Friday, 28 July 2017

Is the Lease Buyback Scheme a worthwhile option to monetize your home?

Came across a blogger's post about the Lease Buyback Scheme (LBS) available at HDB. This pique my interest and I decided to check out its info graphics at HDB's website.

HDB Info graphics

Quoting directly from HDB's website its example of LBS. This is what I get below.

Source: HDB Lease Buyback Scheme (as of 28 July 2017) 

From the Info Graphic, we can infer two assumptions: i) a 65 year old flat is valued at $450,000 and ii) at the tail end of its 35 year lease, the HDB flat is valued at approximately $190,000. Let's delve into the two assumptions further.

Leasehold Valuation of Singapore Property

The Singapore Land Authority (SLA) has a leasehold table which shows how much value of your property is retained as the number of years on its lease runs down. The detailed breakdown of the leasehold table can be found here on page 3.

From the table, a property of 65 year lease remaining will retain 83% of its value; while a property with a remaining lease of 35 years will retain 64% of its value if we are to follow SLA's table. That means if you had bought a brand new 99 year HDB flat at $545,000; with 65 years left on its lease, the property should be valued at approximately $450,000 and when it has 35 years of its lease left, the valuation should be approximately $348,000.

Comparing HDB's illustrated example and following from SLA's valuation table, the difference in value of selling the tail end of your flat lease to HDB vs at the open market is about $148,000 (including the $10,000 LBS bonus which HDB gives on top of the $190,000). To summarize, you may be making a loss of $148,000 (in today's value) by signing to LBS compared to selling it in the open market in the future.

A few thoughts 

The simple exercise has opened a few thoughts in my mind:

Does it mean that HDB valuers hold the view that should an influx of HDB owners decide to sell their 35 year lease remianing HDB flat, they would not be able to sell at the market predetermined value? If so, does it mean SLA's Leasehold Table does not apply to HDB's flat? And does it mean we should be depreciating our HDB flat's value at a faster rate?

In fact the appreciation of our HDB's flat value may not be as great as we think because depreciation at the front end of the lease is in fact higher than what we think; resulting in a much lower valuation at the tail end of the lease.


Based on HDB's illustrative example, it does not make much financial sense to take the LBS scheme unless you hold a very pessimistic outlook that prices of Singapore property market is set to fall by about 42.5% in real value during your lifetime. Contrary to what majority of the 
population is expecting.

Let's Gather Data

No doubt that the example HDB provides may be only illustrative by nature and they are in fact paying $340,000 to flat owners who are surrendering the tail end of their flat's 35 year lease under LBS. 

However, all of these will require true data. For those who have signed for the LBS, You may comment below or email me at

Do Provide the following:
  • No of years of lease sold under LBS;
  • The total value all homeowners obtained from LBS;
  • No of years left in your HDB's lease (include the years of lease sold to HDB under the LBS);
  • Location of flat by stating which MRT Station it is closest to;
  • Rough distance of how far the flat is from that particular MRT station [Please state in Km or if it is only 500 meter and below from the MRT station, just state 500 meters] (From there, I will be able to get a rough sensing of where the flat is and seek out its resale value by using HDB's resale flat price inquiry.)
Please only state the above 5 pointers and not other confidential or personal details. I look forward to hearing from you all. 

Saturday, 15 July 2017

How a trip to Courts offered me Personal Finance Lesson and its Company model

Recently, my laptop that had accompanied me since my last year of university has been acting up; a sign that a tech refresh to a new laptop may be needed. So I was off for a window shopping trip to identify a laptop good for writing and reading annual reports.

Flexi Plan (which will put you to ruins)

One of those that caught my eye (because it was literally big) was a Lenovo 15.6" inch laptop. It screen size was big and ideal for staring at annual reports and investing forum. Not sure if it was reasonably priced, but it was going selling for $1,499; but what caught my attention even more was Court's Flexi Plan, an installment plan

Apparently at Courts, you can buy many items on installment; and for this laptop, it was being offered on a 60 month installment plan for $61 monthly. 

While the monthly installment sum seemed small, the maths didn't add up. For the laptop on installment, I will be paying a cool $3,660 after 5 years for it. 

