Paying lesser property tax on multiple properties

Property tax is something we have to pay when we own any property. The owner-occupied property incurs less tax than one that is not owner-occupied. 

Let's you own Property A, for which IRAS has assessed the Annual Value at $18,000, then:  

• If it is owner-occupied, the first $8,000 is tax-free. The next $10,000 @ 4% will incur $400.  
• But if it is non owner-occupied, then the tax is $18,000 @ 10% = $1,800.

And if you also own Property B, for which the Annual Value is $24,000, then:

• If it is owner-occupied, the first $8,000 is tax-free. The next $16,000 @ 4% will incur $640.
• But if it is non owner-occupied, then the tax is $24,000 @ 10% = $2,400.

Clearly, it makes sense to be paying property tax on Property B (which has a higher Annual Value) as owner-occupied, and Property A as non owner-occupied.  The total property tax is then $640 + $1,800 = $2,440.  The reverse would have incurred total property tax of $400 + $2,400 = $2,800.

Getting the switching done is pretty straightforward and fuss-free. Just proceed to IRAS website to effect the change. IRAS will automatically refund the excess if you have overpaid. Totally fuss-free.

Above is my simplistic understanding. The taxation levels are actually different if you own higher-end properties. Check out IRAS website for official information.

 

Changing Address on NRIC for a New Property

One of the numerous things to do after buying a new property and when ready to move into is to update our NRIC.

What does it take to change the address on our NRIC?  Pretty straightforward apparently. Just head to a friendly Neighbourhood Police Post. Bring along your NRIC, and some concrete evidence that you live in that property. 

I showed the Police officer documents that showed I bought the property, but he didn't seem none too impressed with that. Hello, that's a $1.5m contract ok? Nope, he was not impressed.  But his eyes sparkled when he saw the PUB bill for $7. Whatever works. Seems like the preferred document is a bill from PUB to the new property. Nevermind it was only $7.

The Police officer was able to get everything done on the spot, and neatly pasted a tamper-evident sticker of the new address over your NRIC, and you're done. I think he was bored to death having nothing to do and was happy to be of service.

The IT system will automatically update other government agencies - e.g. CPF, IRAS, LTA, etc.  Hmmm, all of whom collect money from you at some point? Although he said it might take a few days, I noticed all records were updated by the next day. Including my SingPass MyInfo. Neat. 

[It sure beats my experience in the US over getting my driving license and Social Security card!]

But what happens to the rest of the family members whose names are not shown on the PUB bill? I brought along my marriage certification (for my wife), and birth certificates (for my children). I'm pretty kiasu. Those showed the relationship between the other members with me. All good. He checked and was ok with them. Done in a jiffy.

I guess it gets complicated if the other residential members are not your family members and/or you can't produce the relevant relationship documents. Don't ask me how boy. Go ask ICA or enquire at the friendly Neighbourhood Police Post.  I'm sure there's a way out, though it might involve jumping over the moon and more leg work to get it done. Howling probably wouldn't work though. You can try.

Let me assure you, changing the address, this was easy. What was HARD, was changing my e-mail! One might think the virtual ought to be easier than the physical. But nooope. Do you know how much pain it is to change your e-mail, when almost everything are linked to your e-mail? And often, the e-mail is the login userID. Oh my gawd! It took me days and weeks to figure 'em out, one by one.

Related:

Going TOP in the Midst of COVID-19

Going TOP in the midst of COVID-19

I don't know why I am so 'lucky'. Toto did not strike. But when I buy a new property, it has to TOP in the midst of COVID-19!  Haiz.

With the Circuit Breaker kicking in, nothing could be done. So the developer could not proceed with the issuance of keys.

When they finally could, months later, the joy of receiving the keys to the new place turned into a nightmare. 

Water seepage in the unit, outside the unit. Railings with rust spreading down to the tiles. Debris could be seen having fallen off certain floors' concrete. Oh my gawd. Did this condo experience an earthquake or something. Haiz haiz.

And you want to arrange for a Joint Inspection? Wait. Wait. Wait. Some people are still waiting, months later.

And some people haven't even gotten their keys yet! So I guess I'm one of the 'luckier' ones, being among the first to be issued.

