Most over-stretched borrowers affluent, unlikely to default: MAS

[chestnut]

I catch no ball...

Assume this person start work at 24. Means working for 18 years...

Assume household income constant @ 60k... Technically it increases with age.

Assume save 30k per year. 1/2 salary.

Over 18 years @ 30k/year savings = 540k.

How to near fully pay hdb, pay down payment of 2 rm pc and down payment 200 over k for 3 room pc (1st 20%) and 325k holdings....

Some possibilities

1. Inheritance
2. Toto/big sweep
3. Investments which blew up the figure


So back to the situation :

I only see danger when the next 20% is called.... Which will deplete the cash holding to about 125k.

But you will also get positive cash flow from your 2rm pc.

Care to share is this the 5-10% people over-leverage:-


Couple age oldest at 42years old, one kid

Owns HDB 4A w outstanding loan ($28k - will fully paid 2H2016)

Owns a PC 2-bedder w outstanding loan ($450k) max out till age 70; at monthly mortgage of $1400 at current, fully rented at $2600

Owns another $1.12mil PC 3-bedder under 40/60 LTV of loan (~$680k under CM6) - TOP 2H2016; paid up 1st 20%, next 20% in 3years

Household income $60k per annum - no CPF/bonus as self-employed

Savings/Investment:- $25k (savings)/ $300k in REITS return of ~7-8%

No car.


Any honest comments?

[Violinbite]

I catch no ball...

Assume this person start work at 24. Means working for 18 years...

Assume household income constant @ 60k... Technically it increases with age.

Assume save 30k per year. 1/2 salary.

Over 18 years @ 30k/year savings = 540k.

How to near fully pay hdb, pay down payment of 2 rm pc and down payment 200 over k for 3 room pc (1st 20%) and 325k holdings....

Some possibilities

1. Inheritance
2. Toto/big sweep
3. Investments which blew up the figure


So back to the situation :

I only see danger when the next 20% is called.... Which will deplete the cash holding to about 125k.

But you will also get positive cash flow from your 2rm pc.

Its still very possible. Back then 13-15years ago, HDB 4A is only $250-270k, with a grant of $50k. Very much also use CPF monies when they still under employment for a short season. They did seasonally down pay bit by bit.
Prior to buying 2-bedder PC, they got a boost from investment success in 2008 crisis that fetch them over $200k. Not to mention their very frugal lifestyle which they afford to save 2/3 income.
They did not downpay the 2-bed PC as bought in 2010 at around $650k.
Only at current, bought the 3-bedder PC under construction. Attempting to use the construction period to build up on savings, though no issue to pay up the 40% at one go. But you mention is correct, savings will be down substantially. On the positive side, no mortgage loan called in by bank until very close to TOP 2016, even then only up to 85% (or 45%LTV amount) of property value with a year of warranty from developer.

[chestnut]

Bro, this couple is
1. A risk taker. To be able to successful make so much money during crisis. See peh ho... This person got keen investment skill.

2. If I am not mistaken, during 2010, down payment was min 20% down. I may be wrong. Too lazy to check.

3. I don't understand wat risk? If hdb is almost fully paid. 2rm pc already up at least 35% or more(conservative side). Rental cover mortgage leh even if interest go up. 3rm PC will down 40%, mortgage will cover rental easily.

4. Only risk is if the black swan happens and the couple over leverage on financial instruments and kanna damn siong or if lose job.

No risk, no gain.... High risk, high gain or high loss..

All depends on risk appetite...

To me, the couple is solid. The question is, does the couple still want to take some more risk- that's all... If they minimize risk and contented now, I really don't see risk...

That's just a person's view... No right or wrong..

The verdict will only be out at a later stage. But I do take my hats off to the couple for 'making it'. They are a rare breed and very commendable. They truly deserve their success.

