resource of time.

Gradually, as our passive income grows from a stream to a river, our earned income could become something less critical.




Over time, our earned income could become something that is only nice to have.


Related posts:
1. Building an income portfolio.
2. Passive income: A higher purpose.
3. Do the right things and transform our lives.
4. Millionaire or not, plan for retirement.
5. Win $14,000 to $19,200 a year?
6. Matthew Seah on financial freedom.

AK says good-bye to another old friend.

Feeling sad.

A shirt which I have had for more than 10 years, maybe 15.

After the latest wash in the machine.

This is one of my favourite shirts and I liked it so much, I bought two that time. Time to let go.





I remember wearing this shirt to meet a fellow financial blogger 3 or 4 years ago. 

I was still very new to blogging and he was very encouraging. 

His fiancée then could tell that it was a shirt from Giordano!





Maybe, I should go shopping for another shirt.

Related post:
Parting with an old friend.

Sabana REIT: Weaknesses & uncertainties.

Thursday, July 17, 2014

Sabana REIT has not shown much improvement in its quarterly results which probably shows that the leasing environment for industrial properties remains challenging and that the management made a bad decision in purchasing a half vacant high tech industrial building from AMD in Chai Chee late last year. Overall occupancy for the REIT's property portfolio inched up from 90.6% to 90.8%.

Things could get worse because 3 more master leases are expiring by end of this year while 11 master leases are expiring by end of next year. If what we saw late last year when 4 out of 5 master leases were not renewed should become the norm, Sabana REIT could see overall occupancy level declining much more and, consequently, we could see its distributable income lowering further.

Already, we know that 1 out of 3 master leases expiring this year will not be renewed.

Considering the fact that interest rates would probably be higher in future than not, when we look at REITs, we must always look at their debt level. A big chunk of debt, all $177.6 million of it, will be maturing in August 2015. That is barely a year away. We can only hope that they refinance it soon and at an interest rate that is either lower or unchanged from current level. Of course, a longer loan period would be preferred.

Gearing level is also much higher now at 37% compared to its IPO days when it was 26.5% while quarterly DPU has declined from an estimated 2.16c then to just 1.86c now. From these numbers alone, we can say that the management has not managed to grow the value of the REIT for retail investors. It is also worth noting that its interest cover ratio has been in steady decline from a very robust 7.9x to just 4.3x today.


Sabana REIT to me, now, is a picture of weaknesses and uncertainties.

1. Weakness in occupancy.

2. Weakness in making progress to fill up vacant space.

3. Weakness in DPU growth.

4. Weakness in its balance sheet.

5. Uncertainty regarding the renewal of expiring master leases.

6. Uncertainty as to whether vacant spaces will be reasonably filled soon.

7. Uncertainty as to whether higher cost of debt could be avoided.

Can the REIT overcome all its weaknesses? Well, I am hopeful that we could see some progress in filling up vacant spaces which could lead to higher income and a higher DPU. How long will it take? Well, this is one of those uncertainties I listed. It could take quite a while judging from the almost lack of progress in the last three months.

So, should it come as a surprise that Innotek Limited decided to sell their investment, amounting to 15,000,000 units in the REIT?

Of course, readers who have been following my coverage of Sabana REIT would know that I have divested some 90% of my original investment in Sabana REIT. Would I consider increasing my exposure to the REIT again?

All investments are good at the right price and for me to want to buy into Sabana REIT now, I would need a much higher distribution yield considering all the weaknesses and the uncertainties which I have listed.

This could either come about through a meaningful increase in DPU or a decrease in unit price, all else remaining equal.

Which would be more likely to happen in the next 12 to 18 months, I wonder?

See presentation slides:
Sabana REIT presentation 16 July 2014.

Related posts:
1. Innotek Limited to divest 15 million units.
2. Added more Croesus and reduced Sabana.
3. Portfolio review: Unexpectedly eventful.
4. Sabana REIT: 1Q 2014 DPU 1.88c.
"From what I can see, all four expense items are here to stay. So, even if the REIT should achieve 100% occupancy once again, it will be difficult for it to achieve a DPU that is even close to that of last quarter's."
AK, 17 April 2014.

First REIT: Higher quarterly DPU of 2.00c.

Wednesday, July 16, 2014

First REIT is one of my longest holding investments and currently my second largest investment in an S-REIT.


So, a higher quarterly DPU is going to have a more significant positive impact on passive income received from investments for the full year. The details?

A DPU of 2.00c will be paid on 29 August 2014. XD date is 21 July 2014.

With full income contribution yet to be realised for the recently acquired Siloam Hospital Purwakarta, DPU in the next quarter could see a slight increase, everything else remaining equal.

Gearing is comfortable at 32.9%. Once refinancing of a short term loan facility is completed, First REIT will not have any debt due until 2017. This gives me a peace of mind.


