*Official* Shiny Things club - Part 2

[BBCWatcher]

My impression is global REIT also heavily taxed. Ultimately because we care only about after tax returns, and SREIT give higher return than global REIT. Higher tax is inconsequential. Do you prefer an investment that tax you 35% & still give you 10% return or tax you 10% but only give you 5% return?

Really ? I thought we need to pay 15% withholding tax for dividends of Irish domiciled LSE listed entity. Interesting.

since there is withholding tax on LSE-listed REITs, it would be interesting to find out how the tax issue is dealt with for LSE-listed ETFs that hold such REITs.

Let's see if we can start looking into this beyond the superficial, but I'll say up front that this particular analysis is really hard....

DPYA looks like a promising candidate, Irish domiciled and London traded. It's an accumulating fund (which offers some inherent cost efficiencies), and non-U.S. persons resident in Singapore pay no individual taxes -- no dividend tax, no capital gains tax. Total expense ratio is 0.59%, which is pretty reasonable by Singapore standards. OK, so what does the fund manager pay (Blackrock iShares), and what do the underlying REITs pay?

If the REIT is U.S. domiciled, then the fund manager pays the 15% Irish treaty rate on dividends. (REITs domiciled in other countries will be subject to whatever the rate applicable to Irish domiciled funds is with that country.) DPYA's biggest holding is Simon Property Group REIT, symbol SPG on the New York Stock Exchange. Let's see what SPG pays.... OK, according to Simon's 2018 annual report, they pay zero in U.S. income tax because they've structured their affairs as a U.S. qualified REIT. They do pay some other taxes, notably property taxes and a little bit of foreign tax (they're U.S. domiciled but operate in more than one country), but unfortunately I don't see any total effective tax rate figures. (They say there was US$5 billion paid in property and sales taxes, but their tenants -- retailers, notably -- paid the vast bulk of the sales taxes, not SPG. So that's just a marketing number, not even in their financial statement -- it's just in the throwaway introductory text. And I'm highly confident they rolled up their tenants' total sales tax figure precisely because that number forms the vast bulk of the US$5 billion marketing number.) Anyway, to the level of investigation we can perform thus far, DPYA is subject to a 15% tax rate on the dividends associated with U.S. domiciled REITs, paid solely by the fund manager (and assuming DYPA is held by a non-U.S. person). The individual DYPA shareholder pays nothing.

Interestingly, if you were to hold SPG as an individual resident of Ireland, and assuming your ownership is not a big percentage (which it wouldn't be since SPG is huge), you'd enjoy a super preferential 5% treaty rate. You'd then presumably pay some more tax to your local tax authority in Ireland.

What about Singapore? Well, there's the Lion-Phillip SREIT ETF, symbol CLR on the SGX. CLR doesn't publish a total expense ratio, but they list a management fee of 0.50% and a trustee fee of 0.04%. So let's call that one even. Mapletree Commercial Trust is its biggest holding, or at least it was not too long ago. IRAS has granted a tax transparency concession (recently extended, but still with an expiration date) to CLR and other funds like it, so for non-U.S. individuals there's ordinarily no tax on dividends. Same thing for income from Mapletree.

....Consequently it seems there's a 15% dividend tax "gap" between distributions of U.S. domiciled REITs and Singapore domiciled REITs. But is that the end of the story? No, of course not. Real estate in Singapore is comparatively heavily taxed, and the REITs do pay taxes. (So do REITs elsewhere -- they all pay some tax, such as property tax. Well, OK, in other jurisdictions in some contexts some REITs have negative effective tax rates. Yes, that can happen.) And it's harder to find that data since we really need to see the total effective tax rates that these REITs pay, then roll that up to the fund level. Is the 15% "headwind" dispositive? No, not yet.

Mapletree does list its total property tax payments in its fiscal 2018, in its annual report. That figure is S$36,598,000. It distributed S$259,703,000 to shareholders in the same period, so its total effective property tax rate appears to be 12.4% (total property tax paid divided by the sum of property tax paid and total distributions). But their annual report also refers to a stamp duty bill of S$53,395,000, and it's hard to figure out how to allocate that....

....This is not easy! I don't think we have enough data to figure out whether S-REITs face more, less, or about the same total tax burden (in the whole "tax pipeline" to the end investor) than other REITs around the world. And how should we treat IRAS's expiration date on the fund transparency concession? I don't have a good answer to that question.