[phantom_opera]

Saving 2/3 of family income from 60kpa?? That means 20k / 12 = 1,666 per month!! hard to do even without kid/car, totally unbelievable as the couple has one kid

even during the good years in the much higher tax bracket, I can barely save 1/3

the family must be eating grass every day

[Sandiwara]

Seems like u are the only one who is confused...those with lots of loans are deems to be over stretched. Why?

Take a million loan for 1% and then use their existing 1 mil cash for other vehicle that can yield 4% for eg....like that of course better right? Better management of opportunity cost! So, u still confuse?? Hahaha....sorry...just my opinion.

One more example is by taking loan 6xxK from bank and Have money on CPF 17xK. The interest of 17xK from CPF is equal with the interest 6xxK from the bank.

[Sandiwara]

Saving 2/3 of family income from 60kpa?? That means 20k / 12 = 1,666 per month!! hard to do even without kid/car, totally unbelievable as the couple has one kid

even during the good years in the much higher tax bracket, I can barely save 1/3

the family must be eating grass every day

My imagination (don't take it seriously) is some officer see the data on the computer screen (the background information not so complete) and post the data here to get some feedback from experience member here. The way I look it the data that being post here is not telling the whole story.

[chestnut]

Maybe vegetarian family

Saving 2/3 of family income from 60kpa?? That means 20k / 12 = 1,666 per month!! hard to do even without kid/car, totally unbelievable as the couple has one kid

even during the good years in the much higher tax bracket, I can barely save 1/3

the family must be eating grass every day

[lionhill]

Daughter just told me two days ago that her friend's family owns two PCs for rental, yet the whole family are staying in a 3rm HDB.

There are many prudent people believing in property investment. They are using their are own way to accumulate the assets.

[3C]

Daughter just told me two days ago that her friend's family owns two PCs for rental, yet the whole family are staying in a 3rm HDB.

There are many prudent people believing in property investment. They are using their are own way to accumulate the assets.

Wise move if comfortable for 3 in the family and no drastic comprising of lifestyle. You can renovate your 3 rm like a palace and drive BM.

[Violinbite]

Bro, this couple is
1. A risk taker. To be able to successful make so much money during crisis. See peh ho... This person got keen investment skill.

2. If I am not mistaken, during 2010, down payment was min 20% down. I may be wrong. Too lazy to check.

3. I don't understand wat risk? If hdb is almost fully paid. 2rm pc already up at least 35% or more(conservative side). Rental cover mortgage leh even if interest go up. 3rm PC will down 40%, mortgage will cover rental easily.

4. Only risk is if the black swan happens and the couple over leverage on financial instruments and kanna damn siong or if lose job.

No risk, no gain.... High risk, high gain or high loss..

All depends on risk appetite...

To me, the couple is solid. The question is, does the couple still want to take some more risk- that's all... If they minimize risk and contented now, I really don't see risk...

That's just a person's view... No right or wrong..

The verdict will only be out at a later stage. But I do take my hats off to the couple for 'making it'. They are a rare breed and very commendable. They truly deserve their success.

Indeed. You got the point. Contented for now, not going further on taking unnecessary risk as planned. They understood their unusual achievement and not wasting it.

[Violinbite]

Saving 2/3 of family income from 60kpa?? That means 20k / 12 = 1,666 per month!! hard to do even without kid/car, totally unbelievable as the couple has one kid

even during the good years in the much higher tax bracket, I can barely save 1/3

the family must be eating grass every day

It's hard to believe but it's true. At least the general figures are correct. Outwardly, they look like ordinary HDB auntie/uncle wearing past down home clothes. Do walk around neighborhood NTUC/wet market.. Send kid to PAP childcare like other folks. Sunday church goers; don't own expensive Rolex or LV bags; uses pasar malam items sometime; no hobby and kind of boring. A little basic insurance. - During 2008 crisis, they sold a lot of collectibles and plus entire savings, invested. Outcome was almost unbelievable - the staggering $200k profit.
Currently their goal is to pay off their 2-bedder PC as the guy understood volatility of market, and understood they can't paid off all mortgages for now. Targeting to use rentals to cover mortgages and frugal expenses, save up working income for the better.

