Economic Outlook-2012 and 2013

It seems that many financial gurus and analysts are predicting gloom and doom for 2012 and 2013. There are also talks of the next upcoming global financial crisis leading to the outbreak of World War 3. Renowned Financial Guru, Dennis Ng, even predicted the demise of the Eurozone in 2012. The self made multi millionaire also quoted another analyst on the running of the "biggest Ponzi scam" through the printing of US dollars to finance the largest economy in the world. So, if Mr Dennis Ng is raising his cash position, should everyone of us also start selling our assets to raise cash and prepare to re-enter the market once crisis struck and then snap up cheap and good assets?

My view is that no one can accurately analyse and predict the market. Economic outlook is all about market sentiment. It would be foolish to have everything in cash and missed out on market rally as evident from the past few months. Based on my past experience, I found that it is virtually impossible to time the market and determine exactly when to buy and sell albeit lots of experts claiming they can do it.

An investor must always be prepared to suffer a 50% to 60% plunge in the market value of his investments. Mr Market is forever irrational. What matters most is to have the holding power and the guts to snap up good value assets like stocks or properties in times of financial crisis in order to exploit Mr Market when he is in one of his irrational mood swing.

The dividend yield investment strategy thus offers investors the chance to gradually realise the gains made annually through the payment of dividends instead of seeing all the capital gains made disappear during times of stock market downturn.

Returns as of 23 March 2012-Year to Date

Cache Logistics, Sabana REITs and K Green continue to pay good dividends. In addition, looking forward to the dividends from Macquire Infrastructure, Starhub and CapitaRChina.

Global economy continues to be gloomy with investors worries over the health of the China economy.

Returns as per below:

Portfolio-23 March 2012

Allocation of S$187K of assets as of 23 March 2012. The market rally this month resulted in a significant improvement in market valuation and returns on investments. Starhub went past the $3 mark.

CapitaRetail China Trust-Additional Investments

Have decided to give Mapletree REITs a miss and invest into CapitaRetail China Trust. Just been back from China recently and I have been awed by the rapid development there. There is no doubt that China is getting more powerful and many of its people are moving up in terms of earning power.

CapitaRetail China Trust (CRCT) is the first and only People's Republic of China shopping mall real estate investment trust (REIT) in Singapore with a portfolio of nine income-producing shopping malls. It is established with the objective of investing on a long term basis in a diversified portfolio of income-producing real estate used primarily for retail purposes and located primarily in China, Hong Kong and Macau.

In particularly, I like the fact that CRCT focuses on retail business which offers resilience in earnings from the tenancy agreements signed. This will enable the business to do well even during times of economic crisis. A significant portion of the properties' tenancies consists of major international and domestic retailers such as Wal-Mart, Carrefour and the Beijing Hualian Group (BHG) under master leases or long-term leases.

Growing with the Chinese Consumer is indeed a good theme for CRCT annual report.

H2O Residences Review (North East District)

Review of H2O Residences

H2O Residences is an upcoming new condo launch by City Developments Ltd (CDL) located at Sengkang West Avenue / Fernvale Link and directly next to Layar LRT Station connecting to Sengkang MRT station and bus interchange.

Awarded the Active, Beautiful & Clean Waters (ABC Waters) certification by PUB.

Details of this CDL project:

Project Name : H2O Residences

 Developer : Impac Holdings Pte Ltd (Subsidary of City Development Limited (CDL))
Address : Sengkang West Avenue / Fernvale Link
Tenure : 99 years leasehold w.e.f 10 May 2010
Site Area : Approx 16,998.8 sq m / 182,795 sq ft
District : 28 (Seletar, Yio Chu Kang)
Type of Development : Proposed erection of condominium comprising of 5 blocks residential flats (total 521) with 2 basement carparks, swimming pool and communal facilities on lots 4340A MK 20 at Sengkang West Avene
No of Units : 521 + 1 retail unit
Car Park Lots : 540
Facilities : Full Condo Facilities
Expected TOP : Dec 2015
Legal TOP : Dec 2018

Good Points:
(1) Just next to Layar LRT Station. As compared to Riversound Residences, one has to walk5-10mins to reach the LRT. Also, a sheltered linkway will connect from Layar LRT to H20 Residences. This means residents will not get wet even when it rains cats and dogs.

(2) Not sure why but people keep complaining about the location being remote. This is not true especially for those very familiar with the North East District. Access to the SLE, CTE, TPE and KPE are good. HDB has actually planned for new roads in the precinct.

(3) Amenities such as NTUC Fairprice and Foodcourt are within walking distance-the temporary commercial hub known as Fernvale Point. I estimated less than 500m. (No point to actually travel another LRT station down). Also near to Jalan Kayu! Besides Roti Prata, there are various nice eateries and even a shop famed for selling durian and choclate cakes there. Selegie beacurd too.....

