Property is the safest way to invest

Liquidity risk: If your objective of purchasing properties is to leave your child or children with a sizeable monetary legacy when you pass on, there may be other viable alternatives.

Works on fundamentals still vital

TIME and time again, we hear about the need to save up to buy our first property. Then we hear about why we should save up to buy the next property (presumably for the “certainty” of investment gains), and the success stories of those who made their first million, primarily through property investment.

So, anyone who has received a healthy dose of these for a few years would naturally deduce that in order to gain significant returns to our investment portfolio, the key is property. This does not always hold true.

As with any investment, you must still go through the fundamental questions that help you ascertain whether property is the right tool for you.

We will get back to what these fundamental questions are after forming a backdrop from two somewhat representative examples.

In 2009, 38-year-old Albert bought a 4,300 sq ft condominium at a prestigious location in the heart of Kuala Lumpur for RM4.3mil. At RM1,000 per sq ft, many would deem this a good buy; more so now that the current market value has risen to RM5.1mil.

Now, let’s see this “gain” from a different perspective. Since Albert bought the property for investment purposes, he had two options to earn returns from this investment – either rent it out for an amount higher than the loan repayment value, or sell the property to monetise the higher market value.

Unfortunately for Albert, he has as yet not been able to find a buyer even though it has been six years since he bought the property. Given the softer property market, although he has been lucky to find a tenant, he is receiving a rental yield that is lower than his loan repayment. This is fine as long as Albert remains gainfully employed and is able to afford the loan repayment for as long as it takes to sell the property.

Capital gain

Let us look at another property owner. Also in 2009, Nik and Sara, a newly-married couple, purchased a 3,100 sq ft landed residential property in a fast-developing suburb in the Klang Valley for RM350,000. Unlike Albert, they bought the property for their own residential use.

Over the years, given that their home is located close to a major shopping mall and to the highway, the market value of their property rose to the current RM1mil.

Did they “gain” from this property? Similar to Albert’s case, in order for Nik and Sara to make capital gains from this property, they would need to sell it to lock-on the value.

However, since they are residing in that property, selling it would mean looking for alternative accommodation.

Would they be able to maintain the same standard of living (i.e. an equally convenient 3,100 sq ft living space, and so forth) with the proceeds received from the property sale? If not, then like for Albert, the higher market value would not have resulted in any direct investment gain for them.

But unlike Albert, it doesn’t matter as they did not purchase the house as an investment instrument and the loan repayment does not result in any unexpected negative cashflow.

So on the backdrop of both these scenarios, we are ready to move on to the fundamental questions you should consider when assessing the suitability of any investment instrument, property or otherwise. The six most fundamental considerations are, perhaps, best rendered acrostically as O.H.A.M.L.A.:

• Objective – or what you hope to use of those funds for (i.e. the capital) in the future; 
• Holding period – the length of time you are able to sustain financially without touching the returns    or capital for that investment; 
• Affordability – would you need to compromise your standard of living if there is no cashflow from     the investment throughout the holding period; 
• Market risk – the quantum of price movement that you could stomach during the holding period; 
• Liquidity risk – how long would it take for you to sell the investment and receive your funds; and 
• Alternative instruments – are there any that could achieve the same investment objective with lower risks attached.

Going back to Albert’s case; he bought the condominium with the objective of making significant capital gains in five years (i.e. the holding period).

At the point of purchase in 2009, he assumed his employment status would not change and that he would earn the same or a higher salary over the course of his holding period. However, he is now self-employed, hence his earnings are no longer fixed each month.

Therefore, the affordability factor is now compromised as he needs to ensure his loan commitments are met each month despite a fluctuating income.

Next, although he made the fair assumption (which turned out to be right) that the property would appreciate in market value in the future, he underestimated the liquidity rush when investing in properties, i.e. finding a willing buyer for the price he is willing to sell and getting the cash from that sale within a short period of time.

As many of us may have experienced, due to legal and loan documentation requirements, it could take up to a few months to get back our funds even after a willing buyer has been identified.