[leesg123]

It's hard to believe but it's true. At least the general figures are correct. Outwardly, they look like ordinary HDB auntie/uncle wearing past down home clothes. Do walk around neighborhood NTUC/wet market.. Send kid to PAP childcare like other folks. Sunday church goers; don't own expensive Rolex or LV bags; uses pasar malam items sometime; no hobby and kind of boring. A little basic insurance. - During 2008 crisis, they sold a lot of collectibles and plus entire savings, invested. Outcome was almost unbelievable - the staggering $200k profit.
Currently their goal is to pay off their 2-bedder PC as the guy understood volatility of market, and understood they can't paid off all mortgages for now. Targeting to use rentals to cover mortgages and frugal expenses, save up working income for the better.

of course they are vulnerable. if no rental, are they able to service their two pc at interest rate of 5% using their working income? if lose job how long are they able to hold their fort?

[phantom_opera]

another yowetan, singkies boleh

the road to real estate nirvana with family income of 60k

[ecimbew]

Wise move if comfortable for 3 in the family and no drastic comprising of lifestyle. You can renovate your 3 rm like a palace and drive BM.

That's what my colleague did. She sold her landed, rented HDB flat, then when she finally could buy HDB, bought a 3rm HDB flat in the north. Then she bought a BMW X5. Now semi-retired and plays golf every weekend.

[Violinbite]

another yowetan, singkies boleh

the road to real estate nirvana with family income of 60k

Who is yowetan? Saw him posting also..

[Violinbite]

of course they are vulnerable. if no rental, are they able to service their two pc at interest rate of 5% using their working income? if lose job how long are they able to hold their fort?

Didn't intend to hold three properties initially. Thankfully the PCs are super near MRTs and amenities. Rental probably not too much an issue for the meantime. Backup plan, sell HDB or 2-bedder PC having closely monitoring I supposed. They still have a few thousands dollar of REIT dividend every quarterly aside their working income, perhaps all the calculation.

[k00L]

I think we should differentiate default risk and liquidity risk

Default risk is when one cannot pay loan installments, and bank size your pledged property to sell but still cannot recover back loan, and hence declare bankrupt

Liquidity risk is when one cannot pay loan due to cashflow problem but has enough assets to cash out to pay. Sometimes the assets are illiquid but can sell at distressed prices to generate cashflow to pay loan.

A lot of people will run into liquidity risk but not default risk when market crash.
So MAS is correct to say no default risk but not telling the whole story

[irisng]

Only rich people dare to over stretched their loan. Most middle class people like to play safe. Rich people hate to see money sitting in the bank being unproductive. Middle class people love to see money in the bank as a source of security and comfort.

Thumb up

[indomie]

I think we should differentiate default risk and liquidity risk

Default risk is when one cannot pay loan installments, and bank size your pledged property to sell but still cannot recover back loan, and hence declare bankrupt

Liquidity risk is when one cannot pay loan due to cashflow problem but has enough assets to cash out to pay. Sometimes the assets are illiquid but can sell at distressed prices to generate cashflow to pay loan.

A lot of people will run into liquidity risk but not default risk when market crash.
So MAS is correct to say no default risk but not telling the whole story

If you still own a HDB, you can eliminate default risk to a minimum. HDB is a basic bread and butter housing. Even in a crash HDB will hold its value. Its like blue chip shares, defensive in nature.

[Adva181]

Care to share is this the 5-10% people over-leverage:-


Couple age oldest at 42years old, one kid

Owns HDB 4A w outstanding loan ($28k - will fully paid 2H2016)

Owns a PC 2-bedder w outstanding loan ($450k) max out till age 70; at monthly mortgage of $1400 at current, fully rented at $2600

Owns another $1.12mil PC 3-bedder under 40/60 LTV of loan (~$680k under CM6) - TOP 2H2016; paid up 1st 20%, next 20% in 3years

Household income $60k per annum - no CPF/bonus as self-employed

Savings/Investment:- $25k (savings)/ $300k in REITS return of ~7-8%

No car.