Fortunately, as I mentioned, the IRS makes my personal decision easy. For non-U.S. persons resident in Singapore, you'll have to take a guesstimate whether you think S-REITs enjoy a tax burden advantage, whether any such advantage (if it exists) is impactful enough, how you want to handle fund versus non-fund S-REIT investing, other investment costs, what overall exposure you want to real estate, and how concerned you are about local and regional risk concentration (and particular REIT concentrations if you choose individual REITs) within your portfolio. These issues are not easy to decide.

 

[311290]

@BBC i cant change the funds percentage allocation.

Which will be the better option doing number 6 and invest in iwda (w/o company contribution) or number 9?

1. Treasury Money Fund (100%)
2. Treasury Money Fund (75%) + Bond Fund (25%)
3. Treasury Money Fund (50%) + Bond Fund (50%)
4. Treasury Money Fund (50%) + Bond Fund (40%) + SET 50 Fund (10%)
5. Treasury Money Fund (40%) + Bond Fund (40%) + SET 50 Fund (10%) + Jumbo 25 Fund (10%)
6. Treasury Money Fund (40%) + Bond Fund (30%) + SET 50 Fund (20%) + Jumbo 25 Fund (10%)
7. Bond Fund (60%) + SET 50 Fund (20%) + Global Quality Growth (5%) + Property Income Plus Fund (15%)
8. Bond Fund (50%) + SET 50 Fund (25%) + Global Quality Growth (10%) + Property Income Plus Fund (15%)
9. Bond Fund (30%) + SET 50 Fund (40%) + Global Quality Growth (15%) + Property Income Plus Fund (15%)

 

[pmstudent]

Let's see if we can start looking into this beyond the superficial, but I'll say up front that this particular analysis is really hard....

DPYA looks like a promising candidate, Irish domiciled and London traded. It's an accumulating fund (which offers some inherent cost efficiencies), and non-U.S. persons resident in Singapore pay no individual taxes -- no dividend tax, no capital gains tax. Total expense ratio is 0.59%, which is pretty reasonable by Singapore standards. OK, so what does the fund manager pay (Blackrock iShares), and what do the underlying REITs pay?

If the REIT is U.S. domiciled, then the fund manager pays the 15% Irish treaty rate on dividends. (REITs domiciled in other countries will be subject to whatever the rate applicable to Irish domiciled funds is with that country.) DPYA's biggest holding is Simon Property Group REIT, symbol SPG on the New York Stock Exchange. Let's see what SPG pays.... OK, according to Simon's 2018 annual report, they pay zero in U.S. income tax because they've structured their affairs as a U.S. qualified REIT. They do pay some other taxes, notably property taxes and a little bit of foreign tax (they're U.S. domiciled but operate in more than one country), but unfortunately I don't see any total effective tax rate figures. (They say there was US$5 billion paid in property and sales taxes, but their tenants -- retailers, notably -- paid the vast bulk of the sales taxes, not SPG. So that's just a marketing number, not even in their financial statement -- it's just in the throwaway introductory text. And I'm highly confident they rolled up their tenants' total sales tax figure precisely because that number forms the vast bulk of the US$5 billion marketing number.) Anyway, to the level of investigation we can perform thus far, DPYA is subject to a 15% tax rate on the dividends associated with U.S. domiciled REITs, paid solely by the fund manager (and assuming DYPA is held by a non-U.S. person). The individual DYPA shareholder pays nothing.

Interestingly, if you were to hold SPG as an individual resident of Ireland, and assuming your ownership is not a big percentage (which it wouldn't be since SPG is huge), you'd enjoy a super preferential 5% treaty rate. You'd then presumably pay some more tax to your local tax authority in Ireland.

What about Singapore? Well, there's the Lion-Phillip SREIT ETF, symbol CLR on the SGX. CLR doesn't publish a total expense ratio, but they list a management fee of 0.50% and a trustee fee of 0.04%. So let's call that one even. Mapletree Commercial Trust is its biggest holding, or at least it was not too long ago. IRAS has granted a tax transparency concession (recently extended, but still with an expiration date) to CLR and other funds like it, so for non-U.S. individuals there's ordinarily no tax on dividends. Same thing for income from Mapletree.