Courts Business Model  

Courts has a pretty unique business model- 1) It sells furniture and IT accessories at its retail price for a small margin and 2) It sells furniture and IT accessories in installments at a high margin. Essentially courts is a financier offering consumers "money" to buy items at a loan shark high rate. In fact, in its recent full year results, Courts proudly presents its revenue mix.

Fortunately for the Singapore segment, a small but still significant portion of consumers are tapping on Courts's Installment Plan to finance their furniture and IT accessories purchases. In my opinion, that is still a crazy amount of people taking themselves on a journey of financial ruin.

Of course, to shareholders of Courts Asia, this is music because Courts is able to earn a fat profit margin as it is lending money to consumer at a high interest rate.

Flexi Ruin Plan

Back to my laptop plan. A simple maths will show that over the installment plan, I will be shelling out $3,660 for the laptop if I do not pay $1,499 for the laptop upfront. That is nearly 244% of the upfront retail price Courts is selling.  For $3,660, I would have been able to afford 2 of the same laptop and still be able to buy a brand new Xiaomi hand phone from the spare change!

Seriously, who are those 18.2% on Courts credit scheme?

Let's reverse the scenario. Assuming you put $1,499 in a bank product and wish to withdraw $61 monthly to fund your retirement for the next 5 years. How much must your $1,499 grow annually to fund this?

The answer is a 45.14% annul return.

If you are to ask me: achieving a 45.14% annual return over the next 5 years is no easy task. In fact even the world's best investors including Warren Buffett wont be able to match that. So why should consumers punish themselves by being on these monthly installment plan which are charging a hefty rate (even more than credit card interest)?

No doubt, it is likely there are many people who will default on Court's Installment Plan but that is because the hefty interest rate is killing them. The above is a simple example of a bad debt and how you can lead yourself on a path of financial ruin.

Sunday, 18 June 2017

Low Oil Price for a Long Time

Let's face the facts: Low oil prices are here to stay for a while.

Despite OPEC's commitment to continue supply cuts until mid 2018, the world is still producing more oil than it needs (similar to our local property oversupply and global container ship glut). In addition, Singapore is now set to be one of the largest "parking lots" for large crude oil tankers as covered in this article. In my opinion, low oil prices are expected, to 2019; because i) oil supply outstrips global demand due to production increase by USA and Nigeria and ii) the need to draw down on excess inventories built over the past 4 years.

It is this current scenario that investors will have to consider and position our investments. 


What are the consequences? There are many but all are hypothetical reasoning - oil & gas offshore support industry (e.g. Ezra, Mermaid) will continue to suffer from overcapacity, more foreign worker layoffs in O&G sector will mean less demand for rental housing, etc.

This comes to show how beyond the element of quantitative investing (e.g. P/E ratio, Free cash flow calculation), investing too carries the element of qualitative analysis - What is the future trend, how is each company affected by it and is their current balance sheet/management structure able to withstand it?

As for me, I am positioning for an upturn in the tanker charter markets (which too is experiencing an increase in new build tanker deliveries, a potential oversupply)

It is important that each individual forms his/her own opinion (investment thesis) based on the trend and how one expects it will progress. Hence, feel free to share your thoughts in the comments below on the current market trends.
*[Spams are not welcomed! I am referring to you spam bots, for the recent littering of comments which I have to clean]

^(Accumulated more FSL Trust and monitoring semi-conductor related stocks) 

Tuesday, 30 May 2017

Candy, Decision Fatigue & Habits

Ever wondered why most candy products are placed near the cashier? Well there is a psychological explanation behind it and that is "Decision Fatigue". The idea is simple: During a consumer's journey through the supermarket, he/she would have made numerous decisions such as the items to buy, product to choose etc, this in turn reduces their mental willpower making the subject susceptible (tempted) to temptations. Aided partly by the colorful visuals of candy packages (stimuli), the consumer succumbs to the temptations and we engage in impulsive buying which harms our financial health.

This blog is not going Psycho!

So how does decision fatigue affect one's personal finance? Well, as one gets mentally drained from the daily decision making process, causing us to make faulty decisions or fall for temptations; which results in the frequent indulgences on treats/gifts that hurts both the wallet and perhaps waist line. Simply put, being mentally fatigued on a daily basis hurts our personal finances. Imagine the amount of money you can save and use for investment if you just had that extra mental capacity to stop yourself from having a daily bubble tea drink in the afternoon from LiHo (formerly known as Gong Cha), hint think $3.

