HDB Fully paid up ?

[BBCWatcher]

But you see... REIT has a gearing cap of 40%, individual real estate buyer can loan up to 80%.

No, that’s not correct. The personal LTV cap is 75% on first properties and 50% on investment properties (second and subsequent). So, 50% for these purposes (real estate investing). The 75% can be higher only with an HDB loan, which we can also safely ignore in a discussion about real estate investing since HDB loans are only available to lower income borrowers who would have to exit other property holdings.

REITs can remain at or near their 40% gearing cap indefinitely, continuously, and they do in practice, if they wish. (It depends on management philosophy.) Individual borrowers, no. They peak at 50% then fall from there. The fall is accelerated if/as the property appreciates.

Hypothetically an individual borrower could periodically refinance with bigger quantums each time, but raise your hand if you’re doing that. (Indeed, lots of borrowers accelerate mortgage repayment, which is a bit mystifying.) And the bank typically isn’t going to let you do that as you age, whereas REITs don’t have that problem (finite lifespans).

 

[madtari]

Is my understanding incorrect? All along I thought one can borrow up to 80% (now revised to 75%) as long as you don't have any outstanding mortgage... look at the article published by MAS below.

https://www.mas.gov.sg/news/media-releases/2018/raising-additional-buyers-stamp-duty-rates-and-tightening-loan-to-value-limits

Particularly Para 13

13. In line with the tightening of LTV limits for housing loans, LTV limits for mortgage equity withdrawal loans (MWLs) will be tightened as follows:
a. 75% for a borrower with no outstanding housing loan for the purchase of another residential property; and
b. 45% for a borrower with an outstanding housing loan for the purchase of another residential property.

No, that’s not correct. The personal LTV cap is 75% on first properties and 50% on investment properties (second and subsequent). So, 50% for these purposes (real estate investing). The 75% can be higher only with an HDB loan, which we can also safely ignore in a discussion about real estate investing since HDB loans are only available to lower income borrowers who would have to exit other property holdings.

REITs can remain at or near their 40% gearing cap indefinitely, continuously, and they do in practice, if they wish. (It depends on management philosophy.) Individual borrowers, no. They peak at 50% then fall from there. The fall is accelerated if/as the property appreciates.

Hypothetically an individual borrower could periodically refinance with bigger quantums each time, but raise your hand if you’re doing that. (Indeed, lots of borrowers accelerate mortgage repayment, which is a bit mystifying.) And the bank typically isn’t going to let you do that as you age, whereas REITs don’t have that problem (finite lifespans).

 

[madtari]

BBC, this article by MAS provides even more clarity... LTV is dependent on # of outstanding loan, not # of properties bought with loan. Meaning if I bought 3 properties with loan previously, as long as I clear them, I can still borrow up to 75% for my 4th property. Correct me if I'm wrong.

https://www.mas.gov.sg/regulation/explainers/applying-for-a-new-mwl

 

[BBCWatcher]

OK, agreed, but gearing ratios and LTV ratios are still different, in a way that results in less leverage for the individual property buyer. In the example you gave, yes, the individual borrower can go to 75% LTV on a 4th property...but only if there’s no other mortgage, i.e. the LTV on the other three properties is zero. If the properties have equal values then the maximum gearing ratio would be 18.75% (75/400), and that’s only at the start of the mortgage.

The maximum mathematically obtainable gearing ratio for a direct real estate investor is a little over 50%, and then only at the beginning of the mortgages when LTVs are maxed out (75% LTV on a first home mortgage, 50% LTV on the others). (Raise your hand if you’re actually doing that — four concurrent mortgages all at maximum LTVs, for example. I don’t see many hands raised. ) REITs can hold at or near 40% “forever.” If properties depreciate then those numbers can rise a bit, for some period.

Anyway, quite simply leverage is not a reason to prefer direct investment in individual properties (still typically partitioned shares unless you’re throwing down millions at a time on landed properties, plural). If anything the leverage argument, if it has merit, has more merit for REITs and REIT funds.