Lastly, unfortunately for Albert, other alternative instruments that could perhaps meet his investment objective for significant returns (eg. investing in high risk companies in the stock exchange or investing in a start-up company) also carry similar, if not higher, risks.

First-time buyer

That said, property or real estate remains an important instrument for most investors. For a first-time property buyer, owning a property that you could live in removes the risk that rental prices could escalate where you may be forced to compromise your lifestyle to find alternative accommodation.

Individuals with significant excess funds after investing in a diversified portfolio consisting of instruments such as high yielding deposits, blue chip shares, unit trusts, endowment insurance plans and bonds, should consider property as the next instrument to augment their investment portfolio.

If you are an investor seeking a consistent stream of income, other than rental income, alternative instruments that could give you that regular payout could be unit trust funds with an income-generating mandate, endowment insurance plans, high dividend blue chip stocks or even bonds.

With all these instruments, especially unit trusts and endowment policies, you would be able to easily liquidate your investments and get your sale proceeds within 14 days or less. This is important when you do not have a significant amount of excess cash in hand for potential financial emergencies.

If your objective of purchasing the property is to leave your child or children with a sizeable monetary legacy when you pass on, there may be viable alternatives. For some, this means building up a stable business for the children to inherit.

For many others, there is always the traditional portfolio that consists of shares, unit trust funds, bonds and so forth.

The lesser-known alternative would be to purchase a universal life insurance policy that would ensure your beneficiaries receive a sizeable payout after you have passed on.

So if you are 40 years old, instead of spending RM2mil to buy a bungalow in Kajang that your children may likely liquidate anyhow once you have passed on – after all, your intended legacy was the cash value of the property – you could instead spend a little over quarter that amount to purchase a universal life policy that would pay RM2mil in cash to your children once you are gone.

By using O.H.A.M.L.A. as a guide, your investment universe could open up your world to a wide array of instruments beyond property to help you meet your objective. As the old proverb goes: There are more ways than one to skin a cat.

By EVELYN YEO - FINANCIAL MYTHBUSTER

Yeo is OCBC Bank (M) Bhd head of wealth management.

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Great contribution from the Chinese: UN Chief Praises WW2 parade, 回憶麻坡 (Muar)人支援抗戰

UN chief praises parade, China's great contribution

The world has been saying about Beijing's grand military parade on Thursday, held to mark the 70th anniversary of China's victory in the War of Resistance Against Japanese Aggression and the end of World War Two. Here's what many world leaders who attended the commemorations thought.http://t.cn/RyyvmLn

UN Secretary-General Ban Ki-moon has spoken to CCTV about his feelings regarding China's V-Day parade. He said he was deeply impressed by the celebration, and has fully recognized China's contribution during the World War Two.

The world has been saying about Beijing's grand military parade on Thursday, held to mark the 70th anniversary of China's victory in the War of Resistance Against Japanese Aggression and the end of World War Two. Here's what many world leaders who attended the commemorations thought.

"The V-Day parade was very grand. I felt that not only Chinese leaders, but also ordinary Chinese, could cherish the memory of the victory in the war against Japanese aggression, as well as the memory of the martyrs who made contributions."

回憶麻坡 (Muar)人支援抗戰

《血脉长城——华侨华人与抗日战争》 20150822 第一集 海外赤子 情系中华_新闻频道_央视网(cctv.com)

分享视频  http://t.cn/RLFHIhj
http://player.cntv.cn/flashplayer/players/htmls/smallwindow.html?pid=59618b21f97244b59b5fc4cf55d7d68b&time=0&tai=news