Click to enlarge.



First REIT is still an investment for keeps.

See slides presentation:
First REIT presentation 15 July 2014.

Related post:
A way to a double digit yielding portfolio.

Religare Health Trust: Opinions?

Tuesday, July 15, 2014

From FB:




Opinions?

Oh, in case you are new to my blog and still do not know, AK has been active in FB for a year now. An achievement for an IT dinosaur!

https://www.facebook.com/assi.ak.9

Options for the CPF-OA with a new flat on the way.


(Please make sure you have enough cash, CPF savings and housing loan to pay the balance, duty and fees.)





This was taken from a letter B wrote to me recently:

My wife and I recently got married and will be receiving the keys to our new home (BTO) soon. 

We have indicated to take up HDB loan and I know that on the point when we receive our place, both our CPF will be wiped out completely for the house.


We have worked for about 2-3 years and CPF balance is about 30-50k currently.

I have received advice from different people on this. I am actually quite confused with so many choices.




My reply:

Hi B,

Do you know why there are so many suggestions? 


Because people with different circumstances, beliefs and risk appetites will do different things. ;)

So, it is important to know yourself. 


What is comfortable for you? 





Have a discussion with your wife and weigh the costs and benefits of all the suggestions and decide on one which you are most comfortable with.

Of course, I have never faced such a question before but if I had to decide, then, having a roof over our heads is of primary importance for my family. 


Any decision I would then make would have this consideration in mind. 




1. Transferring money from OA to SA would not be an option in such an instance with only $30K to $50K in the OA. 


I would rule this out since funds in the SA cannot be used to pay down housing loans. 

The SA is to help secure finances for our retirement.

2. If I were to place what is allowed in the CPF-OA in investments approved under CPFIS, I would have to make sure that these investments are virtually risk free like the CPF-OA and would generate a return similar to or higher than what the CPF-OA generates. 


In the end, it is really difficult, if at all possible, to tick all the boxes. 






Some risk taking is probably necessary as risk free options are limited to T-bills and Singapore Government Securities (bonds) which have much lower returns compared to the CPF-OA for those maturing within the next 2 years. 

We are looking at a coupon of 0.4% or so per annum now. Acceptable?

3. Let HDB wipe out all the money in my CPF-OA? 


That is certainly a simple option but I would lose that 3.5% interest on the first $20K. 




HDB's home loan only attracts 2.6% in interest cost. 

I would lose 0.9% per annum in interest income on that first $20K. 

Hmmmm... How much is that? 


$180 a year (and of course, it would be compounded over the years). 


Is that significant enough for me to take some short term risk?

Just sharing my thoughts. :)




Related post:

1. A new flat on the way and $200K in spare cash.
2. CPF or Singapore Government Securities.
3. CPF, SRS and HDB housing loans.

Buy a resale flat now or later? It depends.

Monday, July 14, 2014

K is unable to buy a BTO flat because his combined income with his wife is above $10,000. Currently staying with his dad, they are thinking of buying a resale flat with their first child on the way. They want to be close to his dad and have more space of their own. He wonders if he should wait for prices to bottom before buying a resale flat near his dad's.


My reply to his message:

I have to say that I don't know when the HDB resale prices would bottom. I don't think anyone does.

However, if I were to hazard a guess, I am going to say that prices will continue to fall. More BTO flats will be completed. More ECs and condos will be completed. Will happen in the next 2 to 3 years. It is just starting now.

So, the question is really how urgently you need a place of your own. If it is not an urgent need, then, waiting for a while more seems like a good idea.

In the meantime, do some window shopping first. There could be people desperate enough to sell cheap for various reasons.

Finally, when location is more important than price, then, your choices are more limited. This is certainly the case for you since you want a flat close to your dad's. If a choice unit should come along, would you want to buy or continue waiting?

Have anything you might want to share with K? Please feel free to leave comments below. Thanks.

Related posts:
1. 45 years old, get a bigger flat or invest?
2. Buying a property: Affordability and value for money.

Are you sometimes forced to be extravagant?

Sunday, July 13, 2014

If I am out with family and close friends, I can be quite generous and would often buy everyone a meal but with others, I am not so generous, naturally.

Have you ever had the experience of going out in a group for a meal and instead of everyone paying for what he or she ordered, the bill was split evenly and shared amongst all the diners? 






I have never liked that because the food I eat is typically quite cheap and I don't eat a lot especially if I feel that the restaurant is expensive. 

So, I would usually end up subsidising the other diners in these situations, so to speak.





A recent conversation I had with a friend on FB:



Two questions:

1. How to tactfully tell them that I don't like the arrangement?
See related post #1 below.

2. How to help these people become financially more prudent?
See related post #2 below.





Any other ideas?

I ended up saying:







Related posts:
1. Think you cannot reduce your spending?
2. Don't see money, won't spend money.


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