I should also point out that you’re not restricted to Singapore REITs. It’s quite easy to invest in other REITs or REIT funds, the next trading day (Monday as I write this) if you want. Those other REITs don’t necessarily have gearing ratio limits, or have different limits. (Industry wide it looks like U.S. REITs, for example, are currently running at about 44% from the data I can find.) In contrast, it’s nearly impossible for an individual real estate investor to obtain a mortgage in a foreign country, or at least it’s quite difficult. REITs make it easy and practical to diversify your real estate investing geographically, an important risk reduction and yield improvement strategy. And still with the REITs’ leverage — you participate in that as a shareholder.

Again, I don’t recommend you overweight real estate in any form. (Exception: One owner-occupied residence is often OK, even if it represents an overweighting in portfolio terms.) I’m just clearing the air here as best I can with how this stuff actually works.

 

[henrylbh]

ABSD will reverse when financial crisis comes and property prices start crumbling.

I doubt very much ABSD would be reversed even when financial crisis comes.

Reverse ABSD to allow more than one property ownership in bad times to whose benefit?

 

[focus1974]

The proof is in the pudding.
You dont need to write a wall of text to make it sound like it's more intelligent.
Trying to bury an insult here and there under a wall of text... that's fine with me.

Go pull out an excel sheet.
Key in your cash invested in a property with 20% downpyament , put in 100% return and then compute the ROIC.

Key in your cashinvested in a reit with 100% cash(no leverage becoz most people don't do leverage on stocks, it's downright risky), put in 100% return in NAV and then compute the ROIC.

It's my own humble experience shaping my investment decision.


fund managers and commentators usually are eloquent and speaks a flowery language on TV. Try following them in your investment.


So my advice to TS if he is not interested in equities or not proven to be good at investing in equities, to never try it and juts go with the proven .. Fully paid HDB and then buy another property for investment.

I'm not sure how many of ordinary folks out there really are making a lot of money in their equities investment, but i'm quite sure a lot of folks does with properties. I'm speaking from experience and probably with tainted lens. For those in money mind, mabe u can also go aorund and see how many of ur friends are invested in equities versus properties and then see how well each set are doing.

But.. u need to think carefully.. those fund managers who speaks so eloquently urging u to put ur trust in their funds.. Most of them failed to perform.

 

[BBCWatcher]

Key in your cash invested in a property with 20% downpyament , put in 100% return and then compute the ROIC.

What you suggest has been illegal in Singapore for over a year, except for HDB loans. The maximum LTV is 75%, and then only if it’s your only mortgage.

So my advice to TS if he is not interested in equities or not proven to be good at investing in equities, to never try it and juts go with the proven .. Fully paid HDB and then buy another property for investment.

We’re talking about real estate here. REITs are real estate. That’s what the “RE” stands for.

 

[focus1974]

What you suggest has been illegal in Singapore for over a year, except for HDB loans. The maximum LTV is 75%, and then only if it’s your only mortgage.


We’re talking about real estate here. REITs are real estate. That’s what the “RE” stands for.

sigh..you know what you are right.
I am in no position to debate you on this.

For there to be the 20%, there needs to be the other 80% doing the same thing.

 

[Mecisteus]

I'm not sure how many of ordinary folks out there really are making a lot of money in their equities investment, but i'm quite sure a lot of folks does with properties. I'm speaking from experience and probably with tainted lens. For those in money mind, mabe u can also go aorund and see how many of ur friends are invested in equities versus properties and then see how well each set are doing.

I know you are successful with your property investments in the past.

But it is weird that you cannot see the similarity of a leveraged single property purchase with a REIT investment. Both are leveraged vehicles.

 

[Mecisteus]

I doubt very much ABSD would be reversed even when financial crisis comes.

Reverse ABSD to allow more than one property ownership in bad times to whose benefit?

