OPM: Good debt vs Bad debt

[stanlawj]

U gong simi sia?

i plan to…..simi guarantee?
Only death and taxes are guaranteed.

Maybe got enbloc in my lifetime how? Happy problem i guess

your children get married, but later divorce.

 

[DevilPlate]

I think digress too much liao.

from OPM to repeatablility to legacy planning
There are different ways to make money in the past, present and future.

Some say shd leverage on OPM/govt subsidies to do startup
AI, cybersecurity is gona be a huge market.

 

[DevilPlate]

your children get married, but later divorce.

Seriously, u have to go down to edmw level?

 

[stanlawj]

Seriously, u have to go down to edmw level?

I will end the discussion by informing you that you haven't really thought through alot of things.

One of the purpose of this thread is to raise awareness of OPM can destroy your entire financial future if mishandled.

Mortgagee sales listing spike up in 4Q2023.
https://www.edgeprop.sg/property-news/mortgagee-sale-listings-tripled-4q2023-y-o-y-more-emerge-2024
The Singapore property auction market ended the last quarter of 2023 with the number of mortgagee sale listings tripling compared to 4Q2022. According to a market report by Knight Frank Singapore, 31 mortgagee sale listings were on the market in 4Q2023.
(Definition: Mortgagee sales occur when the owner of a property cannot service the home loan, and the bank forecloses on it.)

Market data from Knight Frank indicates 68 residential mortgage listings in 2023, comprising 59 non-landed properties and nine landed properties. “Most of the non-landed listings sold were one to two-bedroom apartments located in the fringe and suburban regions, suggesting that private homes in these areas continued to offer a more palatable entry price,” says Lee.

In the luxury market, there were 11 mortgagee listings of prime Districts 9 and 10 residential properties last year. One such unit was a 1,948 sq ft, three-bedroom apartment at the freehold Sommerville Park on Farrer Drive in prime District 10. It was sold under the hammer for $4.45 million last August.


https://www.straitstimes.com/singap...-goes-to-trial-after-she-rejects-his-6m-offer
Violet Oon dispute with investor Manoj Murjani.


https://mustsharenews.com/ministry-of-food-founder-bankrupt/
Lena Sim (Ministry of Food) bankrupt due to personal guarantee on loans.

Finally, from the stocks world, we have: Master Leong and his leveraged Alibaba bet from HKD$190 down to $70 and kena margin call. (don't laugh, but learn. I once got into the same boat like him in penny stocks using credit card debt). Years of past profits wiped out.



Collapse of Hin Leong oil trading firm by buying the dip in oil during Covid crash and then margin-called.
https://www.spglobal.com/commodityi...n-leong-collapse-of-a-singaporean-oil-prodigy
https://www.straitstimes.com/singap...ted-of-3-criminal-charges-of-cheating-forgery

 

[DevilPlate]

I will end the discussion by informing you that you haven't really thought through alot of things.

One of the purpose of this thread is to raise awareness of OPM can destroy your entire financial future if mishandled.

https://www.edgeprop.sg/property-news/mortgagee-sale-listings-tripled-4q2023-y-o-y-more-emerge-2024

The Singapore property auction market ended the last quarter of 2023 with the number of mortgagee sale listings tripling compared to 4Q2022. According to a market report by Knight Frank Singapore, 31 mortgagee sale listings were on the market in 4Q2023.

Market data from Knight Frank indicates 68 residential mortgage listings in 2023, comprising 59 non-landed properties and nine landed properties. “Most of the non-landed listings sold were one to two-bedroom apartments located in the fringe and suburban regions, suggesting that private homes in these areas continued to offer a more palatable entry price,” says Lee.

In the luxury market, there were 11 mortgagee listings of prime Districts 9 and 10 residential properties last year. One such unit was a 1,948 sq ft, three-bedroom apartment at the freehold Sommerville Park on Farrer Drive in prime District 10. It was sold under the hammer for $4.45 million last August.