So how can we steel our willpower? Well, it revolves around forming good habits which improves decision making and essentially, personal finance. The key is to form habits which helps eliminate the need to make simple decisions. This is because these small decision makings made everyday also saps your brainpower. After all, your brain is like a battery and every decision you make that day, saps the brain's energy. Your brain gets "weaker" lacking the willpower as the day continues; this probably explains why we tend to feel lethargic towards the afternoon.

Work and Home

There are two domains where we do make small decisions frequently and that is Work and Home. Hence these are areas where good habits can be formed:

At Home

One good habit is automating the decision of having similar outfits to work (or supermarket). This practice has been done by others such as Former President Barrack Obama etc. In an interview, he mentioned why: 

"You’ll see I wear only gray or blue suits. I’m trying to pare down decisions. I don’t want to make decisions about what I’m eating or wearing. Because I have too many other decisions to make.” - Barack Obama

On a personal level too, I have felt the difference in my thinking at the start of my day. At my previous workplace, work attire was something we could choose on a daily basis and for me, I definitely had to think a bit on the attire I had to wear. On the contrary, at my present workplace; there is a certain work uniform. Decision making now is easier because all I need to do is wear the same bottom design (which I have numerous pairs), shoes and shirt to work. It avoids the daily agonize of what to wear, sparing me mental anguish and allowed my "brain battery" to be put for more important mental tasks.

At Work

The work place is another area. Often we are swarmed by mundane daily tasks which we have to do. Why not prepare a short mental checklist the night before on what you need to do. It eliminates the need for us to decide what to do in the morning, leaving us refreshed for the daunting tasks that may appear in the later part of the day.

Another alternative way is to apply MS outlook rules to automate the removal of those unimportant emails to your line of work. Why agonize when MS outlook can automatically archive for you in some far flung area of your hard disk. The automation of decision rules has saved me time and mental capacity.

To note, the road to financial freedom sometimes lies beyond that of frugality or becoming an investment guru. It also revolves around building strong habits such that you are conserving your mental capacity to make sound decisions be it, in investments or avoiding impulsive expenditure.

Monday, 1 May 2017

Review of First Ship Lease Trust (FSL)

First Ship Lease Trust (FSL) is currently the only listed shipping trust on SGX, in recent times, the market value of FSL has fallen 35% from a market value of s$102 in million to s$65.5million. This was due to the negativity of the shipping industry and market's apprehension on the trust's inability to refinance its debts. 


FSL owns a fleet of mainly tankers and 5 container ships and lease them out to shipping companies for revenue. While we tend to associate shipping to the container or dry bulk segment, FSL is more exposed to the tanker segment; with only 33% revenue derived from the container segment. 

However, its most lucrative contract are its 3 container ships with Yang Ming at a bare boat charter revenue (BBCE) of $20.8mil a year for the 3 contracted 4,250 TEU container ships. This represents 32% of its revenue with only 15% of its fleet with Yang Ming. This is because the Yang Ming contract was signed during the heydays of the container ship cycle, as a result Yang Ming has to continue honoring the contract until 2020-2021. At current rates, one is likely only able to obtain annual BBCE of US$2 mil for such 3 ships., When asked on the possibility of Yang Ming defaulting during the AGM, the board expressed high confidence because Yang Ming had recently dry docked the 3 ships (costed Yang Ming 1 mil per ship for dry docking). Dry docking is similar to car servicing and after "servicing" is completed, the ships will operate for another 5 years. The dry docking process costs money to Yang Ming as well.

As for the tanker market, most of the tankers segment rates are falling due to the continue oversupply, so its a question of how much can FSL continue to milk from the rest of its fleet

Survival and Refinancing

This is a key concern for the Board and it was repeatedly stressed that without refinancing, a fire sale of its fleet may result. As of Q1FY2017, FSL's debt is at $192 million, with the mgmt guiding that it will be reduced to $171 million by end Dec 17. In my opinion, with a potential cash inflow via BBCE of $60 mil this year, the trust will be able to pay down to about $150 million. Hence a refinancing in the region of $150 million is probably the magic number to ensure the Trust continues as a going concern.