If property prices continue to plunge, I don't see why ABSD cannot be reverse to stabilise the market.

 

[Toni90]

No, that’s not correct. The personal LTV cap is 75% on first properties and 50% on investment properties (second and subsequent). So, 50% for these purposes (real estate investing). The 75% can be higher only with an HDB loan, which we can also safely ignore in a discussion about real estate investing since HDB loans are only available to lower income borrowers who would have to exit other property holdings.

REITs can remain at or near their 40% gearing cap indefinitely, continuously, and they do in practice, if they wish. (It depends on management philosophy.) Individual borrowers, no. They peak at 50% then fall from there. The fall is accelerated if/as the property appreciates.

Hypothetically an individual borrower could periodically refinance with bigger quantums each time, but raise your hand if you’re doing that. (Indeed, lots of borrowers accelerate mortgage repayment, which is a bit mystifying.) And the bank typically isn’t going to let you do that as you age, whereas REITs don’t have that problem (finite lifespans).

How about wife and husband each buy 1 condo with 75%? Better than REIT or not?

 

[Mecisteus]

How about wife and husband each buy 1 condo with 75%? Better than REIT or not?

Yes confirm better returns if property prices sky rocket.

Leveraging to the hilt is the best under such a scenario.

 

[BBCWatcher]

How about wife and husband each buy 1 condo with 75%? Better than REIT or not?

Yes confirm better returns if property prices sky rocket.
Leveraging to the hilt is the best under such a scenario.

There are some more “ifs” in addition to that one.

1. The tax drag may be generally less favorable with direct holding.

2. You’re able to invest a greater share of household income into REITs than a mortgage lender and regulators permit when calculating maximum allowable mortgage repayment amount(s). For example, a mortgage lender might allow up to 40% of monthly income as a repayment amount, but there’s no reason why you couldn’t plow 70% into REITs if that’s what you wish to do — there’s no limit enforced there. (Of course you could do both I suppose.)

3. Relatedly, if your salary goes up, or you get a bonus, that can be plowed into REITs if you wish. Would you run to the bank to refinance at 75% leverage every year? No, not likely.

4. There’s no “spool up” time with REITs. A few dollars, and you’re in, if you wish. No 25% (or 50%) down payment needed. If real estate does do well, you’re able to capture more of the “wave” because you start riding it earlier with REITs due to the lower cost of entry. And you can keep entering, monthly, out of income.

5. There’s no risk of missing a mortgage payment with REITs, or of a forced sale. Shouldering two maximum obtainable mortgages (or one), yes, there’s that risk. And REITs allow you to liquidate a dollar (or a few dollars) at a time, not in $1 million or more lumpy chunks. REITs are simply more flexible and attractive in managing cashflow when the household has a crisis, such as a disability or redundancy.

6. Direct real estate investing has high transaction and high carrying costs that are directly borne.

“It depends.”

Again, I’m not recommending you overweight real estate in any form.

 

[Stallone]

I doubt very much ABSD would be reversed even when financial crisis comes.

Reverse ABSD to allow more than one property ownership in bad times to whose benefit?

benefit rich nia

 

[Meemoosaa]

We paid 90% in cash for our HDB + 10% of it using CPF at one go. Both early-mid 30s at that time. #YOLO for a few years as dinkies and now considering a second private property for investment. We love our HDB and will never consider selling, at least not in the near future

But what with the 12% ABSD and all... it's really looking sianzzzzz. It was increased only last year if I'm not wrong ? I just don't see how it would be removed in the near future unless there is a huge financial crisis? But as with every financial crisis, you'll think twice about taking out a mortgage even if the 12% ABSD is removed as your job may be on the line.... Hmm...

 

[Mecisteus]

But what with the 12% ABSD and all... it's really looking sianzzzzz. It was increased only last year if I'm not wrong ? I just don't see how it would be removed in the near future unless there is a huge financial crisis?

