20 July 2005


Commentary Singapore presents the full text of Khaw Boon Wan's comments in Parliament today on the NKF saga. Wang Zhen foresees a new round of discussion in the blogosphere, despite Agagooga's plea for an end to all the excited chattering.


ivan said...

i was thinking while i tuned into the live telecast, "let the frisking begin!"

analytics88 said...

Don't be retarded. Please illustrate proof that I emailed you. Gibert, you have once again illustrated you have poor judgement, and questionable intellect, and my God your childishness is first class. Does your client know this? It would not be difficult to find out who your boss is.

My take is that just because someone spoof a analytics88 email and it had you up in arms.

YOu know what, chimp, you can keep deleteing and I can keep posting. Lets see who wins.


Ball.of.Yarn said...
i like your comment about the home you and mrs.wang built together.

I moved only recently, and that for the first time in my life too. as i made my way out of the iron gates for the last time, I felt the unbearable weight of sadness again. that was my home and a place that had seen me grow into the person I am today, and I had to give it up to someone else who looked at it with like a piece of property, something that could be haggled down like meat in a market.

nice philosophy indeed; better a small cosy home than a large, cold house.
7/19/2005 6:58 PM
Lay said...
Of course, I won't advocate selling/buying with such frequency such that the fees add up.

However, I also don't think maxing out duration and loan amount is a good idea, which is what PhD-colleague does not want to do anyway.

Agree with the prepayment thing. At next opportunity, will advise Friend about this possibility.

However, it boils down to the fact that it is better to work towards a debt-free life quickly and thus not worry about shocks (like retrenchment, illness) right?

Agree will ball.of.yarn -> what is the point of expensive flat if you have to work your ass off to pay off the loan?

Anyway, bringing in the issue of costs makes it very tempting to start crunching the numbers. Heh.

This is the one and only KiddyBoy!
7/19/2005 8:38 PM
schizophrenic said...
well, mr wang is absolutely right again!!! he missed out on the issue of inflation, though. i'm one of those victims who got caught in the hdb transfer market. not exactly me - it's my dad (but he is totally broke now, so my siblings and i have to service the loan for the next 15 years at $1000+/month in cash and that's for a 4-room unit only).

the methodology proposed by the phd colleague in the article is similar to that used by my father (except that it started more than 20 years ago in my dad's case). we've moved around a number of times and were caught by the inflation as singapore progressed - from 3-room (new, $15k in 1979) to 3.5-room ($54k in 1986) to 4-room ($85k in 1989) to 4-room (new, $98k in 1997) to 4'a'-room ($220k in 2002).

granted that the rate of inflation may not be as high as before, the phd colleague mentioned by kiddyboy is risking paying today's prices using today's money if he upgrades a couple of times in future. he would therefore be worse off compared with the scenario of paying yesteryear's loan using today's money.

of course, the phd colleague may be better off if future policies by the government cause a significant drop in property prices. however, he will not be disadvantaged if he purchased a large unit now using an extended loan period as long as he pays using cpf and the amount paid up is less than the selling price in future.
7/20/2005 10:16 AM

Mr Wang Says So said...
One thing to bear in mind is that you always need to have a roof over your head.

If you buy a property and live in it, don't get too excited when the market heats up and the market value of your flat increases. Even if you sell and make a profit, you still have to buy another place to live. And since you cannot be homeless for too long, you need to buy the new place around the same time, which means you are also buying in a rising market.

From a pure investment point of view, property actually has many disadvantages unless you're really very wealthy. You have to plonk a lot of money into a single asset and you can be locked in for a long time. Also, unless you're so rich that you can buy your property without borrowing anything from the bank, your investment is actually leveraged, and usually a lot. Which means that you're borrowing to invest. That's dangerous.
7/20/2005 11:12 AM
Lay said...
Let me frame the issue in a narrower way.

The question is thus asked, For a home purchase (ie. not investment), is it a good thing to max out the duration of the loan and the monthly instalment?

My answer is that it is not. All is well if you have your job for life and your pay goes up in a straight line and you are healthy. However, my reasoning tells me that it is good to leave some flexibility to reschedule the loan when a shock (illness, retrenchment) occurs. What does Mr Wang and the other blog readers think?
7/20/2005 1:29 PM

Mr Wang Says So said...
I agree with you that it is not safe to assume that you have your job for life; will steadily earn more and more as the years go by; and will remain healthy indefinitely etc.

However, this actually means that you cannot seek to pay off your housing loan so aggressively. For example, if each month you put as much money as you can towards repaying the loan, you shorten the life of the loan but you also make it impossible for yourself to build any emergency reserves.