（吉隆坡5日訊）為紀念抗戰勝利70週年，中國中央電視台CCTV-13播放電視紀錄片《血脈長城》，反映海外華人不怕犧牲，支援中國抗戰的歷史事跡。

• （圖：星洲日報）

在紀錄片中，星洲日報前國際新聞組主任鄭昭賢介紹了麻坡抗日先烈張開川和南僑機工領袖劉貝錦的事跡。

麻坡人因組織峇株巴轄石原鐵山的工潮，不讓日本人獲得源源的鐵礦石供應，以製造軍火，送到中國戰場殺害中國人，結果他們遭到日軍秋後算帳，付出流血的代價。

紀錄片播出麻坡人當購買的愛國公債，明知不可能償還，還是踴躍認購。

當年在陳嘉庚的領導下，南洋籌賑總會於3年多時間共籌得4億多國幣，而麻坡的籌款成績特佳，成為籌賑模範區。

紀錄片第二集介紹南僑機工和飛虎隊。

馬來亞機工，101歲的許海星上鏡頭和講話，同時紀錄片《血脈長城》也介紹檳城女機工，花木蘭李月美和白雪嬌的感人事跡。

第三集介紹馬來亞抗日烈士林謀盛的生平事跡和參與法國諾曼地登陸的華人戰士。

紀錄片播麻坡歷史建築

中國中央電視台的抗日紀錄片除了介紹麻坡抗日義烈張開川、顏迥華事跡和早年麻坡抗日核心，麻坡漳泉公會。

紀錄片播映麻坡漳泉公會大廈雄偉畫面，配上飄動的白雲藍天，徐悲鴻為鼓勵麻坡人抗日，贈送漳泉公會的名畫〈神駒圖〉，加上漳泉公會會長拿督黃國華的講解。

紀錄片播映麻坡歷史性建築物，位於三馬路〈新民舞台〉。

這是武漢合唱團到麻坡演出的地點，也是麻坡抗敵後援會成立大會的地點，戰後改為麗士戲院。

麻坡殉難義烈顏迥華的兒子顏其仁老師在戲院內，面對中央電視台攝制隊的鏡頭，回憶當年武漢合唱團在該處演出時激動人心的場面。

他的父親顏迥華為抗日日夜奔波演說，購買抗日公債，即使錢不夠，還向人借錢買公債。最後他與麻坡籌賑會其他領導人遭日軍殺害。

登中國僑網可看《血脈長城》

登上中國僑網，可以觀看北京CCTV-13新聞頻道的《血脈長城》紀錄片，網址是：http://news.cntv.cn/2015/08/22/VIDE1440250079837485.shtml

- See more at: http://news.sinchew.com.my/node/441982#sthash.WRuBaR9C.dpuf

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World economy flying on one engine !

IMF Managing Director Christine Lagarde participating in the Asia Finance Conference at the Bank of Indonesia, in Jakarta, Indonesia on Sept 2, 2015. PHOTO: EPA

With a strong dollar and growing fiscal and trade deficits, small wonder that the markets are debating whether that engine is flying on empty

I was in Jakarta this week attending an IMF-Bank Indonesia conference on the Future of Asian Finance, the title of an International Monetary Fund (IMF) book launched last week with essays by IMF experts reviewing the lessons from the past and sketching how Asia can build its future, with a supportive financial system.

This is a very useful book, because it contains massive amount of helpful data and analyses for Asian policymakers to strategise how to respond to the current turbulence.

This weekend, the G20 Finance Ministers and central bank governors are meeting in Ankara, as Turkey takes the chair of G20 Presidency for 2015, with the key objectives of: strengthening global recovery and lifting potential; enhancing resilience; and buttressing sustainability.

Unfortunately, the current environment is heading in the opposite direction.

In the IMF Note for the G20 Meeting assessed that global growth for the first half of 2015 was slowing; financial conditions for emerging market economies have tightened; and risks are tilting towards the downside.

My interpretation is that basically what the IMF is saying is that if we are not careful, a perfect storm may be looming.

Understandably, the fund called for strong mutual policy action to raise growth and mitigate risks.

The real problem is that G20 members’ policy actions are likely to pull in different directions.

Sept 15 will be the seventh anniversary of the failure of Lehman Brothers, a landmark event, which triggered efforts to prevent global collapse that set up the greatest financial bubble in recorded history.

