r2i forum

locgreen;28153RRK...you mentioned prices approaching Singapore and HK. Far from it. The ave entry level private condo in singapore is around Rs10,500 psf. Mid segment is around Rs 32,000 psf, while the top segment is around Rs 66,000 psf. The max price achieved is Rs1,05,000 psf. We are only in the mid phase of the present cycle. For HK, you can easily double these values.

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In post #14, I only said :
[QUOTE]
Some of the apartment prices are competing with Hong Kong and Singapore prices.

RRK;28517locgreen,
your post cleared some of my questions. so, no arguments.
let me add few comments ( response to few of your questions).

1.#31,



I did not mean the risk, I meant the investment knowledge. When you grow older, you learn many things.

2.
Say you can get better return of 8% elsewhere but you are forced to get a return of 3%, I consider the 5% lost is a taxation. Like you mentioned you are not going to see the money again.[/quote]

The 35% contribution is tax free. That is a saving, as you would pay tax on that portion if not for CPF. So the real return is more than 3% if you factor in the tax savings.

RRK;28517 I think CPF interest rate is linked to FD rates. Why would a govt pay FD return on a long term investment ? Why force the citizen to pay 35% of the salary in a mandatory savings scheme ? My point was each citizen and family has their personal financial goals, risk tolerance and time horizon. Why not let the families decide what is best for them to invest ?[/quote]

The CPF rate is linked to the ave FD rates of the local banks, subject to a constitutional min of 2.5% for the Ordinary a/c and 1.5% above that for the Special and Medisave a/c. So in the years when FDs were "offering" 0.5% returns, CPF was still paying 2.5% on the OA, 4% on the Special and Medisave a/c.

On the face of it, it may seem harsh that 35% has to be compulsorily contributed, but from my experience, i view it as a godsend in that i don't have to make an effort to put something aside for savings; saving becomes idiot proof. Not everybody has the savvy to achieve 8% returns. Most people save over and above the CPF contribution. Of course, individual circumstances vary. As to the merits of forced savings, all i can say is that 90% of the locals own their own homes, nobody lives in shanty towns and the place is safe and clean. Some of this has to do with the high level of "forced" savings. Most people are not necessarily prudent when it comes to savings. For people such as yourself, who are savvy, you can always invest your OA funds in various asset classes and instruments including RE, insurance, stocks, and gold. So, the options are available.

Also, the 35% conribution is not on your entire gross salary. It is subject to a cap of S$4500 per month, i.e., 35% of max $4500 per month. So if your salary is 10K per month, your contribution rate is far less than 35%.

RRK;28517 What is the inflation in Singapore and can you pls tell me whether the yield is positive real return ?[/quote]

Inflation over the last 15 years or so has moved in a band of 0.5%-2.5%. So the net yield is positive. That said, you are correct in that CPF could do a lot more than return 3%, and i believe they are taking steps in that direction.

RRK;28517 Pls refresh my meory. Does CPF still follow the policy of 65/25/10 for ordinary account, special account and mediclaim ? Only allow you to invest in housing from the 65% balance.[/quote]

Depends on your age. But the breakdown is reasonably accurate.

RRK;28517 What ever, who is the govt to tell me how much I should save and invest in which scheme ? Also pay very low yield.[/quote]

They do tell you to save, but don't tell you to invest in any particular scheme. Singapore is a hugely successful metropolis built largely on the hard work of their people and their "forced saving" has contributed in no small measure to Singapore's wealth and stability.

RRK;28517 Now this is what I call taxation. ( indirect).[/quote]

We shall have to agree to disagree.

RRK;28517 3. I guess Singapore has seen earth quake tremors. So, I would not say Singapore is immune. For that matter, Chennai is classified as type-3 earth quake risk city.[/quote]

I am a Civil Engineer by training, although i am employed in a different proffession. We do not specifically design buildings to withstand earthquakes because tremors felt in Singapore are extremely mild. The built in factors of safety are more than adequate to compensate.

Cheers.

RRK;28840locgreen,
Thanks for updates and very useful information.

I must confess here my background, so it is easy to discuss few things. I was PR of Singapore and later surrendered that, took my CPF money out. Bought and sold HDB apartment through CPF.

With this background we can go on now.

Tax savings is one time deal. But you lose on the portfolio performance year on year. It is no brainer and a simple math that the difference between 3% and 8% return over long term is huge sum. REAL HUGE !

Consider monthly payment of $1000 for 25 years accumulating at 3%, you will have $446,000 at the end of 25 years. At 8%, it will be $951,000.[/quote]

I understand and appreciate the power of compounding. To re-iterate, with the annual benefit of contributing tax free, the real return is more than 3%, one time benefit notwithstanding. That said, perhaps i should put some things in perspective. My CPF contributions annually comprise 8% of my annual gross (due to the salary cap). Of that 8%, the bulk of it goes to the OA, which i have invested in Singapore RE and at last look, has returned in excess of 300% in 1 year, equating to 20% odd compounded over 10 years. So, the portion that goes into the SA and Medisave, is roughly 2% of my annual gross, returning me 4%. To me that is (part of) the cash component of my investment portfolio. You will agree that low risk, high liquidity (give up PR) investments must form part of your IP.

Of course, when i started my career, and when CPF salary caps were higher, and my salary lower, CPF deductions were 25-35% of my annual gross, and i didn't have enough in the OA to invest in RE, and a novice in stocks. Relatively low returns notwithstanding, i was glad i was forced to put money away. When i faced a tight financial situation, i had to change my lifestyle to meet requirements. I didn't have the option of dipping into my IP, which at the time was restricted to CPF. Between 1997-2004 there is no way you could have achieved returns of 8% in any asset class in Singapore. Those who did invest their OA in various asset classes saw negative returns. As for the US or the rest of the world, that same period could have seen you either making a lot of money, or losing your shirt (dot-com boom and bust) depending upon your timing and choice of stocks.

RRK;28840 What is your tax savings for each year due to CPF ? Singapore taxation is very low compared to developed countries in the world. And If I am right, Singapore does not tax income from other countries, if it is not brought inside. If that so, one can invest in US and not pay any CG in US and also in Singapore. Isn't that great ?[/quote]

At this point in my career, tax savings are relatively minor, maybe 10% of my tax bill. I think i am in the 16% tax bracket. There is no CG in Singapore for stocks or RE. Yes, as i mentioned elsewhere, i have exposure to stocks in Singapore and the US.

The overall thrust of my argument is that one cannot chase the proverbial pot of gold. One has to invest and wisely so by diversifying. Some asset classes will return more than others. There is merit in forced savings. It is not possible for all investors to achieve 8% returns across all asset classes. Sure if you stay invested for 30-40 years without selling, i can guarantee that stocks and RE will return 6-10%. Holding power, discipline?

Cheers.