You can aim to repay a 30-year loan in 20 years, but if you stretch yourself too hard, then you are in deep trouble if, in Year 5 or 6, you become unemployed and you can't even meet next month's mortgage payment or even next month's water bill (because you never had any savings - you'd thrown all your money into repaying the housing loan as fast as possible).

That is why I prefer the prepayment strategy. You prepay as and when you have more than enough, and you only prepay the amount that you're comfortable with. For example, if you got a big bonus in December, then you prepay in January using your bonus.
7/20/2005 2:46 PM
analytics88 said...

Debt sometimes can be good. Where can you borrow 2% anywhere in the world. That got to be the lowest cost of capital ever.

One should use the prepayment funds and invest in instruments yielding 6%. That gives you a spread of 4% beating any prepayment options hands down.

WANG, you should stick with law and legal issues, I am watching you on your financial advice, it reeks of bad judgement and stale analysis.

You are not a professional in this area, I think you should watch your words.
7/20/2005 4:05 PM
Lay said...
okay, analytics88, what instruments are there that *guarantee* 6% yield?
7/20/2005 4:22 PM

Mr Wang Says So said...

And you need to retake your PSLE maths.

Suppose you have an outstanding mortgage loan of $400,000 and you are paying interest at 2% p.a.

Then suppose you have $40,000 excess cash which you THINK you can invest in instruments to get about 6% p.a.

Firstly, note that 2% of $400,000 is a lot larger than 6% of $40,000.

Secondly, note that your 6% is not guaranteed. Investing always has risks. Your 6% could jolly well turn out to be -6%.

Thirdly, note in contrast that if you instead apply your $40,000 towards reducing your mortgage principal, you WILL definitely get a reduction in subsequent interest payments. Unlike the case of your investment, this reduction is GUARANTEED. The bank cannot chare you interest on what you don't owe it.

Furthermore the savings in interest payments is not just for this month, not just for next month -

but for every month of the rest of the life of your housing loan. That is, the next 15 or 20 years.

So once again - *yawn*.

If your strategy is so good, banks wouldn't be in the business of housing loans. Instead of lending to you, they would rather just take their own money and go invest directly in the wonderful 6%-guaranteed investments you mentioned.

There are other subtleties in my advice which you obviously missed. But more on this later.
7/20/2005 4:24 PM
analytics88 said...
I can't believe the retarded reponse that I have gotten. You are obviously not the smartest pencil in the box, Gilbert Koh. 6% is a conservative number - on a long term basis 20-25 years. Go and ask any private bankers. I don't mean the posb personal financial planners. You've got to be really stupid to be making -6% annualised over 20-25 years. This strategy is the very strategy banks/corporations use, you earn a spread on your cost of capital and return on investments. Some big i-banks (GS, ML, Lehman) don't do consumer financing, that's why, the spread margin is just too thin. Any that $% spread you earn is not for that one year but every year that your loan is in place. You know what, I'm probably wasting my time on a contract drafting, poetry writing lawyer who has never done multi-million investment analysis before, and probably cannot structure your way out of a paper bag. I can't believe you are so short-sighted and self righteous. You know what, go ahead and continue to pat yourself on the back over the fact that you can afford a private condo. You are not even in the same league to begin with, and you dare to give out investment advice? Sheesh...
7/20/2005 6:05 PM

Mr Wang Says So said...
Sigh .... Okay, lah, Mr Wang will be kind and patient and educate you. I frequently do that for my investment bankers anyway. (And don't even talk to me about private bankers. I haven't met a smart one yet. Most of them don't even understand half of what they say).

Of course, 6% is conservative over 20 - 25 years. However, unless you are VERY wealthy from Day One, you DON'T actually have a lot of money from Day One, to Day 9125.

Let's say a Singaporean couple just got married. They wish to buy a $750,000 condo apartment. Then let's say they also happen to have $750,000 spare cash sitting in their bank account, just waiting to be used.

Now, in this scenario, your idea POSSIBLY makes sense. They can take a big 25-year housing loan, and pay 2% on the mortgage. Then they can take their $750,000 and invest, and aim for 6% over the next 25 years, on their $750,000.

AND as you say, IF they hit their 6% target, THEN they can then make the spread of 4%.

However, being rather foolish, you forget one thing. The average Singaporean newly wed couple does NOT have $750,000 spare cash on Day One. They may have very little savings after paying for their wedding, honeymoon, renovation, furniture etc.

Thus your scenario is quite unrealistic. A much more likely scenario is that your average Singapore couple has perhaps $500 or $1000 left to invest, each month.

It is no longer a question of whether your $750,000 investments can outpace, over 25 years, the bank's interest rate of 2% on $750,000, over 25 years.

It is rather a question of whether your investments,

at a humble $500 over 25 years;

and another humble $500 over 24 years 11 months;

and another humble $500 over 24 years 10 months,

etc etc ....

can beat 2% on your very big loan amount ($750,000 amortising very, very slowly over 25 years).