In the first half of 2015, almost every country witnessed record peaks in their stock markets, bond markets and real estate prices.

Given the fact that most countries are still slowing or having modest recoveries, this bubble has been pumped up by advanced country central banks in an activist monetary gamble called quantitative easing.

Indeed, the McKinsey Global Institute has warned that global credit and leverage is at its highest ever, and despite much soul searching about the need for macro-prudential regulation to prevent bubble risks, there has been not much deleveraging.

We have the odd situation whereby the governor of the Bank of England, currently chairman of the Financial Stability Board, warns about real estate bubbles, but hasn’t dared so far to raise interest rates in his own country.

The Fed has also anguished over whether to raise interest rates this month or in December. The polarity of debate is astonishing.

There are those who say that the US economy is now strong enough to take a 25 basis point interest rate increase, whereas authoritative figures like former Treasury Secretary Larry Summers have argued that another round of QE4 may be necessary to prevent “secular stagnation”.

When the Chinese authorities intervened in the A share market in August, the Financial Times and Wall Street Journal revelled at China’s debacle, only to wake up after their own markets, Dow, Nikkei and German Dax, witnessed the largest drops since 2011 after the announcement of the yuan devaluation of only 1.9%.

People in glass houses should not throw stones at each other, forgetting that other people’s misery, mistakes or misfortunes rebound on oneself.

The markets are not wrong to be nervous. The current global slowdown and turbulence is not the fault of any single country, but the result of a highly fragmented international financial system (IMS) being buffetted without a single monetary authority, fiscal authority or regulatory authority.

We have moved from a unipolar world to a multipolar casino where no one is fully in charge.

The IMS fragility stems from the fact that its inherent trade and debt imbalances, swing periodically to excesses without a coherent or single mechanism to control or moderate them.

Remember, the IMF is not the world’s central bank – that power was assumed by the leading sovereign central banks, particularly the US Fed. In 2005, then chairman Ben Bernanke complained that the Fed was losing monetary policy effectiveness because of excess savings by the surplus countries, notably China and Japan.

The United States can run ever larger trade deficits, because surplus countries are more than willing to hold dollars in their foreign exchange reserves.

The 2007/2009 crises erupted when the trade imbalances generated a second order imbalance with the United States and European banks expanding credit both off-balance sheet and off-shore in dollars and euro.

The complacency of their regulators allowed these banks to be excessively leveraged. Threats of raising interest rates caused a market reversal and illiquidity, leading to a crisis of confidence and collapse.

Seven years later, the advanced country central banks and regulators again crow that they have “fixed” the problems, but the markets are as fragile as ever.

They are held together because the central banks have emerged as not only lenders of last resort, but buyers of first resort at any sign of market tantrum.

The stark reality was that it was China’s massive reflation in 2009 that reduced its current account imbalances, increased commodity prices and pulled the world out of recession.

But that was at a cost of a huge internal credit binge. Now that China has taken a pause in growth and attempted to correct its internal imbalances, the rest of the world is taking fright.

When the underlying imbalances are correcting as is happening now, there are no excess savings and no excess credit – only the prospect of higher interest rates.

And higher interest rates mean the pricking of the global asset bubble.

In short, before 2007, the world was a four-engine jet, propelled by the United States, Europe, Japan and the emerging markets, led by China.

After 2009, when Europe and Japan slowed, it was a two-engine jet, with China helping the United States sustain growth and currency stability.

Since the United States and Japan are hesitant to want China to join the special drawing rights club, that second engine is being recaliberated.

The world is now flying on one engine, the United States and US dollar.

With a strong dollar and growing fiscal and trade deficits, small wonder that the markets are debating whether that engine is flying on empty.

And what is the Future of Asian Finance? Watch this space next.

By ANDREW SHENG .THINK ASIAN
Asia News Network
Andrew Sheng comments on global issues from an Asian perspective.

The writer, president of the Fung Global Institute, Hong Kong and the chief adviser to the China Banking Regulatory Commission, is a former chairman of the Securities and Futures Commission of Hong Kong.