Valuation Difference

Currently FSL utilities a "value in use" (VIU) methodology to value its fleet. This methodology is similar to the "discounted cash flow basis" used for property valuation  where the future cash flows of its ships until its useful life and scrap value is "present valued" to today's value. This is how FSL obtained its vessel value of $427 million. On the contrary, it is likely banks are valuing on a low basis which is even lower than the adoption of "market comparison basis". This difference in valuation basis is one of reasons why refinancing is not yet completed.

Weak Sponsor

The sponsor of the Trust is HSH Nordbank who coincidentally is also one of the lender. The bank itself is in a weak financial state and will be wound up next year. This has resulted in the uncertainty and apprehension of other lenders to continue lending to FSL. This is where Navios is coming in by trying to take over HSH Nordbank's role by becoming the sponsor/ trustee manager. FSL mgmt mentioned during the AGM that with Navios help, the chance of obtaining a refinancing is higher.

Dilution upon Navios entry

However the entry of Navios doesn't come cheap. The Navios and FSL deal is described in the SGX announcement link here:

Basically if refinancing is done and Navios comes onboard as the new trustee manager/sponsor, Navios gets at least a 50.1% share. So lets run through a quick maths exercise on the deal:

Current no of shares in FSL = 637,456,577
No of shares held by Nordbank which will be sold to Navios = 154,430,600

Under the agreement, should Navios exercise its US $20mil (s$28mil) convertible loan into shares, Navios has to have at least 50.1% of the enlarged share capital. Assuming the exercise of this convertible loan, Navios will receive "X" amount of shares to obtain its "at least 50.1% desired share"

Hence (154,430,600+X) divided by (637,456,577+X) must equal to 0.501. Using algebra, the number of shares Navios will get through the convertible loan is 330,531,353 shares. Divide this by s$28 mil, Navios is paying 8.47 cents per share (in Singapore Dollar value).

Thoughts on the deal

In my opinion, Navios seems to have quite a good deal because it is purchasing 330,531,353 shares at about 0.17 of FSL's stated book value. However, it seems without Navios assistance, refinancing progress will be harder. So let's re-evaluate the net worth of FSL should Navios dilution come in and assume the trust will continue to operate as a going concern as a result.

Current Vessel Value based on "VIU" methodology =  $427 million
My own discount (30%) on the VIU = $299 million
New book value of FSL = $119.8 million
Estimated value per share before Navios Dilution = 18.8 US cents per share

Add Navios US $20 million loan, revised book value = $139.8 million
Estimated value per share after Navios Dilution = 14.4 US cents per share ( 20 Sing cents per share)

Are there other ways?

A way suggested by unit holders at the AGM was to sell some of its vessels to repay the debts. Of course, the downside would be that if the market knows you are in desperate need of cash, you will not be fetching the true market value of your vessels in a fire sale.

In my opinion, if it is possible, one good arrangement will be for a "3 rights for every 1 share" exercise at say s$0.09. The raised proceeds will be close to US$120 million and this means only US$30 million of refinancing is needed. Of course, this will be difficult for many shareholders to stomach. As for me personally, I have the sufficient capital resources to subscribe for 3 times my current exposure in FSL (or even 4 times to cover for HSH Nordbank's non-involvement in the rights) 

If the above are not viable, it seems getting Navios help is a good way to persuade banks to refinance and ensure the Trust's survival.

<Vested interest in FSL at multiple entry prices>

Sunday, 23 April 2017

Short Portfolio Update

Just a quick update to my portfolio because there has been a flurry of activities.

Sale of Hyflux Preference Shares

Sold all Hyflux Preference Shares in my CDP to realize an approximate 10% gain. I managed to "pick some pennies" on this company debt instrument and have decided to allocate my capital to the below 2:

Memtech International

The thesis for Memtech was pretty simple. It is in the same industry as Fischer Tech and Sunningdale. With its strong cash position and cash flow generation ability, the price which i purchased at 0.705 seemed a good steal. Furthermore Memtech was trading at a 0.7x P/B ratio while Sunningdale and Fischer were being sold close to book value. In addition, Memtech Intl is a turn around stock with its profitability improving year on year. So given the industry it is in and how much its peers were being valued by Mr. Market, I have set a target of about 0.90 on the premise of revaluing it close to its peer values.