Not familiar with property market better don’t enter…

play within yr circle of competence is my advice to u.

 

[stanlawj]

Any latest records?

Interactive housing price graph is here.
https://www.srx.com.sg/price-index#

Mortgage loan growth %, which predicts the peak, needs to be reconstructed from MAS statistics.
https://www.mas.gov.sg/statistics/monthly-statistical-bulletin/data-on-housing-and-bridging-loans

The rest of the recent macro stats for SG in graph can be found at Trading Economics.
https://tradingeconomics.com/singapore/indicators

 

[stanlawj]

Before embarking on OPM, the following are very important knowledge:
1. What happens when things go wrong: Bankruptcy laws
https://www.judiciary.gov.sg/civil/bankruptcy

2. How a creditor initiates bankruptcy proceedings against a debtor: statutory demand
https://www.judiciary.gov.sg/civil/serve-statutory-demand-on-debtor

Next, for OPM with banks, one needs to understand when the recall on loan occurs:
Read through the bank's terms and conditions. Each bank has their own.
Example - OCBC: https://www.ocbc.com/iwov-resources/sg/ocbc/personal/pdf/loans/tncs-governing-mortgage-loans.pdf
Pg 2 to 4.

2.1 We have the right to review the facility from time to time. Following our review, we have the right to:
2.1.1 ask you to repay all or part of the money you owe on the facility;
2.1.2 change the terms and conditions of, or reduce or restructure the facility (including, but not limited to, changing the currency or date of a withdrawal or release of any part of the facility or of any repayment or payment due from you); or
2.1.3 cancel any part of the facility.
We do not have to give you notice or ask for your permission before doing any of the above. Nothing in this agreement or the security document places any obligation on us to provide or continue to provide the facility to you.

3.4.8 There are no legal proceedings, suits or actions of any kind (whether criminal or civil) against you, the guarantor or any related companies.
3.4.9 There is no bankruptcy, judicial management (see 11.1.6) under Section 227A of the Companies Act (Cap. 50) or winding-up (whether voluntary or compulsory) application, proceedings or order made against you,
3.4.11 You have not broken, and will not break, any of the terms of this agreement (see clause 11).

For OPM with stock brokers, basically it boils down to margin changes.
100% margin means no loan. <100% margin = partial loan
When margin limits are INCREASED?
1. Portfolio goes below certain threshold
2. Changes in personal financial declarations
3. Increased market volatility

Example - Interactive Brokers Margin requirements: https://www.interactivebrokers.com.sg/en/trading/margin-requirements.php
IBKR SG client agreement: https://gdcdyn.interactivebrokers.com/Universal/servlet/Registration_v2.formSampleView?formdb=4544

IB may modify margin requirements for any or all clients for any open or new positions at any time, in IB’s sole discretion without prior notice. Client shall monitor his, her or its Account so that at all times the Account contains sufficient Margin Deposit to meet Margin Requirements.
Client shall maintain, without notice or demand by IB, sufficient Margin Deposit in Client’s account at all times to continuously meet Margin Requirements. Formulas for calculating Margin Requirements on the IB website are indicative only and may not reflect actual Margin Requirements, which can change rapidly depending on market conditions.
IB is not obligated to notify Client of any failure to meet Margin Requirements prior to IB exercising its rights under this Agreement. IB generally will not issue margin calls or credit Client's Account to meet intraday or overnight margin deficiencies. IB is authorised (but not required to) to liquidate Account positions in order to satisfy Margin Requirements without prior notice.

 

[stanlawj]

Employ Multilayer Protection when using OPM

Layer 0: personal level protection
For capital > $5M or returns >$300k/year:

• use Pte Ltd Company to take OPM, and
• do not act as personal guarantor for any of the PLC's activities/OPM.

In this way, bankruptcy is limited to just the PLC, and max loss is the equity in the PLC. This is the most effective bankruptcy protection.