....Consequently it seems there's a 15% dividend tax "gap" between distributions of U.S. domiciled REITs and Singapore domiciled REITs. But is that the end of the story? No, of course not. Real estate in Singapore is comparatively heavily taxed, and the REITs do pay taxes. (So do REITs elsewhere -- they all pay some tax, such as property tax. Well, OK, in other jurisdictions in some contexts some REITs have negative effective tax rates. Yes, that can happen.) And it's harder to find that data since we really need to see the total effective tax rates that these REITs pay, then roll that up to the fund level. Is the 15% "headwind" dispositive? No, not yet.

Mapletree does list its total property tax payments in its fiscal 2018, in its annual report. That figure is S$36,598,000. It distributed S$259,703,000 to shareholders in the same period, so its total effective property tax rate appears to be 12.4% (total property tax paid divided by the sum of property tax paid and total distributions). But their annual report also refers to a stamp duty bill of S$53,395,000, and it's hard to figure out how to allocate that....

....This is not easy! I don't think we have enough data to figure out whether S-REITs face more, less, or about the same total tax burden (in the whole "tax pipeline" to the end investor) than other REITs around the world. And how should we treat IRAS's expiration date on the fund transparency concession? I don't have a good answer to that question.

Fortunately, as I mentioned, the IRS makes my personal decision easy. For non-U.S. persons resident in Singapore, you'll have to take a guesstimate whether you think S-REITs enjoy a tax burden advantage, whether any such advantage (if it exists) is impactful enough, how you want to handle fund versus non-fund S-REIT investing, other investment costs, what overall exposure you want to real estate, and how concerned you are about local and regional risk concentration (and particular REIT concentrations if you choose individual REITs) within your portfolio. These issues are not easy to decide.

Wow, very thorough analysis, thanks!

 

[Fabulous50]

I don't really follow berkshire all that closely. However, since they famously never give dividends, it would be easy to calculate their total return for various windows from raw data - i.e. price history, instead of relying on a secondary source that confirms some person's bias.

I went to Yahoo Finance and downloaded monthly price data since 1980. Then I calculated rolling 5Y,10Y,15Y,20Y returns (annualized CAGR). If you cherry pick a 5Y window for example, certainly BRK-A shows high returns. But a holistic view of the rolling returns gives a different picture. The long term returns of BRK-A has indeed been declining and converging with the S&P500.

I would venture to say (without capitalisations or highlight) that this is "real fact".

 

[Fabulous50]

I happen to have a time series of S&P500 total return levels (source: can't remember, so take it FWIW). Here's a direct comparison of 20Y rolling window returns with BRK-A

My S&P data is annual data only (with what monthly base I don't know) while the BRK-A data is rolling month over month. But it does give a rough picture.

 

[Fabulous50]

Everybody say it together with me.

"We love average returns, especially if we don't need to work at it, can take long holidays without watching the market, and are confident of getting average returns."

 

[Fabulous50]

Comparing monthly rolling of Berkshire (not TR?) vs annual rolling of S&P500 (TR) is what people famously called comparing Apple to Oranges!

Ervino, this is the last time I address you directly. You don't even read or understand anything based on what you've posted. In this case, I already said BRK-A has no dividends (most people who follow won't even need me to say it), so price history by definition will yield total return.

I get it that some people can get higher returns than average. Clap clap. Bravo for you.

What you are doing is the equivalent of barging into a roomful of people and yelling in their ears. It's not a free speech issue, its a politeness issue.

The internet will yield any opinion under the sun, so quoting secondary sources without analyzing them just harms your credibility, for the Nth time.

 

[eD1s0n]

Ervino, this is the last time I address you directly. You don't even read or understand anything based on what you've posted. In this case, I already said BRK-A has no dividends (most people who follow won't even need me to say it), so price history by definition will yield total return.

I get it that some people can get higher returns than average. Clap clap. Bravo for you.

What you are doing is the equivalent of barging into a roomful of people and yelling in their ears. It's not a free speech issue, its a politeness issue.

The internet will yield any opinion under the sun, so quoting secondary sources without analyzing them just harms your credibility, for the Nth time.

come join the ignore list club. your eyes will thank you for it.

 

[Shiny Things]

Low returns is easy to achieve, so nothing to boast about nor to teach.

"Low" and "high" returns are relative. In a short-date EUR bond portfolio, breaking zero would be a huge achievement; that would be the highest of high returns! But in emerging-market stocks, you'd fire your fund manager if they came in below zero on a regular basis.

In this thread we're aiming for average returns. Most people who just buy stocks at random end up making terrible investment decisions. They buy high; they chase fads; they panic and sell at the lows; they run off and hide in cash instead of investing for the long term. They end up doing worse than the market, despite all the effort they put in.

What I teach people is that you do just as well, or even better, by just sitting in the market, regularly investing, and rebalancing occasionally. This strategy is not going to get you the sort of returns that you can brag about at cocktail parties, but it's not designed to! It's designed to be a simple strategy that anyone can follow, that helps people get comfortable with investing, and helps them avoid the pitfalls that most investors fall into. And if they have some fun along the way, and learn some things, then that's even better.

If you (and Ervino, for that matter) are able to make above-market returns, then you should go and start your own thread. Write your own book. Start your own consulting business. Maybe launch a fund, because above-market returns are things that people will pay a lot of money for.

Warren Buffett achieves very high returns over say past 30 years period. That is due to experience & wisdom, & without the high risks you mentioned. So much higher returns than passive index ETF is possible at market level risk (or same risk as index ETF).

I'm gonna actually you real hard here.

Actually, the main reasons Chuck and Wozza blew the doors off in the first few years of Berky were:

* The value factor was real, and it was undiscovered. Buying companies at low multiples, throwing off tons of cash, which they used to buy more companies, was a winning strategy... until everyone else found out about it and started doing the same thing, which is why Berky's stopped outperforming the broad market lately.

* They had structural leverage out the wazoo. One of their favorite strategies was buying insurance companies, which had huge piles of cash, and investing that cash in other companies. They're effectively using money borrowed from policyholders to invest. That's huge leverage, and it worked really well for them.

People seem to commingle home/residential as the same category as REIT.
No, it is not, JP Morgan clearly showed them as different asset classes, and their stark difference of performance, home (3.4% annualized return) vs REIT (9.9% annualized return) over the past 20 years. Granted, this is US data.

I'd be genuinely interested to know why you think this is, though.

Unless I'm missing something blindingly obvious:
* REITs invest in real estate (it's right there in the name);
* Homes are a subset of "real estate" (they're residential real estate);
* So why on earth have REITs outperformed the asset class they invest in?

It's not mortgage REITs skewing the data: those have dramatically underperformed the broader REIT sector, if anything. Leverage would add a few points, since I'm guessing those "home" numbers are unleveraged, but that can't explain all of it.

Also, sort of a side question: you were arguing pretty strongly that SREITs are a superior investment, but the numbers you're citing above are for US REITs. Do you want to focus on S-REITs in particular, or REITs in general, or real estate in general?

As usual, its not just returns we want to worry about but risk. I don't know what time horizon you ran your portfolio visualizer (first time I heard of this) on, but I would be interested to see if the variance differs with the time window (e.g. 5Y, 10Y, 20Y etc). If I were to guess, I might find that the difference in variance between a REIT and a stock portfolio might widen for shorter periods excepting when there is a financial shock (when all correlations tend to 1).

PortfolioVisualizer.com - it's pretty great. Since you ask, I used a time window from about '94, since that was as far back as PV goes in the "real estate" asset class.

I want to open a SCB online trading account to trade IWDA. At the very last part of the online application, it says I have to submit the W8BEN form at their branch. May I know if I can submit the form online as well, or do I really have to go down to one of their branches?

Does anyone know the answer to this one? I think you might have to pop down to the branch unfortunately.

@BBC i cant change the funds percentage allocation.

Which will be the better option doing number 6 and invest in iwda (w/o company contribution) or number 9?

Mate, you've been back and forth on this for months. Just do #9.

Are the Tbill and SSBs nowadays considered high interest?
What does it mean when bond prices are high and what impact will it have on the equities?

This is an awfully broad question, and it's a bit fuzzy TBH.

The answer is "No, I think" - debt issued by governments is almost never considered "high interest", just because it's so safe. If there's no risk of default,

Also, when you say "T-bills" you should probably specify whether you mean Singaporean government bills, or US government bills; "T-bills" is the colloquial term for US government discount bills.

 

[Shiny Things]

Don't understand why got people keep ********ing things I wrote when they already ignored me? You are welcome to go ahead to ignore me.

Some of us have to keep you un-blocked so that we can report your posts when they get inappropriate. It's very tiring.

Genuine question: why do you keep posting things that you know are not welcome and that aren't going to persuade anybody? If you engaged sensibly, asked genuine questions, and didn't get fighty all the time, we'd love to have you here; but as it is, all you do is make noise and make it difficult for other people to learn.

You aren't welcome in this thread. If you leave and start another thread, we'd both be happier; but if you keep posting argumentative, insulting (and weirdly homophobic?) posts, we're going to keep reporting you and you're going to keep running up infractions until you get banned.