(4) Singapore Press Holdings just won the land tender to the plot besides Fernvale Point for development of a shopping mall. It is just a 5mins walk from H20 Residences. Once the new mall is completed, it will increase the value of all properties in the vicinity.

(5) There is definitely rental potential-AMK Industrial Parks and the Seletar Aerospace Park.

(6) Quite like the floor storage patented by CDL in one of the room. This was the only part that impressed my wife who went along to view the showflat. Not sure why some people think this is a silly idea. Extra storage space is practical and efficient.

(7) 540 underground parking lots relative to 521 units. Adequate parking which reduces potential conflicts.Out of the 540 lots, 2 will be catered for electric cars.

(8) Superb landscaping and facilities on offer by CDL! The whistling pavilions and nature terrace concepts are awesome. Another interesting point is that all the facilities and stacks actually started on the "2nd level". Also, from the end of the secondary club house and lap pool, one is able to overlook the park connector and Punggol reservoir.....very well though out by the development team.

Not so good points
(i)It is not next to the main MRT. Residents have to take the LRT to Sengkang MRT. A bit troublesome as you have to dismount and then move on to another platform for the LRT. But the price already factored it in relative to say the Luxurie near Compass Point which is going above S$1000psf.

(ii) The bedrooms (including Master bedroom) are small....seems typical these days but still bigger relative to say Luxurie or Barley Residences. In the showflat, there are lots of mirrors, missing walls and even enlarged doorframe to make the unit seems bigger. The 3 bedroom at 1130sqft is decent size relative to 1055-76sqft type which newer projects are marketing. 

(iii) The interior finishing given smacks of squeezing as much margins out of home buyers as possible by CDL. Tiles pretending to be marble/stone lookalike given by CDL. Built in Wardrobe for the 2 common rooms are not sliding nature albeit the tiny room size (however, the Masterbedroom Wardrobe given are sliding and cleverly design).

Overall, I think it is quite good value these days (with other developments going above 1000psf). Rare to have a development so close to Sengkang Riverside Park but at the same time, close to amenities like shopping mall and just next to a LRT station.  

K-Green- Valuation

There are different methodologies out there for valuation. A simple one is probably using the standard dividend model. For K Green, there is another even easier way to do the estimation: Using a simple net asset on hand divided by total units. Allow me to explain further.

The business in K Green is actually very straight forward...it is a business trust that at the moment, focuses on "green infrastructure assets" in Singapore, namely, the (i) Senoko waste to energy plant, (ii) Ulu Pandan NEWater Plant and (iii) Tuas waste to energy plant. K Green also has the right of first refusal from Keppel and the management is also actively looking for opportunities aboard albeit no announcement of M&A of any sort yet. It is also no secret that Keppel probably spin it off into a Trust those projects that are of lower yield....but we should not discuss it further in this post....focus will be on the 3 main projects it is running for government.

Oh ya, talking about government makes things very interesting indeed, it's major and only customer is actually the Singapore government. The default risk is minimal unless somehow, Singapore collapses or K Green team unable to deliver proper maintenance or operation support which leads to a fundamental breach of contract. Unless that happens, it is safe to assume that the money made from government will keep recurring. Do note that based on the current business, the trust is actually self liquidating. The higher paid out in the form of dividends which is significantly more than the earnings thus cause the net asset to decline gradually over time.

 Next, with regards to the balance sheet of K Green, the net assets is really a good proxy to it's fair value. For example, cash, trade receivables, trade payables, provisions will approximate their fair value for obvious reasons. Only tricky part will be the service concession receivables and plant and equipment (we can ignore the Plant and equipment as it is immaterial). Based on IFRIC 12 accounting for service concessionary agreement, the total receivables from the 3 projects would have been factored and discounted to the present value during 2010. Hence I put it across boldly that what you see is what you will get from the published K Green financial.

Attached below an illustration how I worked out (that was last year hence I only have the half year June 2011). Yields based on it's earnings effectively around 2.71%. But if base on the net assets acquired at that point, it is a 17% discount to my perceived intrinsic value of K Green hence I went ahead to buy at 0.935 and was confident that I have found a very good deal. 

 










Did I also forget to mention that K Green currently does not has any loans outstanding and if it were to take on new projects and leverage up on the low interest rate environment, the yield to shareholders will actually increase.