Meantime, the 6-month window to sell my property to redeem the ABSD is slipping away. Fortunately, there was a 6-month additional extension in view of COVID-19. Clock is counting down.

Angst of replacing a home

It's such an angst trying to find a practical way to replace a home with another. I'm not talking about upgrading, simply about moving from one to another equivalent.

So here's the setup.  The home is a condo (originally an E-condo) with a 99-year lease. It is now 12 years old.  Things are starting to break down here and there, although perhaps nothing major.  It worked well when the kids were studying at schools nearby.  But now that they have moved on to tertiary education, the location is no longer ideal.

All that's desired is to find another equivalent place to move to, which places the kids nearer in terms of travel time to their tertiary locale, and my time of travel to work is no worse off.

A 17th floor condo at 1292 sq ft bought 12 years ago was $501,000, and is roughly worth $950,000 now. That sounds like so wow. BUT, to get an equivalent place, the price tag appears to be $1,300,000 for a 5-year resale condo on a mid-floor, with only ~1000 sq ft!  That's a differential of +$350,000 for a smaller space.

A completely new condo that is yet to TOP is even worse.  That same price can only fetch an 800 sq ft unit!  Anything in the range of 1,000 to 1,200 sq ft appears to be $1,500,000 to $1,800,000. Phew.

The alternative is to renovate the current home and fix up all that needs to be fixed. Probably $80,000 you think?  But the pain is on having to pack everything to move out during the renovation period, rent a temporary place for a couple of months, and then move back in again thereafter.  That's two moves.

Wifey and I are 52 years old now. Is it viable to live in the 12-year old home for the next 30-40 years? Or would a 5-year old resale home be a better option?  While it is smaller, I do foresee that one or both kids would ultimately get married and move out in a matter of 5-10 years from now. So the slightly smaller space might just be a short term situation.

What would you do?

Retiring on $2,000 a month [updated]

Retiring Siblings

Benny and Erica Tan are a brother and sister sibling pair. Benny had reached his statutory retirement age but was re-employed for a few more years.  Erica who is a tad younger, has however chosen to resign from her job and retired a year early. She got fed up working for an overly demanding boss. When she tendered her resignation, the boss begged her to stay. But she had already passed the point to turn back. She left with no regrets and is now picking up some ad-hoc work to fill her time.

They live in a 5-room HDB flat that have been fully paid for. The flat was transferred to them by their parents before they passed away. Not being graduates, they had basic jobs with decent but not 'obscene' pays.

Their lifestyle seems basic. While they do watch TV, they do not subscribe to cable. They do have an Internet subscription and each own a mobile phone with fairly basic plans. Both are singles with no spouse and kids to worry about. No car and certainly no motivation to do so as both do not even have a driving license!

It looks like they could survive on just $2,000 a month each. According to the Department of Statistics data on average household income and expenses, a 5-room HDB household averages $5,282.60 per month, while a 4-room HDB household averages $3,917.90 per month. I would judge that they are more akin to the 4-room HDB household although they live in a 5-room HDB.

Not having to spend a single cent on housing all their lives, their CPF contributions have been pretty much maximised and left untouched all these years.

Back to the Future

If they could rewind the clock and are instead at age 55 today, how would they make a decision on their CPF Life scheme?

[https://mycpf.cpf.gov.sg/Members/Schemes/schemes/retirement/cpf-life]

Under the revised CPF scheme , they could go for the Enhanced CPF Life with a CPF-RA of $241,500, giving a perpetual monthly pay out of $1,770 to $1,920 each from respective retirement age. Assuming the lower end at $1,770, they would each face a shortfall of only $230. How can they close this gap?  There seems to be a few possibilities ...

Monetise their Property

Rent Out

As they are living in a 5-room HDB flat, they have a room to spare. Being near to a Polytechnic and a Junior College, it's a location with possibilities. They could rent out a room. I wonder what's the market rate for a room rental in a HDB flat? Is $460 a month realistic? The risk lies in whether they can secure continuous rental.

[Renting out via AirBnB is an alternative. Unfortunately, it's illegal. For now.]

Sell Down

They could consider selling off their current 5-room HDB and downgrade to a smaller HDB, and then take the difference to invest for an income stream. So they could consider the newly announced 40-year lease 2-room flexi scheme (More: Joint Press Release by MND and HDB on 2-room flexi scheme, HBDWeb on 2-room flexi scheme).

For this to work, they would need to be able to extract out a cash value of $138,000 to be invested into income yielding products at 4% to get $460 a month. It seems possible. A check against this nifty tool at Simplyjesme on HDB resale prices shows an average resale price of over $600,000 for a 5-room.

The risk lies in whether the income yielding products are assured or come with downsides. But there seems to be more than enough margin of safety. If they sell their 5-room for $600,000 and buy the 40-year lease 2-room under the flexi scheme at $28,600 (for first timer applicants), that would leave them with $571,400. At 4%, that would generate an income stream of $22,856 a year, or $1,904 per month, well over the $460 gap that they needed to close. There's money to spare for overseas holidays, or to save for a rainy day.

Work Part-Time

Part-time Work

They could pick up some part-time work and earn some income. Assuming $8 per hour, they each need to put in only 29 hours a month to close the gap. That sounds like less than 4 full days of work a month! Seems doable. But are there employers willing to offer jobs designed for semi- retirees?

Monetise a Hobby

Benny in particular is an avid photographer. He could pick up some part-time work as a wedding photographer. But there could be some difficulties in getting sufficiently regular assignments to secure a steady income.

Conclusion

Inflationary considerations aside, there seems to be a few avenues to close the gap. Although, each does come with some level of uncertainty that could derail the plan. Are there other alternatives?

Insurance, Credit Cards and Investments

Mirror, mirror, on the wall
Who's the best of them all?

In the good old days before the digital age, information was such a premium. We were so dependent on information sources - i.e. brokers and agents. Information was power.

In these days of the Internet age, more and more information are increasingly made available online. In the words of Thomas Friedman, "The World is Flat". Information is now at our finger tips. Welcome to Dot.Com Part II. Can I use the term "Big Data" now? Such a cliche. All we now need is to have access to the net. Totally helpless otherwise.

Of particular value has been the appearance of aggregation platforms. Anything from merchandising of unit trust, to credit cards, to insurance. With the information galore, the humble retail investor like you and I can now compare and make personal choices. It does not guarantee that the right choices would be made - that's a separate problem.

Here's a list of some of these:

Fundsupermart. Unit trust and bonds.

WeInvest. Fixed deposits, mutual funds (i.e. unit trust) and real estates.

CompareFirst. Insurance policies.

Get.com. Credit cards.

EnjoyCompare. Credit cards, loans, travel and car insurance, broadband.

More are sprouting up. It can only be good, so long as they are legitimate businesses and information portals. I'm not guaranteeing these to be reliable in any way. So, use at your own risk please.

Now, can Watson figure out which packages make sense for me?

The Severe Threat of Rising Interest Rates for Leveraged Property Owners

Interest rates have been unusually low in recent years. From a savings account point of view, this has meant pathetic interests for savings. But on the flip side, from a loaner's point of view, it has been a wonderful thing.

Housing loans in particular have been spectacularly low, enabling many to realise the dream of owning a property. With interest rates dropping, many switched over from a fixed rate to a floating rate loan. One form of this pegs the loan to the SIBOR, especially the 3-month SIBOR or 12-month SIBOR as this provided greater transparency. For instance, 1.75% + 12-month SIBOR rate.

However, interest rates have started climbing and have started to cause a bit of concerns, particularly for those with very high leverage. They may have problem with their personal cashflow if interest rates climb. 

Compounding this is the fact that property values have also started seeing a decline. The happy years of seeing property value increase year on year is possibly past. With negative equity looming, the banks could come calling, asking for a top up to make the difference.

The Rich Dad, Poor Dad notion of positive cash flow using property leverage is going to haunt those who never considered the downside. As property value slides, their equity value may well go negative. That positive cashflow could become negative very quickly!

I am reminded of a story I learnt from the late 90's: Cashflow - A Tale of Stable Income.  When bad news come, they come together.

History can shed useful insights to enable us to make decisions today that will affect the future. But we need to learn the rights lessons given that there can be many possible futures.

As for my own housing loan, my threshold will be 4% which I view as a risk-free rate. So long as my loan interest rate remains below 4%, I will continue to maintain the loan, and use the leverage to put my spare cash and CPF-OA into investment (shares and equity Unit Trust) as I believe I can do better than the 4%. There are risks of course.

Should the interest rate climb above 4% however, I will likely liquidate my investments that are using CPF-OA funds, and use that to pay down the loan. My loan principal has actually been whittled down to just 10% of the original loan. So I really have quite a bit of breathing room. Phew.

Hope your housing finances are in good shape. If not, it's time to re-evaluate the risks and check your margin of safety. Don't let it become your nightmare and cause of sleeplessness.

A Different Singapore for Financial Liberation without the Lure of Pension

Came across an article which talked about introducing some kind of pension system for the low income earners who have little in the way of CPF. It was suggested that this would only cost 1% of the government budget. I think this is a most slippery slope. 1% for pension is 1% less to spend elsewhere to build the nation. Would this truly help the low income or introduce the undesirable dysfunctional effect of social dependency we observe in some other countries? Personally, I am doubtful this is a good trajectory to take.

Start With the Young

Perhaps the journey has to move further back to the young. Can investment and financial awareness be introduced at an earlier age where it can be taught and introduced in a more compelling manner? Could it be weaved in into classroom Maths for instance?

Games could be another avenue. Are there any good ones to do so (see Wongamania)? The many popular ones are perhaps too cheesy or simplistic (Monopoly, Life). Robert Kiyosaki's Cashflow game is too tuned toward positive cash flow from property investment and perhaps too narrow. Not to mention expensive as heck! There are localised mobile apps like WhyMoolah. But I didn't find it particularly fun as it lacks a staying appeal.

As it is, it seems that more younger people are opening up trading accounts. A sign of greater interest and awareness? But chances are many may well be doing so to tikam tikam, looking for a quick "rush" and a quick buck. The likelihood that some will crash and burn is equally good. Hopefully, more will learn and shift towards a sustainable approach to stock investing.

Options for the Old: Housing and Tourism

Perhaps housing could also be structured a bit differently. If only our flats could be built with a lock-out unit that can be separately rented out? There were some attempts to do so but it doesn't seem to have proliferated. Every young family wants to buy their first home with the aim of expanding their humble home with children (and the provision for a maid?). But as the kids grow up, get married and move out, the home starts to get emptier and hollow. Instead of downgrading to a smaller home, wouldn't it be nice if a part of it could be locked off as a separate unit for rental, and hence provide a decent income stream for retirement to complement their CPF? It would also keep the older folks engaged. The possibility of social interaction with their guest is also a possibility.

The regulatory regime has to catch up to allow vacation rentals, a la AirBnB (see AirBnB - Sharing a Home for Rental Income). Legalise it so that the older folks can gain a rental income from vacationers. Would this have the dual effect of promoting affordable tourism in Singapore as well? Accommodation with a different touch, an option away from the sterile hotels. Of course, the concern is over the introduction of sleaze and crime if this is not managed well. Some form of inspection and regulatory requirements could well provide the mitigation.

AirBnB - Sharing a Home for Rental Income

The Internet of Things has enabled in recent times this trend of "sharing". In reality, it is actually not a recent thing as the trend had started many years ago, but perhaps becoming more viable as a business concern in recent times. Transportation (Uber), accommodation (AirBnB), you name it. The Internet makes it easy for such businesses to thrive.

Interestingly, those who advertise Singapore properties on AirBnB are likely in violation of the law as short term rentals for anything less than 6 months is apparently not allowed. That hasn't stopped many from trying though. They are really risking it. Considering that properties are expensive like heck in Singapore, that's putting a lot at risk. You could lose your house! It probably doesn't take a lot for your neighbours to get upset with you and make a report.

I suppose the government would be reviewing its policy on this in due course. Given Prime Minister's speech at the National Day Rally on monetising the home for retirement (Post National Day Rally 2014 - Education, CPF and Infrastructure), perhaps such short term rentals could provide an additional option as a source of income for retirees?

Understandably, these have to be balanced against having tons of strangers thronging around our residences, creating concerns of insecurity. It is perhaps less of an issue if the owner actually stays in the home. But another thing altogether when fully rented out.

