Finance Smiths

Personal finance apprentices-in-training

Mid year liquid assets update for 2021

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I should be exercising the OTP this week and the law firm representing the seller, IRAS and my law firm will deposit the cheques for the balance deposit, stamp duty and legal fees after that. And I have prepared the cash funds in the bank account to be withdrawn after the cheques clear. It’s not the best feeling knowing that the big cash position we have built up over the years will be wiped out by a single transaction i.e. downpayment for a property purchase. Guess I will have to get used to not having much investing & spending cash and emergency funds for a while.

Anyway, I have updated our combined liquid assets Google Sheet and earmarked the cash, investments and CPF-OA that will be used up for the remainder of the downpayment at sale completion 3 months from now. Meaning I will be excluding these earmarked funds from our liquid assets calculation, which not surprisingly, took a big hit. While I’m able to retain most of our investments held in our online equity trading accounts and monthly investment plans, every other component went down significantly. The breakdown is on my Liquid Assets blogpage but I will write about it here as well.

Cash Balance – S$11,000 (1.07%)

Securities Portfolio Value – S$880,000 (85.69%)

Robo Advisors Portfolio Value – S$2,000 (0.19%)

Cryptocurrencies Portfolio Value – S$1,000 (0.10%)

CPF-OA Balance – S$133,000 (12.95%)

Total Liquid Assets – S$1,027,000 (100%)

I was able to keep the total liquid assets number above S$1m but the drawdown was more than S$500k. Meaning about a third of our liquid assets has gone into real estate and become illiquid. Since the property is for home ownership, I can’t generate any rental yield from it. The plan is to keep my wife’s name free until we decide at a later stage whether she should buy an even bigger place to house the family. If that time comes, I can lease out my apartment for rental income. Hence, the facilities, size, location and layout requirements I put in place for the development that I’m buying a unit in. To ensure a higher possibility of it being rented out at a decent rate.

Not that I’m looking to be a property investor because I don’t want us to hold more than 1 property each. But having at least an apartment under my name that is big enough to house the family with the potential to be leased out later takes us out of the property cycle for now. I can monitor the property prices more objectively and better time my wife’s property purchase in a down cycle rather than an up cycle like now. In the meantime, we can focus on our family, careers and living our lives without worrying about having to move. And we can look forward to getting the new place ready for us to move into after dealing with the renovation works, furniture shopping, packing and unpacking. In the meantime, I will also be focused on rebuilding our finances. This is going to be heavily reliant on income from our jobs and investments so I’m hoping for a long and sustained economic recovery from here.

Downpayment and choosing a fixed rate housing loan package

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I have engaged a law firm to manage the property purchase transaction and I’m preparing for the appointment to sign the Option To Purchase (OTP). Just wrote the cheques for the payment of the balance deposit, stamp duty and legal fees. This is going to draw down on my cash holding significantly and I’m reducing my investing activities accordingly. In fact, the rest of the downpayment in a few months’ time is going to wipe out most of my cash on hand so I probably can’t invest much at all. Need to give myself time to rebuild my cash position for investing and it’s going to take a while. Even after using up most of my CPF-OA for the downpayment, I still have a shortfall to make up.

I’m thinking of withdraw the funds required from my robo-advisor accounts and monthly investment plans. After all, these automated investments are the mostly costly to maintain because of higher platform and transaction fees. This should allow me to avoid selling down my manual investments held in my Stan Chart online equity trading account. These are more profitable to maintain because of lower transaction fees and better market timing results on the purchases. I have about 3 months until the sale completion to come up with the funds for the shortfall and I’m hoping for a bounce in the equity markets in the meantime to do so.

In fact, I have already fully withdrawn the funds from my OCBC RoboInvest accounts last week since all of the portfolios had some small gains and have the smallest account size. Just waiting for the cash amount to be deposited into my bank account. Next up should be my wife’s DBS DigiPortfolios, both of which have bigger gains and account size. Still trying to find a good time to put in the withdrawal request. After that may be our StashAway robo-advisor accounts. These have the biggest gains and account size. I would have liked to hold all of them for a longer period of time but I need the funds for my family to have a home to live in for the next several years. I’m not keen to keep renting and be subject to landlord restrictions in an apartment that I cannot make improvements to. Especially when I have found a unit in a development and area we want to live in. Even if it’s the most expensive purchase of our lives.

Anyway, I’m glad my bank approved the 75% housing loan (after having to show funds) because the 25% downpayment is already going to hit me hard. I will use up most of my cash, CPF-OA and robo-advisor accounts. