To gamble or not to gamble?

A friend who's also financial service agent tried to convince me on two funds 4 months ago. I didn't commit and hesitated to wait for a 'low' entry point. Here is their performance over the past four months:

The Singapore Growth Fund performs so-so, with the offer-to-bid return ranging from -13.2% to the latest 2.1%.

However, the Regional China Fund performs too good to believe: achieving 41% offer-to-bid return over the past 4 months, though it had ever recorded -9.4% lost in mid Aug.

To gamble or not to gamble, that's a question...

Interest rates

Singapore Interbank Offered Rate (SIBOR) is a reference interest rate at which banks offer to lend unsecured funds to other banks in the Singapore wholesale money market. Set by the Association of Banks in Singapore (ABS), SIBOR reflects the true cost of money in the interbank market; it is commonly used in the Asian region.

Prime (lending) rate is a reference interest rate used by banks. It originally indicates the rate at which banks lent to their most favoured customers. Some variable interest rates may be expressed as a percentage above or below prime rate. Movement of the prime rate usually reflects the changes of mortgage cost.

Perhaps in order to decrease transparency, major Singapore banks now use own names for the reference rate of their home loan products, e.g. DBS calls it Value Mortgage Rate (VMR) at 4% now, OCBC names it Value Rate currently at 4.5%, UOB calls it either HomePlus Rate or UOB Mortgage Rate both at 4.5%. Various home loan products are then expressed as a percentage below that rate.

The above chart is derived from Monetary Authority of Singapore data over the past 10 yrs.

In the yellow area or the first 5-6 yrs before 2002, both the prime lending rate and deposit rates are well dependent on the SIBOR, which I think is fair: banks offer competitive deposit rates close to their true cost of money in the interbank market; the 2~3% higher lending rate produces a reasonable profit though the profit margin became larger after the 1999 peak in rates.

Banks have changed the rule since 2002 (refer to the gray area). Despite the SIBOR had significantly risen to 3.5%, banks stick on offering the ridiculously low interest rate to their retail customers. Instead of making money only from their lending business, banks now target the deposit customers to claim profit. This is in line with the practice that banks started to charge on cheque books & low-balance accounts a few years ago.

Banks now do not offer competitive interest rate but create more sophisticated products to attract funds from retail market. Structured deposit has evolved from simple equity/bond-link interest rate to something complex enough to confuse most of their customers, which then can be designed in more favour to the banks. Actively selling investment products (e.g. unit trust) is another way of making more money (and probably commission too!); even the counter staff is eagle to convince customer with high-balance account to buy their more profitable products rather than to proceed with the deposit instruction.

The 'best' interest rate currently offered at various Singapore banks:

• Maybank iSAVvy for 6-m: effective 1.98% if >$25K, or 2.38% if >$50K
• Citibank MaxiSave Sweep: 1.88% (2.08% for >$50K) for 6-m unfixed deposit or 1.28% on withdral amount
• Standard Chartered e$aver: 1.20% p.a. (just dropped from previous 1.5% w.e.f. 1 Nov.) 1.70% for >$50K.
• UOB for 6-m time deposit: 0.6% if <$50K, otherwise 1.70%
• OCBC for 6-m time deposit: 0.575~0.6% if <$50K, otherwise 1.70%
• DBS for 6-m time deposit: 0.575% if <$50K, otherwise 1.70%

DPS scrapped

The government last night scrapped the deferred payment scheme (DPS) that allowed homebuyers to postpone payments on new property. Buyers now have to make progressive payments (PPS) in steps with the construction process and the 20% downpayment upon signing the Sales and Purchase Agreement (SPA) becomes mandatory.

It is a response to the overheating in the market, especially the excessive speculation. As an indicator for speculative activities, subsales -- owners selling uncompleted properties -- accounted for 12.7% of total deals (21.6% in the core central region), as compared to 28% in 1996. Overall prices rose 8.3% in the 3rd quarter that brings the price growth so far this year to 22.9%. I think it's good to cool the market at some extends so that its growth is more healthier and sustainable.

PPS: it calls on buyers to pay progressively at various stages of construction. Here is the typical scheme:

• 5% booking fee upon obtaining the Option to Purchase
• 20% (incl. 5% having been paid) downpayment upon excising the option & signing SPA
• 10% upon completion of the foundation work
• 10% upon completion of the reinforced concrete framework
• 5% upon completion of the brick walls of the unit
• 5% upon completion of the ceiling of the unit
• 5% upon door & window frames in position and completion of electrical wiring & plumbing
• 5% upon car park, roads & drains completed
• 25% on issuing the Temporary Occupation Permit (TOP)
• 15% on legal completion date

DPS: introduced in Oct 1997, it offers the homebuyers to postpone payment other than the initial 20% downpayment till TOP. The downpayment was further reduced to 10% in Nov 2001. It is believed to encourage speculative activities as a flipper only needs to fork out as little as 10% of the purchase price and has typical 2-4 yrs to find a new buyer of his speculating unit.

SQ flies luxury A380

The brand new A380 super-jumbo flew the first flight SQ380 from Singapore to Sydney on 25th. The Singapore Airlines A380 has a seating capacity of 471 in three classes -- SQ Suites, a class beyond first, together with Business and Economy.

399 Economy Class seats are with seat pitch 81.5cm (32") & seat width 48cm (19"), seat recline 115 degrees. They're also equiped with 27cm (10.6") inflight entertainment screen, USB port & AC power supply. According to newspaper, SQ380 is priced marginally more (<10%).

4-rm new flat at $400K

HDB launched Telok Blangah Tower under Oct. Build-To-Order (BTO) exercise today. It will be 400 studio, 3-rm & 4-rm flats located in Telok Blangah St.31 and a few hundreds meters south of Telok Blangah Hill Park. The price of $308,000 - $402,000 for a 4-rm unit surprises the public as that is even slightly higher than the resale market price in the region (HDB used to 'subsidise' first-timers on new flats). But HDB said that it's in demanded location and the unit selling at $400K is at 38th storey with sea / Sentosa views and with full-height windows.

Stronger SGD

Singapore dollar has been stronger vs. US dollar and RMB since Sept. Today S$1 exchanges 5.1356 Yuan, which is the highest in the past 5 years and 3.7% rise since Sept. It must be due to the weakening US dollar: U$1 exchanges S$1.46, which reflects as much as 20% weakened against SGD in the past 5 yrs (it was nearly 1.8 then).

With RMB interest rate at 3.87% (1-yr) and SGD interest rate remains low at merely 0.8%, it may be wise buying in RMB...

Rosewood at Woodlands

SLA puts on sale a piece of state land for developing private condo, which is of 172,223 sq.ft. with plot ratio 1.4, located in Woodlands ave.2 / Rosewood drive. Actually it is just by the side of Casablanca and opposite Singapore Sports School.

It is said on today's newspaper that the land may be used to build 110 units of 5-storey condo. Colliers, the marketing agent, estimate that the break-even price when built up will be around $500psf (incl. $260-300 land cost) so the developer likely prices it more than $600psf.

It expects to attract oversea buyers with children attending the American School and local upgraders in Woodlands & Sembawang towns. Savills said in Sept. that the properties in (far) north region might expect as much as 35% appreciation as the rental market there had risen 25-30% as compared to previous quarter.