 

[Wonderer haha]

Hi ervino,

Sorry for asking, it seems rude though. But would you please share with me (or to someone who are also interested) the way you achieve those high returns (in another thread)? How do your actively beat the markets? What strategy/method you use for stock picking, entering/exiting markets etc? For your information, I am early 30, currently having a decent job and and pay, but with no background in finance/economy/accounting or other business-related fields. I started my investment journey last July/August, and so I considered myself quite a newbie.

With all due respect, I do not want to offend Shinny, BBC, and the rest of the folks in this thread (so please discuss in another thread). To be honest, I do very like Shinny's invest, relax, and go pub strategy (appreciate and thanks !!). But I am slightly adventurous (just slightly a bit only) and a knowledge-seeker. As long as within your risk appetite, financial capability/limit, why not trying to be slightly more adventurous (but definitely not asking for gambling or playing luck around)? Your strategy might not suit me well at all, but understand how you approach and tackle the problem might be helpful in a sense. I welcome opinion and diversity. Rest assured that I will not going to follow your strategy blindly without carefully understand and studying them.

Hopefully, you can share with us in another thread, and do let me/us know. Thanks !

 

[CWL84]

@Wonderer haha I hope he listens to you and it would absolutely be a miracle if he does. Every time he comes in here, he is only interested in bashing passive index investing, Shinythings, BBCWatcher and other posters while behaving extremely smug and arrogant without even sharing his own substantive reasoning on why his own investing strategies is better or sharing more details of his own investing strategies.

On top of that, he made insults towards people born with mental disabilities and gay people and yet, he is unhappy about being labelled a troll while all along, he has been exhibiting obvious troll behaviour. I don't even post much but even I feel obligated to stand up to this troll.

 

[pmstudent]

I'd be genuinely interested to know why you think this is, though.

Unless I'm missing something blindingly obvious:
* REITs invest in real estate (it's right there in the name);
* Homes are a subset of "real estate" (they're residential real estate);
* So why on earth have REITs outperformed the asset class they invest in?

Home and REIT are very different, especially in Singapore context:

First of all around 80% of home consist of government controlled HDB.
Even private home price is heavily regulated with various measures such as ABSD to a point where it is no longer worthwhile to invest.

Second, home is not that attractive around this part of the world now. Singapore rental yield is around 2.5% (https://www.globalpropertyguide.com/Asia/Singapore/rent-yields), while SREIT on average is around 5-7% yield as of today (https://sreit.fifthperson.com/).

Third, there is no such thing call residential REIT here, only commercial, industrial, hospitality, retail, logistic, healthcare and data center. There is no such thing such as condo REIT or HDB REIT here. If you want to stretch, serviced apartment is considered as Hospitality REIT and it is of different nature.

Fourth, home is a roof over your top. It is for your to stay, not really an asset, unless you have more than one, or you choose downgrade from condo to HDB, or exit Singapore to a developing country.

Also, sort of a side question: you were arguing pretty strongly that SREITs are a superior investment, but the numbers you're citing above are for US REITs. Do you want to focus on S-REITs in particular, or REITs in general, or real estate in general?

My argument is REIT as an asset class. Apologize for switching context between US and local. However, for local context, SREIT has a benefit of tax free dividend, as compare to 30% of US listed REIT and 15% of Ireland domiciled LSE listed REIT. BBC brought up the geographic concentration risk of focusing only in SREIT (mainly in APAC), I personally willing to take this risk in view of the tax free dividend over the long run.

The reason I have to quote US data is because of the limited history of SREIT.
If you see the S REIT performance data below, it only goes back to 15 years ago.

Figure from OCBC research (https://research.sginvestors.io/2019/03/office-sector-ocbc-investment-research-2019-03-12.html)

Courtesy of SpeedingBullet, he used Bloomberg to do a TRA of SREIT vs STI, is back to 2005 only.

This US centric analysis talk about up to 40 years time frame, I am sure you have the tools to validate it ?
https://www.reit.com/news/blog/mark...age-reit-returns-and-stocks-over-long-periods

Ok, even REIT performed better than stock index, it doesn't mean that the same performance will repeat in the future.
However, if STI (historically under performed S&P 500 and MSCI World) and bond (historically under performed equity) deserve a place in ones portfolio, why not REIT ?