The figure $5M capital or $300k/year ROE is based on the fact that personal income tax rate (20%) for that income bracket onwards starts to exceed corporate income tax rate (17%).

For returns <$300k/year,
which is for most normal ppl, everyone has to be personally liable for debt, hence is exposed to bankruptcy and total asset seizure by creditor. The following measures should be taken in sequence:

• Have a fixed salary job as an employee (not self-employed), i.e. IRON RICE BOWL (civil service is the best)
• Buy HDB as home residence (HDB laws protect home from creditors)
• Max out CPF (SA+OA) to ERS (CPF laws protect CPF savings from creditors)

A fixed salary job as an employee is rated more highly by the bank, whereas a self-employed is not. Bank devalues the salary of self-employed and also requires years of income and CPF contribution to prove sustainability.

Hence as long as the required loan repayment are current or margin requirements fulfilled for a fix-salaried employee, then no change in personal financial declaration and the bank loan will never be recalled. Neither will brokers change margin requirements out of the blue if financial status of account holder is unchanged.


Layer 1: Liquidity protection
All OPM comes with cost. Either interest payments, or interest + principal repayments,
or partial control / director / board seat for external investor (out of my scope).

For interest + principal repayments,

• set up a cash buffer for several instalments
• stand by alternate income source (eg ask working spouse to stand by to pay for some of the instalments in event of emergency)

For margin calls in financial markets:

• set up back-up accounts that will not be used for normal trading, with a different broker. The size of backup account should substantial, eg. 50% of main account. Switch to this backup account for trading, as the account under margin-called may be liquidated leading to capital reduced too low.
• If there is negative equity during margin-call, then you’ll need to pay back the debt to the broker. But your back-up account remains operable.

Layer 2: Risk management
Property investors should

• have a due diligence checklist or some kind of monitoring checklist to determine their property value. Most common event that can devalue a property or affect its selling price is the change in zoning laws, especially in the immediate surrounding area. Second is structural problem (building defect).
• monitor interest rate (macro economic indicators) and pre-emptively act to either hedge or recycle property holdings.

Financial market investors should

• employ a max stop loss (eg -8%) and strictly follow it. No averaging down.
• total account stop loss level (eg -20%) which triggers full account liquidation and lockout.

either automated, or mentally act with strict discipline. With leveraged positions, it is possible for entire account to go into deficit (debt), and hence acting on the stop loss is vital to preserve remaining capital.

 

[SBC]

I don't want to encourage residential property investment today. The big gains are already over.

Bought my private 9.5 years ago. Timing is not too bad.

 

[hwmook]

Bought my private 9.5 years ago. Timing is not too bad.

S&P500 went up from 2140 to 5360 in the same time frame, did your property value increase by 150% over the same time frame?

 

[BBCWatcher]

S&P500 went up from 2140 to 5360 in the same time frame, did your property value increase by 150% over the same time frame?

And that's excluding net dividends/dividend reinvestments. Technically it's also U.S. dollar-based, so you have to convert to Singapore dollars for a fair comparison. Let me see if I can do that....

U.S. S&P 500 Index (Excluding Net Dividends, Index Fund Fees, Transaction Costs)
December 10, 2014: 2,026,14(*) =~ S$2,670.21
June 10, 2024: 5,360.79 =~ S$7,247.90 (+171.4%)

SRX Private Non-Landed Home Price Index (Excluding Net Rental Income, Carrying Costs, Transaction Costs)
December, 2014: 170.9
April, 2024 (latest available): 255.7 (+49.6%)

Yes, I think it's safe to assume the dull/boring U.S. S&P 500 stock index fund did better over this interval.

(*) This was the closing value on this date, and it was 9.5 years ago. USD-SGD exchange rates are courtesy OandA.com.

 

[stanlawj]

And that's excluding net dividends/dividend reinvestments. Technically it's also U.S. dollar-based, so you have to convert to Singapore dollars for a fair comparison. Let me see if I can do that....