Have found that the market price can be extremely volatile. It's first day listing price in June 2010 was S$1.05. From there, it had been a downward spiral until the recent market rally in Jan 2012.  I would say just ignore the background noise and let the market go on it's daily up and down see saw. If you have put $10K with K Green instead of leaving it in the bank in savings or fixed deposits (@1.87% interest), you would be rewarded and definitely better off with the total returns accumulated throughout the remaining income generating lifespan of the 3 projects.. Along the way, we can also wait for potential growth in acquisition of new infrastructure assets from leveraging on bank loans. Hence, holding on to K Green definitely has lots of good upside at the moment. May not be as exciting as holding on to blue chip stocks but the returns are decent.

P.S: The largest shareholder in K Green is still Temasek Holding at 49% of the issued units.

K-Green

The recent Sunday Times investment section list down K Green as a dividend stock producing yield of over 9% which is extremely impressive. However, the journalist failed to point out that there is a big difference between a trust and a REIT. Under the Singapore Companies Act, all companies can only pay out dividends from earnings (accounting profits). This is not true for business registered as a Trust. For such business, they are able to pay out dividends based on free cashflow. The fair value of K Green will thus decline overtime based on it's current business model.

Many investors seems confused by the accounting for concessionary service agreements and how to compute a fair value to K Green. Will try to analyse how we should work out the fair value in future posts.

Riversound Residences Review (Suburban-North East)

 Went down with wife to take a look again. It was definitely crowded. Just that not sure whether many are buying or just shopping around. But seems more people compare to the preview time. Market recovering fast from the latest round of cooling measures.

Details of this project
Developer: Qingjian Realty (Sengkang) Pte Ltd
Property Address: Buangkok Drive / Sengkang East Drive
Legal Description: Lot 2453K MK21 at Sengkang East Avenue
Site Area:19,549.20 sqm / Approx. 210,427.59 sqft
Type of Development: Full condominium facilities
No. of Blocks / Storey / units 6 blocks / 18-storeys / 590 units
No. of Car park lots 592 carpark lots + 6 handicap lots
Lifts 2 per block (Ratio – 1:3)
Tenure 99 years commencing from 26 August 2011
Expected T.O.P date 31 December 2015
Expected Legal Completion Date 31 Dec 2018

Good Points: 

• Sky Terraces unique and first for Sengkang and Hougang precinct.   
• Very impressive water features all around the estate. Also got SPA pools and Cocoon pavilion
• Marble finishing for masterbathroom flooring and wall (with option to choose homogeneous tile)
• Efficient layout. Spacious bedrooms size even for the compact 3 bedroom. at 1066sqft. 
• 4 bedder also do away with the typical junior master bathroom.....kinda of like this concept as personally think this leads to wastage of space, 2 bathrooms and 1 water closet should be more than enough for a family. 
• Got rain shower for Masterbath.
• Kitchen Electrolux fittings. 

Not so good Points:

• This development is not near to LRT or MRT. The nearest LRT is at Kangkar which one needs to cross a road and then walk...think 5mins-8mins....just not convenient at all without a car. 

•  Not much amenities nearby. Eating places coming up with the new HDB BTO coming up...but one still have to walk. 

• This is just next to Austville EC. I would put across boldly that both Riversound and Austville EC caters to the same customer segment (mostly Singaporeans and PR in the vicinity). It maybe hard to resell this with the EC as competitor in terms of pricing albeit facilities and landscaping better for Riversound, would any future resales buyers consider Riversound over Austville by paying over S$100k to S$200K higher in premiums? 

•  Also, just across the road, a new project is launching....by Allgreen properties. Allgreen managed to get that plot at a low S$290ppr....maybe worthwhile to wait a while before committing.
• Another bad point which was never brought up at all was that not all cars can fit into the 2 basement carparks. There will be cars parked on the surface. In addition, only 6 additional carpark lots given. 596 lots for 590 units. 

Overall, prices after discounts seems higher than the average 850psf quoted on many websites. Compared to Boathouse and H2O residences, this is relatively cheaper. Further discount can be further bargained for serious buyer. Also can try work out a deal for those who have already purchased and share the referral fee which hovers around 1%. Split it means 0.5% share for prospective buyer and existing owner.

Properties- To wait or to buy now?

For those poor souls who are unable to buy HDB or Executive Condominiums, and being forced to buy private apartments in D19, I would say Riversound, Parc Vera and Minton offers good value for money (in view of the current market environment) as one can get a unit for S$800+ psf.

Being near MRT or major amenities is not everything.  If a project is not near MRT, then the developer must work to set a lower pricing for their projects relative to one that is near MRT and many amenities in order to move units. Also, why pay $1000psf for say Luxurie at Seng Kang town centre when you can get a unit at S$850psf. For a 1000sqft unit which work out to be S$150K of differences. The savings become even more incredible for bigger units such as a 4 bedder.

Property prices have actually come down in terms of furniture vouchers and stamp duties reimbursement by developers to customers for certain projects. Only question is whether it is a good time to buy now or to wait for property prices come down?