 

[BBCWatcher]

As a reminder, the STI (quite unusually among stock market indices) already contains a large dollop of real estate exposure. I’d ballpark it at 15% (last time I looked and tried to figure it out — it’s complicated due to cross-ownership). STI+your own home in Singapore+S-REITs means even more locally and regionally skewed real estate exposure than STI+your own home in Singapore. I don’t think very many people are going to be in any danger of being underexposed to a locally and regionally skewed real estate sector. Overexposed, yes, that’s much more likely.

Also, for Singaporean investment purposes, there’s “never” a 30% dividend tax on U.S. REITs. You can buy a 100% U.S. REIT index fund domiciled in Ireland if you wish to do so, and that’s a 15% dividend tax proposition, paid by the fund. Assuming you’re a non-U.S. person, that’d always be the preferred choice for U.S. REITs. Just ignore the 30% hypothetical — you’d never actually do that.

The particular Irish domiciled global REIT index fund I mentioned consists of about 55% U.S. domiciled REITs (which do business in the U.S. and elsewhere) and 45% REITs domiciled elsewhere. If the U.S.-based and non-U.S. based generate equal dividend percentages, and if the non-U.S.-based is subject to zero dividend tax, then at the fund level that rolls up to a circa 8.25% dividend tax. Not 30%, and not 15%. 8.25% probably isn’t correct, but “more investigation required.” (The accumulating funds are quite nice, by the way. There’s zero commission and no delay to reinvest dividends because the fund does all that for you, and that’s cost efficient.)

And you cannot look at the 15% or 8.25% (or whatever) dividend tax in isolation. S-REITs pay a lot of tax (thank goodness). It’s unclear whether U.S. domiciled REITs (via their Irish wrappers), German REITs, British REITs, Australian REITs, or S-REITs (examples) face the highest total tax burdens end-to-end to the investor, and that’s all that matters when you’re trying to assess and compare tax-related costs. “I don’t know,” after looking into it some. More investigation and information required. If some corporation is paying a 30% total effective net income tax while I pay 0% dividend tax, and some other corporation is paying a 10% total effective net income tax while I pay a 15% dividend tax, the second one wins the tax comparison. (And a tax comparison only gets you so far. It’s just one factor, not necessarily even particularly important.)

Finally, tax rates and policies can change literally overnight. (That’s the Singapore government’s approach, as we just saw in July, 2018.) There is an important concept of “tax diversification.” One important aspect of being well diversified geographically is to be diversified across tax jurisdictions. That helps avoid too many/too big/unpleasant tax surprises. Obviously if a particular tax jurisdiction hikes real estate taxes then that should result in a sudden downward jolt in the share prices of the REITs in that jurisdiction, which wouldn’t be fun if you heavily weighted that jurisdiction’s listings.

 

[Fabulous50]

I think it may be a little simplistic to count the entirety of your home value as part of the real estate portion of your portfolio.

For most economists who study retirement, housing is a consumption item and needs to be factored into retirement (even if as an imputed, annualized cost for the purpose of comparing with others that do not own a house). You save and invest in order to consume during your retirement (this is obvious but has to be mentioned in the same paragraph).

The unique thing about Singapore is that so many of us live without rent and that nearly all retirees live in decent housing with mortgage all paid up. Retirees in other countries may not have that luxury

Not forgetting that most of us live in housing with a 99 year leasehold so housing inflation and lease amortization fight a battle with housing values.

As a first approximation, I might consider that a 4 room flat in a decent mature estate (500k) be a basic accommodation for a retired person and his spouse, when children have left the nest. Which means that if I live in a condo worth 1.4 million (fully paid, no mortgage), for example, I might want to count the real estate portion of my portfolio to be 900k. If I live in a 4 room flat already, then I would not count it as "real estate investment", but already as part of my, not for sale, retirement "implied" income.

In other words, you might want to subtract the cost of basic housing off your portfolio first before you do a portfolio asset allocation. Anything above "basic" housing (or alternatively, what you might feel comfortable downgrading to) could be considered investment.

 

[BBCWatcher]

I think it may be a little simplistic to count the entirety of your home value as part of the real estate portion of your portfolio.

You could make that argument, but “zero is the wrong answer.” Home equity is real, it’s often substantial (or even huge), and there’s no requirement to have any home equity in order to consume housing.

Not forgetting that most of us live in housing with a 99 year leasehold so housing inflation and lease amortization fight a battle with housing values.

Right. “Leasehold equity” in that case.