U.S. S&P 500 Index (Excluding Net Dividends, Index Fund Fees, Transaction Costs)
December 10, 2014: 2,026,14(*) =~ S$2,670.21
June 10, 2024: 5,360.79 =~ S$7,247.90 (+171.4%)

SRX Private Non-Landed Home Price Index (Excluding Net Rental Income, Carrying Costs, Transaction Costs)
December, 2014: 170.9
April, 2024 (latest available): 255.7 (+49.6%)

Yes, I think it's safe to assume the dull/boring U.S. S&P 500 stock index fund did better over this interval.

(*) This was the closing value on this date, and it was 9.5 years ago. USD-SGD exchange rates are courtesy OandA.com.

Most property owners are leveraged, say 75% debt, 25% equity. 4X leverage for this case.
I'm too lazy to calculate the net return after transaction costs, borrowing costs and rents collected (if any).

The main difference is... that property investor has almost zero liquidity for the asset... cannot sell at anytime and buy back. Rents collected mostly consumed for mortgage payments.
The SP500 investor can buy and sell with minimal transaction cost. The property investor has to set aside a much larger liquidity buffer than SP500 investor.

Furthermore, you haven't add leverage to the SP500 investor. The returns will be supercharged.

 

[BBCWatcher]

Most property owners are leveraged, say 75% debt, 25% equity. 4X leverage for this case.

75% is the maximum they can be leveraged (maximum LTV ratio), at the beginning of their mortgages. Median and mean leverage ratios are substantially lower. (The maximum LTV ratio with HDB loans is 80%.)

There was a question in Parliament in 2022 bearing on this subject. According to Tharman Shanmugaratnam the average LTV ratio in 2Q2022 was 44%, and Singapore's peak average was 54% (2011 to 2017).

 

[stanlawj]

Most ppl are using OPM to speculate for capital gains.

 

[DevilPlate]

S&P500 went up from 2140 to 5360 in the same time frame, did your property value increase by 150% over the same time frame?

Y some keep wana comparing apple to orange?
totally different asset class.

Then when i said include leverage better returns and then say leverage is double edged sword etc whahaha

Pls compare within the same asset class lah…..
Maybe VWRA vs CSPX? pros and cons?

 

[DevilPlate]

Most property owners are leveraged, say 75% debt, 25% equity. 4X leverage for this case.
I'm too lazy to calculate the net return after transaction costs, borrowing costs and rents collected (if any).

The main difference is... that property investor has almost zero liquidity for the asset... cannot sell at anytime and buy back. Rents collected mostly consumed for mortgage payments.
The SP500 investor can buy and sell with minimal transaction cost. The property investor has to set aside a much larger liquidity buffer than SP500 investor.

Furthermore, you haven't add leverage to the SP500 investor. The returns will be supercharged.

Some say spy waste time lah.

Nvda FTW whahahaha

 

[DevilPlate]

Maybe a better comparison if die die wana compare is S-reits vs physical property

Last time also got long debate whahaha

 

[stanlawj]

Lots of retail traders are going to get margin-called on Monday.

 

[sohguanh]

Lots of retail traders are going to get margin-called on Monday.

Dunno about US exchange but for SGX it also applies say you use poems. Then on Monday they brokers or SGX will just sell any any price. Why I know is I queue way below last transacted price and upon SGX market open it get filled. I use the poems Time and Sales and see lots get filled at even lower price than mine.

 

[BBCWatcher]

Total margin debt at FINRA member brokers is fairly high at US$809.4 billion (May, 2024), although it's still well below its 2021 peak when it was over US$900 billion. For perspective total U.S. stock market capitalization is above US$54 trillion.

Chances are fairly good Interactive Brokers is exhibiting some weekend oddities in its margin safety calculations. Weekends are when IB does its maintenance, when financial markets are mostly closed. I guess we'll find out more when markets open on Monday morning (U.S. time).