We had AFC, dot-com bubble, SARS and GFC in the last 20 years. You will see another 1 soon. Maybe the HK unrest will trigger a regional crisis?

But what with the 12% ABSD and all... it's really looking sianzzzzz. It was increased only last year if I'm not wrong ? I just don't see how it would be removed in the near future unless there is a huge financial crisis? But as with every financial crisis, you'll think twice about taking out a mortgage even if the 12% ABSD is removed as your job may be on the line.... Hmm...

So you prefer to buy another private property when the economy is good and pay for a sky high property price with just 1 bullet of yours?

When a crisis comes, you may not be able to rent out your HDB and you may go out of job.

I rather just save up first and invest in some stocks. Or probably invest small amount in REITs if I still want a real estate exposure.

 

[Meemoosaa]

We had AFC, dot-com bubble, SARS and GFC in the last 20 years. You will see another 1 soon. Maybe the HK unrest will trigger a regional crisis?

Nobody knows for sure and that's the unpredictability of things I guessed ?

So you prefer to buy another private property when the economy is good and pay for a sky high property price with just 1 bullet of yours?

When a crisis comes, you may not be able to rent out your HDB and you may go out of job.

I don't quite understand this. How is renting out my HDB got to do with it ? My HDB is pretty much sorted out and we have no plans to rent/sell it. If and when we decide to invest in a second private property, we would then have to take out a mortgage for it.

Do you mean renting out the second property ? We would want to rent the second private property and not the HDB. We love our spacious HDB and cannot imagine living in anything smaller. Lol.

It's also precisely my point that while everyone is saying the crisis is a good time to buy, one may go out of job while on a mortgage. And yes, there may be problems renting out too but as long as the foreign population is kept high there is always a market for rent. The only question is how much is the landlord willing to accept. One must be prepared to take a hit for low rental periods. It's better than NOT renting it out at all.

I rather just save up first and invest in some stocks. Or probably invest small amount in REITs if I still want a real estate exposure.

I dabble a little in stocks for fun but I would never have the guts to go big in the stock market. That's just me lah.

 

[Mecisteus]

Nobody knows for sure and that's the unpredictability of things I guessed ?

I don't know when either. I am saying you are likely get to see 1 again.

It's also precisely my point that while everyone is saying the crisis is a good time to buy, one may go out of job while on a mortgage. And yes, there may be problems renting out too but as long as the foreign population is kept high there is always a market for rent. The only question is how much is the landlord willing to accept. One must be prepared to take a hit for low rental periods. It's better than NOT renting it out at all.

It takes a lot of courage to buy an asset when there is extreme fear. 1 way to mitigate this fear is to buy in batches.

The problem is you cannot implement it on a property purchase unless you are a property tycoon with deep pockets.

It is easier to implement DCA with stocks instead.

I dabble a little in stocks for fun but I would never have the guts to go big in the stock market. That's just me lah.

It is quite funny isn't it.

You have the guts to put 1 or 2M into a single property in a single country like Singapore but you don't have the guts to diversify 1 or 2M into 50 global stocks and ETFs in various banks and brokers?

 

[BBCWatcher]

You have the guts to put 1 or 2M into a single property in a single country like Singapore but you don't have the guts to diversify 1 or 2M into 50 global stocks and ETFs in various banks and brokers?

And direct real estate with personally liable debt, with lender recourse.

Since you put it that way....

 

[Meemoosaa]

It is quite funny isn't it.

You have the guts to put 1 or 2M into a single property in a single country like Singapore but you don't have the guts to diversify 1 or 2M into 50 global stocks and ETFs in various banks and brokers?

I know I know !

I guessed because buying a property is a much more tangible asset ? And even in a downturn, you can still hold onto something tangible and await it to rebound ? And I see Singapore as a familiar and politically stable place for holding physical assets. The lack of expertise knowledge in the stock market puts us off in dabbling stock in a big time.