As a first approximation, I might consider that a 4 room flat in a decent mature estate (500k) be a basic accommodation for a retired person and his spouse, when children have left the nest.

That’s not genuinely “basic” for a two person retired household in Singapore.

As a starting point, could we agree that the leasehold equity that could be raised via the HDB Lease Buyback Scheme should properly count as part of your total investment portfolio?

 

[pmstudent]

As a reminder, the STI (quite unusually among stock market indices) already contains a large dollop of real estate exposure. I’d ballpark it at 15% (last time I looked and tried to figure it out — it’s complicated due to cross-ownership).

Ok, lets accept your 15% ball park exposure to REIT in STI.
By the same token, STI has 41% exposure to local banks, are we dangerously over exposed to Singapore Banks ?

STI+your own home in Singapore+S-REITs means even more locally and regionally skewed real estate exposure than STI+your own home in Singapore. I don’t think very many people are going to be in any danger of being underexposed to a locally and regionally skewed real estate sector. Overexposed, yes, that’s much more likely.

Ok, we are still in the same argument, that home <> REIT.
My logic in my previous post still stand. Nope, home is home, REIT is REIT.
In your only home, capital appreciation is not applicable to you, unless you downgrade.
Rental income is not applicable to you, because you are living inside.
The only beneficiary is your next generation, getting your asset as bequest.

Lets assume that your only home, that you have to stay until you die, is really an equity. Do you seriously think that by living in a HDB will gain the same exposure as, lets say a Data Center or a eCommerce logistic hub ?

Also, for Singaporean investment purposes, there’s “never” a 30% dividend tax on U.S. REITs. You can buy a 100% U.S. REIT index fund domiciled in Ireland if you wish to do so, and that’s a 15% dividend tax proposition, paid by the fund. Assuming you’re a non-U.S. person, that’d always be the preferred choice for U.S. REITs. Just ignore the 30% hypothetical — you’d never actually do that.

The particular Irish domiciled global REIT index fund I mentioned consists of about 55% U.S. domiciled REITs (which do business in the U.S. and elsewhere) and 45% REITs domiciled elsewhere. If the U.S.-based and non-U.S. based generate equal dividend percentages, and if the non-U.S.-based is subject to zero dividend tax, then at the fund level that rolls up to a circa 8.25% dividend tax. Not 30%, and not 15%. 8.25% probably isn’t correct, but “more investigation required.” (The accumulating funds are quite nice, by the way. There’s zero commission and no delay to reinvest dividends because the fund does all that for you, and that’s cost efficient.)

And you cannot look at the 15% or 8.25% (or whatever) dividend tax in isolation. S-REITs pay a lot of tax (thank goodness). It’s unclear whether U.S. domiciled REITs (via their Irish wrappers), German REITs, British REITs, Australian REITs, or S-REITs (examples) face the highest total tax burdens end-to-end to the investor, and that’s all that matters when you’re trying to assess and compare tax-related costs. “I don’t know,” after looking into it some. More investigation and information required. If some corporation is paying a 30% total effective net income tax while I pay 0% dividend tax, and some other corporation is paying a 10% total effective net income tax while I pay a 15% dividend tax, the second one wins the tax comparison. (And a tax comparison only gets you so far. It’s just one factor, not necessarily even particularly important.)

Finally, tax rates and policies can change literally overnight. (That’s the Singapore government’s approach, as we just saw in July, 2018.) There is an important concept of “tax diversification.” One important aspect of being well diversified geographically is to be diversified across tax jurisdictions. That helps avoid too many/too big/unpleasant tax surprises. Obviously if a particular tax jurisdiction hikes real estate taxes then that should result in a sudden downward jolt in the share prices of the REITs in that jurisdiction, which wouldn’t be fun if you heavily weighted that jurisdiction’s listings.

Good analysis, love it.

 

[BBCWatcher]

Ok, lets accept your 15% ball park exposure to REIT in STI.
By the same token, STI has 41% exposure to local banks, are we dangerously over exposed to Singapore Banks ?

Maybe! I argue in favor of keeping the STI down around 20% (or less) of your investment portfolio when you’re in your accumulation phase, and that’s one reason why. It seems quite weird to me to drag a mere 3 Singapore-based bank stocks along at a whopping ~16.4% of your portfolio for 30+ years, which is what you’d be doing if half your stock investing is in a STI index fund (at an 80%-20% stocks-bond split). There’s a friendly disagreement on this particular point.