First Ship Lease Trust 

The reverse can be said about FSL. Its prices has been declining and I used the opportunity to accumulate more at 0.124, 0.116 and very recently 0.103. In my view, the worries of the company''s inability to refinance and becoming a "rickmers" has caused Mr. Market to downgrade it "exuberantly". I will write a review on FSL at later date, (probably after its AGM and release of Q1 FY 17 results).

Sunday, 9 April 2017

Your HDB Flat is a Depreciating Asset (eventually)

Recently, the stark reality about the value of our HDB flats was reiterated by our current MND minister, Mr. Lawrence Wong - where upon expiry of its lease, your flat will be returned at zero value to the State via HDB. The Straits Times too has been unforgiving with its relentless churning of articles on the topic of "Lease Expiry" with its latest article on private estates nearing the end of its lease and residents distraught. 

Hard Truth

A few investment bloggers and investing forum had been harping on the fact that many properties in Singapore are leasehold by nature; which means the property value eventually depreciates to zero upon expiry of its lease (be it 20, 30, 99 years etc) and returned to the State,

A feature of Singapore's leasehold is that the value of the property does not depreciate in a straight line but that similar to a concave nature. The Singapore Land Authority (SLA) has a leasehold table which shows how much value of your property is retained as the number of years on its lease runs down. Fellow blogger, Investmentmoats, has depicted this on a table and a graph showing the speed of depreciation which I have reproduced below with his permission.  
Table 1: Leasehold Values to Remaining Lease Years

Graph 2: Speed of Land Depreciation

Applying SLA's leasehold rates to the value of a HDB flat with the number of years on the lease left; from the table and graph, one will notice the speed of depreciation is most pronounced when a flat's remaining lease tenure falls below 30 years. At that stage, your flat retains about 60% of its value as compared to freehold value; moving to 20 years remaining, it only retains 48.0%, and with 10 years remaining - 30.0%. That sets out to a 1-3% annual loss! 

On the contrary, during the first 69 years of a HDB flat's lifespan; you only lose approximately 36-40% of its value. Therefore between these 69 years, about 0.2% to 0.6% of property value is lost annually (before inflation and other demand factors). The slower depreciation at the beginning probably why HDB flat prices are still intact despite using 10 - 30 years of its lease.


Hence fortunately (or unfortunately), because very few HDB flats has reached the stage where there is only 30 years of its lease remaining (only 7% of HDB flats are above 40 years old); valuations of HDB flats have remained sky high. This is because the annual 0.2% to 0.6% depreciation had been offset by factors such as i) Inflation and ii) Property demand due to a growing population. It will take about 40-50 years to see the effects of depreciation on HDB flats.

Critics may argue that the value of HDB flat at the tail end of its 30 years lease can be maintained by ensuring that inflation and property demand remains stubbornly high to offset the approximate 2-3% annual decrease. However, in my opinion, such a scenario will mean either ensuring no houses are built to meet the demands of a rapid population growth (most likely achieved by importing a lot of foreigners) or that Singapore experiences a period of high inflation - not ideal to the citizens' cost of living.

Nevertheless, even if such scenarios do materialize; at the end of the 99th year, a HDB flat is still returned at zero value back to HDB and then to the State.

Wait, there is a Solution!

Others may point out that topping up your lease back to 99 years will do the trick. Some example has been like how Singholdings did an enbloc at Robin Road and paid cash to top up the remaining lease for a fresh 99 year status. 

While this indeed can be done, it is highly unlikely HDB will do so for all of its land.This is because land use intensification or urban renewal has to be done to allow for the justification of a lease top up. In addition, it requires approval from the lessee. Property developers are able to do such lease topping up quickly and efficiently because they are the sole lessee of the land after completion of the enbloc.

Therefore, for the 937,341 flat owners (as of 31st March 2016, HDB Statistics Report), this article serves as a reminder that your HDB flat is in fact a depreciating asset. For those among the group of 937,341 flat owners seeking to flip your HDB flat for a profit, just don't be the last fool holding on and suffer from the effects of leasehold depreciation. 

And the Icing on the Cake

While I have been going on about how a HDB flat's value is affected by depreciation of its lease, another factor deserves a worthy mention - the low fertility rate (1.2 as of 2016). Without enough babies to replace Singapore Citizens and PRs in the future, it will mean a fall in demand for HDB flats; indicating less opportunity for HDB dwellers to upgrade or even monetize their flat's value when they purchase a second home.