When renting homes overseas, though not from AirBnB, I've come across rental homes residing in nice, quiet neighbourhoods. I never once met the owners. I was given the numeric lock numbers over e-mail to gain access to the lock at the entrance of the house. The lock box provided the keys to the house. And on leaving, I only had to lock up the place and lock up the keys. Pretty much an "unmanned" experience. This happened at both Phillip Island and Fremantle in Australia. Must say that both were most positive experiences for my family. The houses were fully functional and well stocked.

Related:
Post National Day Rally 2014 - Education, CPF and Infrastructure
Cashflow - A Tale of Stable Income
Property - An Asset, Liability or Cashflow?

Rental or Ownership - Which Makes Sense for a Home?

Since eons, it seemed to be a given that we should strive towards owning that roof over our head that we call our home. It was imbued in our psych that this is a necessary step to ensure our well being, carrying us into our retirement. With such an asset firmly in our hands, we then need only to worry about other expenses for a healthy living and retirement.

It has also often been explained that between renting versus owning a property, the earlier leaves one with nothing, while the later produces an asset at the end of the day.

I've been thinking though, do the maths really work out right today? I own my condo, apparently valued at about $1m today. Or maybe a bit less, given the softening property market. What would it cost to rent?

Suppose I were 65 years today (or should I be thinking 67 now!?), and assuming I have 30 years to go, paying a monthly rental instead of $3,000 a month - that works out to be $1.08m in total, without accounting for the time value of money. Seems logical to own my property rather than rent, since I would have paid the equivalent sum over time?

But let's consider an alternate future. Suppose I monetise the $1m by selling off my property and then investing that $1m, generating a 4% real return on the investment, giving me $40,000 a year. That would actually be more than the $36,000 a year in rental.

Does this look a real proposition to ponder? Will the rental rate hold, or will it increase over time? With age and time, do the equations change?

Related:
Post National Day Rally 2014 - Education, CPF and Infrastructure
Cashflow - A Tale of Stable Income
Property - An Asset Liability or Cashflow?

Post National Day Rally 2014 - Education, CPF and Infrastructure

The National Day Rally 2014 has come and gone.

Education

So we started with the subject of "education" and discovered the line that multiple pathways to success need not necessarily require a degree. Can't have a whole country of just managers and no doers isn't it? Skilled labour need to be respected in a balanced world. And for a first, we find Prime Minister interviewing a cohort from a wide spectrum. Keppel had a field day of free advertisement. We are re-educated.

Retirement

Then we have Prime Minister becoming a Financial Adviser. As he said, last year he was a Property Agent, but things haven't been looking up, so he has switched to become a Financial Adviser. I thought he did a fantastic job to link the logic behind why property is part of the CPF system, and the many options to monetise the property for retirement income.

I felt his advise for a retiree to continue to own a property, even if staying with their children, a particular insightful remark. He must surely have seen the many cases when the parents had fall-outs with their children, or worse, cheated by their children, and then having no roof over their head. Abandoned.

And so we have the declaration that the Minimum Sum for the CPF Special Account would be raised to $161,000 in 2015, and the statement that there would not be a further increase thereafter, subject to a review from time to time (ah, always leave the option open!). For me, this was a boo-hoo-hoo moment. I had so looked forward to continuing benefiting from the 4% return with a continually revised ceiling. Where else to get this kind of returns for a risk-free investment? Unfortunately that is not to be.

$161,000 it shall be. And no way am I going to pledge my property to cash out half the sum at age 55. I want my full return of $1,200 per month from age 62 onwards (I was previously under the impression that this sum would only be received from age 65).

Infrastructure

Finally, the great infrastructure development. Having discussed about the great airport move from Paya Lebar Airport/Airbase to the expanded Changi Airport over the next few decades along with the Jewel of the East last year, Prime Minister described with much graphical details the great Jewel of the West this year.

We already have Jem and Big Box, and the new but delayed General Hospital at Jurong East. But the elaborate plan looked like the creation of a New York Central Park in the form of the Jurong Lake Gardens. A new monumental go-to place in the form of a new Science Centre, and the possibility of a future Express Train terminal to Malaysia. Certainly a major transformation from the current drab and boring looking Chinese and Japanese Gardens, which for years have languished in a never changing state, seldom used, venues of zero excitement. Transformed, it shall be. "There is only do, or do not", as Yoda might say.