Any honest comments?

Wow, only $60k pa but own 3 properties and 300k in REITS.
I think I am serverely under leveraged.

[Allthepies]

If you still own a HDB, you can eliminate default risk to a minimum. HDB is a basic bread and butter housing. Even in a crash HDB will hold its value. Its like blue chip shares, defensive in nature.

I beg to differ on your point abt blue chip share prices are defensive during crash...

During crash=STI crash=blue chip crash because STI components are all the blue chips ===> STI is Blue Chip...

So blue chip is not defensive during market crash, in fact they should fall the most... However u r right in the sense that there is little chance that blue chip companies will fold during market crash...

[indomie]

I beg to differ on your point abt blue chip share prices are defensive during crash...

During crash=STI crash=blue chip crash because STI components are all the blue chips ===> STI is Blue Chip...

So blue chip is not defensive during market crash, in fact they should fall the most... However u r right in the sense that there is little chance that blue chip companies will fold during market crash...

I love dissenting opinion. In a market crash non-blue chips usually fall further than the blue chips. Because blue chip companies are better capitalised and more transparant.

[3C]

Looks like Steady Steady Pun Pi Pi.

But green horns better be careful don't follow blindly

For all you don't know these people could have a mountain behind them like rich sibling which can come to the rescue anytime. That's the reason they dare to take risk. These they will never reveal to you- face issue.

[chestnut]

I love dissenting opinion. In a market crash non-blue chips usually fall further than the blue chips. Because blue chip companies are better capitalised and more transparant.

Bro, u are rite...

Look at Osim.... Hahahahaha

[k00L]

If you still own a HDB, you can eliminate default risk to a minimum. HDB is a basic bread and butter housing. Even in a crash HDB will hold its value. Its like blue chip shares, defensive in nature.

Minimum default risk and also low liquidity risk too - HDB is usually quite lenient if one miss out a few payments, and still can also ask MP for tolong tolong.

Having said that, I think HDB is quite unlikely to crash - despite the record high price, HDB still gives the best yields (5-6%) among all physical property assets. That is, as long as government continue to allow HDB rental.

[leesg123]

I love dissenting opinion. In a market crash non-blue chips usually fall further than the blue chips. Because blue chip companies are better capitalised and more transparant.

True for stock market, but different for property. Thanks to HDB, it is the base line for the pte property. In crash, Pte Property will still be more expensive than HDB (assuming apple to apple comparison). Just like in a crash, Gold price is always > Silver price.

So yeah, I love HDB, HDB is pte property owner's safety net too!

[mcmlxxvi]

Wow, only $60k pa but own 3 properties and 300k in REITS.
I think I am serverely under leveraged.

Maybe ts forgot to add seed money 500k from parents

[Violinbite]

Maybe ts forgot to add seed money 500k from parents

Why is it not possible for anyone make it big financially from scratch? I thought many authors on financial books and entrepreneurs did succeed from scratch?

[mcmlxxvi]

Why is it not possible for anyone make it big financially from scratch? I thought many authors on financial books and entrepreneurs did succeed from scratch?

I think i missed the part on frugal living. So yes it is indeed possible.

As a living testament to this i can vouch my peers are all still slogging away daily earning big bucks yet finding it difficult to save any money which can help them make more money.

[Violinbite]

I think i missed the part on frugal living. So yes it is indeed possible.

As a living testament to this i can vouch my peers are all still slogging away daily earning big bucks yet finding it difficult to save any money which can help them make more money.

I agree with you. I notice those who start from scratch usually (no choice la) take up the path of frugality silently, yet they don't find themselves deprived. It is sometimes the more educated that inherits wealth from parents or having windfall are the ones don't value frugality path as an important aspect of investment. Sometimes they even despise it..