If you want to do something like 10% STI, 10% S-REIT index, 10% global REIT index, 50% global stock index, and 20% investment grade bond index (accumulation phase, until 7+ years from drawdown), I probably wouldn’t quibble. That’d be the “I’m going to overweight real estate substantially” allocation, albeit within fairly reasonable bounds. That arrangement is too fancy unless and until your monthly savings flow is decently high or higher, though. Each vehicle has a fixed cost element, typically, so you don’t want to get too fancy too soon.

Ok, we are still in the same argument, that home <> REIT.
My logic in my previous post still stand. Nope, home is home, REIT is REIT.
Lets assume that your only home, that you have to stay until you die, is really an asset. But do you seriously think that by living in a HDB will gain the same exposure as, lets say a Data Center or a eCommerce logistic hub ?

Not the same, but there will be some higher correlation between those two vehicles over investment time horizons than there will be between either and, say, shares of U.S. headquartered technology companies (random example).

There are lots of discussions about how to view your own home in investment terms. In terms of household net worth it’s easy: your equity counts, fully, at fair market value. In terms of retirement income support value I think it’s quite appropriate to determine valuation in one of these ways:

(a) The payout amount from the HDB Lease Buyback Scheme, if you’re eligible and if applicable;

(b) The sum you’d receive after trading down from the home you have to a minimum respectably livable home (2 room HDB unit for a retired couple, for example) with a remaining leasehold that’s just a bit longer than the longest life in the household. Under current understandings of longevity and medical science, a leasehold to age 110 would be a reasonable pick for these purposes.

(c) Similar to (b), but instead of buying a leasehold you’d buy an escalating life annuity with a monthly payout equal to the monthly rent for that same sized unit.

(d) Similar to (b), but the new minimum respectably livable home would be in another country where you have a right of abode, if applicable.

That doesn’t mean you’d actually execute any of these maneuvers, or execute them in exactly the way described. You might trade down to a 3 room HDB unit with 80 years of leasehold remaining instead of a 2 room with 40 remaining, for example. But in terms of estimating how well positioned you are for retirement, these are reasonable measures. The equity in your home has value, and it should be counted in some reasonable way.

“Minimum respectably livable home” doesn’t mean a pool, a patio, a gym, a BBQ, high floor, corner unit, best Merlion view, 3 bedrooms for guests, and another 3 bedrooms for household staff. Someone was evidently trying to argue that a 4 room HDB unit for a retired couple (only) is minimum, but no, that’s not realistic. Again, what you actually do (if at all) is a separate question. This is a valuation exercise for a specific purpose: determining where you currently are in terms of retirement income support.

 

[pmstudent]

If you want to do something like 10% STI, 10% S-REIT index, 10% global REIT index, 50% global stock index, and 20% investment grade bond index (accumulation phase, until 7+ years from drawdown), I probably wouldn’t quibble.

That's a sensible AA, I can live with that.

 

[Fabulous50]

You could make that argument, but “zero is the wrong answer.” Home equity is real, it’s often substantial (or even huge), and there’s no requirement to have any home equity in order to consume housing.

Well I didn't say zero. Anyway, I was not making a specific prescription. I am saying that if you own only one home, it is a mix of consumption and investment. When you are retired, you will certainly "use up" housing.

Think about it. For example, a youngish person just starting out, he (and spouse) buys a 3 room flat with a 50% downpayment and has no stocks or bonds. In my mind, i don't think you can say he's clearly over invested in property even though he has no stocks or bonds.

If you want to take a trading perspective - assuming a perfectly correlated basis in housing types, then you can be said to be effectively short the "basic" (please note the quotes) housing vs long the equivalent amount in your current living arrangement. You count the market risk of the difference because that's the amount you can eventually monetize.

As a starting point, could we agree that the leasehold equity that could be raised via the HDB Lease Buyback Scheme should properly count as part of your total investment portfolio?

If you read my post, you will realize that I am implying there is no fixed answer to the question "how much of your house is a consumption item".

There is a reason why demand and supply curves in economics are usually sloping. Everyone has a different utility curve. Everyone has a different price they are willing to pay (or receive) for a good.

In any case, the lease buy back scheme is a bad example in my opinion. In the first 6 years since it started and was limited to 4 room flats or lower, only about 2500 people took up the scheme (this was up to 2 years ago). Only last year was the scheme revised to include 5 room flats, and I suspect the take up rate is low. And obviously, if you have any other property, it doesn't apply at all.