Despite the competitive landscape, many developers seems to setting out of the world prices (psf) by reducing sizes of new launched units to make the absolute quantum affordable for consumers. The greed of men knows no bounds. This is akin to making a bet on the future economic condition.

Mapletree Logistics Trust and Mapletree Industrial

Currently thinking of investing into the Mapletree Reits. Both Reits have seen their annual distribution returns increased since their IPO and has been doing extremely well. Current yields are 7.388% and 7.546% (see SGX REIT Data website) respectively. However, their leverage are equally high at 41.40% and 39.10% respectively. Good thing about Mapletree is the public view them as strong sponsor hence their tenants are usually of more renowned and of better quality. This is evident in their market pricing which far outpaced their net asset value unlike say AIMSAMPI Reit or Sabana Reit.

My struggle with insurance policies

My first insurance policy was actually an accident policy purchased during National Service with an agent (known as Mr A-see my previous post) from NTUC Income. Interesting thing about this accident policy was that it has a savings element to it which if you think hard, does not make any sense at all. Insurance is protection. Savings is just pure savings. The two does not mix together. 8 years later, I terminated this policy which requires monthly premium of S$32.50 as it just make me look extremely silly.

Another insurance policy that Mr A advocated was to buy life coverage for death and permanent disabilities. He made lots of commission from me selling me coverage for S$100K. Even more ridiculous was pushing me to sign up another S$50K a year later. For death and permanent coverage, one does not need it forever. You only need it while accumulating wealth and to cover for any unforeseen events to ensure your loved ones can survive financially. As such at most 25-30 years term policy should suffice. Beware of insurance agents or financial advisors who try to sell a life coverage. The commission from life insurance sales is a lot more than term insurance and there goes their independence. If possible, try to get insurance planning from financial advisory firms that charges fixed fees. (Note: When I realised I was being misled by Mr A, I terminated the life coverages and incurred S$1.5K of losses...just no point to continue when the money saved from buying term policy can generate a far better return to the savings components of life plans.)

The only life policy that I ever purchased was for critical illness. Currently, I am holding  on to 3 critical illness policy from (i) NTUC Income; (ii) Aviva and (iii) TM Asialife. I like the NTUC Income Living Policy series as it does generate good cash value with the double bonus given out on every 5th anniversary of the Cooperative. However, this is a traditional whole life policy that one is required to pay until age 85 years old. In year 2006,I wrote in to the then CEO, Tan Kin Lian on my suggestion for a limited payment plan which other insurance companies are offering but was told "there were reasons" why they only have traditional wholelife payment plans but will look into it.

 I loved Aviva and TM Asialife as these companies offer limited payment critical illness coverage. I just can't envision myself paying for insurance when I am already retired. Since then, NTUC Income has came out with it's own version of limited wholelife plans to remain competitive. TM Asialife is the only insurance company in Singapore that has this awesome record of never ever cutting their yearly bonus.

Disability income is another crucial piece of protection that everyone should have in his or her arsenal. This type of unique insurance offers you protection against short and long-term disability caused either by accidents or illnesses by providing you with a replacement income that continues to support you and your loved ones during disability. The flexible coverage is guaranteed renewable and continues until your chosen age of retirement (55, 60, or 65 years). In the Singapore market, seems that only 2 insurance companies dare to offer this coverage, namely, Aviva (IdealIncome) and Great Eastern (Pay Secure). Manualife also offers something similar in lump sum payout in the event one is not being able to work but there is a distinct tightening in definition of the events that triggers the different tranches of payout....so be careful when shopping around for such coverage.

Last but not least, hospitalisation and surgical plans for healthcare. If possible, everyone should opt for the best graded plan that covers private hospitalization. In the event that one is sick, one should be looking for the best medical treatment available and not worry about whether such treatment covered under the current plans.

Be smart and don't get con

I recall my first investment was through a insurance agent (Let's call him Mr A) from NTUC Income (Insurance Co-operative). It was called the Ideal Policy. It is sold to me as an investment link product with a substantial amount of monthly premiums going in a balanced fund. Problem is 15% of the first 3 years of premiums goes into payment for commissions and other overheads.Thereafter 100% of premiums paid gets invested fully into a diversified fund.  At that time, Mr A marketed himself as an investment guru and he claimed that he has helped his other clients double their initial investment outlay through skillful top up of funds at the right time. Mr A seems to possess the amazing ability to enter and exit the market!

The fact that even before investing, one would have lost 15% per annum does not seemed too bad at my young age then. I have always thought that no pay no gain....and indeed, I paid hard to learn a great lesson! I never made any money from the NTUC Income investment linked products. The promised top-up by Mr A at the right opportunity never materialized throughout the many years I stayed loyal to him.... I got squeezed dry.