Well, if you ask old fogeys likes us, those with 30 or more years of life experience after school, the answer is crystal.
Especially for those of us that have benefitted from the past asset enhancement exercises and price inflation appreciation of the past decades.
Together now, "Thank you Mr Shorty!"
But to someone just starting out in your 20s, it can be confusing as there are conflicting messages from all over the place...
Have you read the article below from our nation building institution?
More People Couldn't Fully Repay CPF After Selling Property in 2020
Its like looking at a glass of water with ice cubes - we see what we want to see...
If people can't repay CPF together with the accrued interest of "only" 2.5%, do you think their properties have beaten inflation?
Eh?
Like that might as well use cash to pay property loans and let our CPF money earn that sweet sweet 4%?
Wait a minute. Not so fast!
Read carefully. Its for year 2020! (Its driving using the rear view mirror)
In the article, there's this paragraph:
"In the whole of 2020, private home prices gained 2.2 per cent while HDB resale prices rose 5 per cent."
5%... That beats CPF's 4%; now that's a start!
Sorry to private property owners though... (But no one crying for you; count in money you still beat HDB heartlanders hands down)
And next sentence below the above mentioned paragraph:
"Flash estimates for last year (2021) showed that private home prices climbed at a faster pace of 10.6 per cent while HDB resale prices surged by 12.5 per cent.
That's not what the headline suggests right?
What's the take away?
1. Read the actual article! Not just the headlines... LOL! (I know, I know; reading is hard)
2. Market timing is real. (You can call it Luck if you prefer)
3. To find a hedge against inflation, you have to first have an opinion (gasp!) on what's the future inflation rate going forward...
Last Nov 2021's CPI is 3.8%. We'll have a 2% increase in GST this year...
If you believe we'll continue to have relatively low inflation rates between 1-2%, then certain vehicles may make sense.
But if you believe the inflation rate would probably range between 3-4%, then certain vehicles will be out... Wink.
There's a reason why big daddy evaluates GIC and Temasek performance after discounting the global inflation rate.
No worries if you are a koala bear/panda as you buy Singapore local/local properties and stocks only. Just use our domestic CPI figure can oredi!
4. Trust but Verify. Do you own thinking. Decide for yourself. Take responsibility.
Hi Smol
ReplyDeleteI watched this guy YouTube sharing on his second property on Taiwan yesterday night. And you came out with this post today. He shares quite a few good pointers based on his past experiences.
https://youtu.be/-vKi5s5xMik
1) learn how to earn more, also know where to spend more on.
2) Savings in the bank can't beat inflation.
3) if he can't beat the inflation, at least he grows with the inflation.
Small Time Investor,
DeleteWhat an interesting young man!
I've been to 淡水 a few times during my business travels, but I've only been to the old town area. Next time must check-out this newer part of 淡水!
We Singaporeans have been spoilt as our currency is relatively stronger than others in Asia.
Those Asian countries with lots of zeroes on their dollar bills instinctively know from experience you need to "spend" to avoid being robbed by inflation or currency debasement...
Yeeks!
Its nothing new. For those who are followers of the cross, its the Parable of the Talents.
If we just "bury" our money in the ground for fear of losing it, the master won't be pleased.
The servant who can Earn More gets the praise ;)
the answer is crystal?
ReplyDeleteI am not so clear how my 4-rm HDB flat can beat inflation if I continue to live in it till the last day on Earth!
Residential home may not be really inflation-proof. No?
CW,
DeleteLOL!
Your logic is like those living in private properties asking their MPs for financial assistance!?
Help! I have no money! What? I cannot sell! I plan to stay in my bungalow until my last says on Earth!
Or you in the Warren Buffett camp where anything that does not produce a "yield" cannot be considered an asset?
Understandable. You have your 10 baggers stocks, and know how to squeeze blood from stone from your trading rounds 1, 2, 3...
However, when it comes to property, its clear that's NOT your poison of choice ;)
You really Panda specialist; only eats one kind of bamboo, nothing else.
Oh! If you don't want to be in denial, you can do this simple exercise.
Delete1. Take a look online for the recent transaction prices for a similar HDB flat around your area for the past 6 months.
2. Find out how much CPF you've used for your HDB loan.
3. Assuming you sell your HDB today (relax, just role-play only), see if you can repay your CPF withdrawn PLUS the 2,5% accrued interests.
4. If you can easily repay CPF and have money left over, that's an easy tell your HDB flat has beaten inflation - assuming we use 2.5% as the average inflation for the past decades.
If you say where got inflation so low like 2.5%!?
Don't look at me! Ask why are you still keeping money "there"? Wink.
Moral of story, if we buy direct from HDB, I've yet to find anyone losing money.
But if we buy resale without the subsidy from big daddy, then its like stocks, cryptos, or Hello Kitty collectibles - we overpaid, we overpaid :(
Overpaying is definitely not an inflation hedging strategy!
Yes, buying stocks at IPO, or private properties during new launches, is not the same as buying BTO flats from big daddy!!!
Smol,
ReplyDeleteNot surprising quite a few home sellers unable to repay CPF withdrawals plus accrued interest if sold in the past few years before 2021 (not just 2020).
That's cause Singapore's inflation has been like 1.5%-1.7% since GFC till Covid. It's only in 2021 that we're seeing possibly a secular shift in inflation (hopefully the type that is similar to 1980s & 1990s, and not the 1970s).
If your home appreciates by 2% a year over the last 10 years ... hey, that already beats inflation.
But you will still otang CPF accrued interest!
Why do you think in countries with high inflation (think 3rd world countries), people are so motivated to own land & buildings? If you have a domestic helper at home or work-permit workers in your company --- they are all saving up to buy land!
Regarding leasehold property or coffin property or property-that-cannot-be-sold-coz-you-need-to-stay-until-die ...
the inflation protection comes from shielding you against rising rents! Talk to your fav zhichar stall about rentals later this year. ;)
It's only an issue if you spend much more than 20 years' worth of current rentals to buy a own-stay property (HK syndrome).
Luckily most HDB here can still get below 20X annual rental. For BTO, it's usually below 15X annual rental.
Spur,
DeleteThat's why we have cooling measures for property, but none for equities ;)
Big daddy is well aware of the social "consequences" of pricing properties outside the reach of the general populace...
From HUDC to executive condos, its amazing how big daddy also stepped in to help those who don't qualify for HDB flats, yet can't afford private properties yet...
But what's the point of properties if they can't keep pace with inflation?
Remember property boosting measures anyone?
I like you rental example!
That's another thing Singaporeans have taken for granted due to our high homeownership.
Unlike other countries where we pay between 1/4 to 1/3 of our monthly salaries in rent, we've become less sensitive to the effects of inflation.
Nothing motivates a person to the Earn More path like a 10% raise to our rentals!!!
Every time people value property they conveniently ignored Rental Income. And if they stay in it, Rental they have saved. This formed a significant returns or saving.
ReplyDeleteCory,
DeleteThat's another benefit of working overseas!
1. Even if we don't own a 2nd rental/investment property, with an overseas assignment, we suddenly discover we can rent out our Singapore apartment and get a "bonus" income!?
No need to sell for those who planned to stay and die in their same apartment ;)
2. At my new country of working, even if I am not paying the rent myself, I am very conscious of the rent my "ah kong" (company) is paying for me through the annual rental agreements.
The amount our company gave us is FIXED. So if rentals rise, unless we want to top-up from our own pockets, we have to move and downgrade...
But when rentals fall, we move to a better condo!
You take care! Singaporean expat in Taiwan :)