Also you are quite an idiot to compare yourself to an investment bank. An individual's costs of funding cannot compare to an investment bank's cost of funding. If you want to draw an analogy between (1) an individual investing on his own, and (2) the bank's proprietary traders making investments, then you are also quite silly. Most Singaporeans are not traders working in a bank. They are teachers, IT programmers, engineers, toilet cleaners, electricians, HR managers etc. They do not sit around all day thinking about how to invest their money.

Whereas my example is much more valid than yours. Simply because it does not compare an individual to a bank (which is quite ridiculous unless perhaps your name is Warren Buffett or Bill Gates). My example merely compares two possible methods whereby a bank can make money. And I am saying that if your method is so simple, banks wouldn't be extending housing loans. They would still collect deposits, yes, so that they can invest in your 6% guaranteed investments, but they wouldn't extend housing loans. Why would they? They would rather plonk their money directly into those investments.

Of course some banks do not do housing loans. Some electronic manufacturers make TVs, some do not. Some insurers sell marine insurance, some do not. Some aircraft manufacturers make fighter jets, some do not. And some banks prefer to trade OTC derivatives; or arrange bond issuances; or advise on mergers and acquisitions. What is your point?

Oh, I forgot. You simply do not have one, poor boy.

Finally, you forget how this whole discussion came about. KiddyBoy is concerned about the aggregate amount of interest he has to pay over the life of a housing loan. I am merely pointing out to him the possibility of making prepayments.

The nice thing about prepayments is that the timing is up to you, and the amount is also within your control. If you have some excess cash, you can prepay, if you like, If you don't like the idea, no one is forcing you. You can invest elsewhere (and who knows, maybe you'll even get your 6%). At certain times, you may not see anything you feel comfortable about investing in - at those times, you would feel more inclined to prepay.

There. You lucky boy. YOu just got a couple of free lessons from Wang Zhen.
7/20/2005 7:10 PM
analytics88 said...
My point of bringing up the i-bank is from your point of "If your strategy is so good, banks wouldn't be in the business of housing loans. Instead of lending to you, they would rather just take their own money and go invest directly in the wonderful 6%-guaranteed investments you mentioned."

You know what, the more you analyse the more I see your weakness and your failure to understand simple finance concepts, it would be good to leave the comments here as such, unless you've got no balls and delete the comments like how you deleted your last "legal mumbo jumbo" blogs from the last A-Star fiasco. C'mon stick to your guns, or else just apologise and say you've made the wrong analysis, what's so difficult?

I'm sure there will be pple that can see the arguements from both sides and, man, I just get a kick from seeing your arguments crumble and plus the name-calling. Just like a drowning man clutching at straws.

You know what, Gilbert Koh... Stick to your contract drafting... Or you can write me another long analysis full of errors.

Man, I am begining to get addicted to this. By the way, it absolutely cracks my colleagues up when I say to them " I live in HDB but I can afford a private condo" You should say that to your IB clients. I'm sure it will brighten up their day.

And it is precisely that laymen might be reading this that I want to point out your prepayment opioion is flawed.

I guessed some "self-proclaim gurus" don't like to be corrected huh.
7/20/2005 7:39 PM

Mr Wang Says So said...
You might be surprised. I love to be proven wrong - then I can learn something. Unfortunately, from you so far, I'm learning nothing.

All you seem to be saying is that one shouldn't prepay a housing loan because one can invest the money elsewhere and do better.

But you can't even answer Lay's simple question. Muahaahaa.
7/20/2005 7:52 PM

Mr Wang Says So said...
But if you are prepared to drop the name-calling, then so will I. I was thinking of doing a prepayment myself on my own HDB loan with some of my excess CPF OA funds. If you can tell me something useful, I would be grateful.

My CPF OA is currently earning interest at 2.5%, My HDB loan is accruing interest at 2.6%. Would you like to tell how to earn a guaranteed or projected 6% on my CPF OA?
7/20/2005 7:58 PM

Gilbert Koh aka Mr Wang said...

Very well then. Mr Wang will give the benefit of the doubt that you are not the Evil Emailer.

And I look forward to continuing the discussion with you. I will set up a separate post for the discussion.

Btw, in case you still haven't realised, MANY bloggers know exactly who I am. Mr Wang does not exactly keep this a secret among bloggers. Mr Wang calls himself Mr Wang purely because of the existence of certain kinds of stat board heads. And you obviously aren't one.

Anthony said...

Hey Mr Wang,

You suddenly got all prophetic on us is it? Xiaxue's board just got hacked!

Agagooga said...

The plea was about postings to Tomorrow.sg