Concluding Remarks

As a foreign dignitary once said, each year he come by Singapore, he sees something new and exciting. The landscape is ever changing. This trend looks set to continue. Change is certainly a consistency.

Looks like the construction industry will continue to have positive prospects in the years ahead. Major infrastructure development will continue to place demand - numerous MRT lines criss-crossing our tiny island, highways realigned and expanded, monumental artistic buildings and gardens rebuilt, bigger and better. The list goes on.

I am inspired by the exciting future of our country with each passing year. Toast!

p/s: Tat Hong (cranes), Kingsmen Creatives (artwork), Pan-United (cement) could be potential beneficiaries?

Cashflow - A Tale of Stable Income

Heard from a colleague over lunch. 

He apparently bought a pair of properties for investment previously, paying down only 20% and secured loans for the rest.  The servicing of the loans were offset by his rental income from each of his two properties.  His tenants were all expatriate and paying tidy rentals for his properties which were located in the outskirts of the city area. 

Nice cash flow - using other's people money to make money.  Well done! Proud owner of several properties.

One day, one of his tenants called him to say he was being laid off, and he would not be able to continue paying his rent.  My friend got pretty worried, because he would have to pay a hefty monthly sum to service his loan without a paying tenant.  So he agreed to let his tenant tide over by lowering the rent, and allowed him to temporarily delay payments, hoping desperately that his tenant would be able to secure an alternate job soon.

About this time, his other tenant tried to call him on his mobile.  As he described it, "I was running scared!  I didn't want to answer his call.  Because if he was going to tell me that he had also been laid off, I didn't know what I was going to do!"

This was in the late 90's. More than 10 years later, he's apparently in a similar state.  He's starting to get worried again and is seriously thinking of getting rid of one of his properties.

Property - An Asset, Liability or Cashflow?

Conventional wisdom has it that we compute our Net Worth by deducting "Assets" from "Liabilities".  Robert Kiyosaki in his seminal "Rich Dad, Poor Dad", came up with the notion of "Cashflow" as being key.

Is a property therefore an asset or a liability?  Suppose the property cost $500,000, for which a loan of 80% was taken.  It would therefore be an Asset worth $500,000, and at the same time a Liability of $400,000; the Net Worth is therefore only $100,000.  What is the Cashflow then?  If you're living in the property (i.e. home), then the Cashflow is $0 since it earns no income. 

On the other hand, if it was rented out and generating a revenue of $20,000 a year (4% yield - i.e. 4% of $500,000 = $20,000), then it gives a Cashflow of $20,000.  If the monthly rental income is equal to the monthly loan instalment, then we could imagine that the rentee is paying for you to own the property!  How nice.

In truth, there are further costs involved that would have reduced Cashflow generated.  A property that is not the residence incurs a 10% property tax, rather than 4%.  There are also other fees due to maintenance, tax on the revenue, and other upkeeping/maintenance costs involved.  This would be offset by some deductibles against the taxable income of course; deductibles that are associated with rental properties.

In Singapore, rental yields are typically in the 3-6% range.  Given this, I am doubtful if a positive Cashflow could be achieved, unless the upfront payment for the property was very high in the first place.  Certainly 20% down isn't likely to cut it.

There is a counter argument about the property as a home.  That is, to consider the opportunity cost; which would have meant renting a property for a home.  I believe, that in the long run, paying for a home would always beat the notion of renting a property to live in.  At the end of paying all the instalments, one gets to own a property.  But a rental remains a rental - there is nothing owned at the end of the day.  Given this, the solution appears apparent - own a property.  The problem is of course the lengthy lock-in of a sizeable portion of one's wealth.

I recall somebody told me that wealth is generated in 3 ways:
- Work for your money;
- Make your money work for you; or
- Get other's money to work for you.

So, we could work to pay for a property.  Or, we could do so and rent it out, and get others to pay for your property!  The recourse therefore: buy a property, collect rent, stay with thy parents!  Be Cashflow positive!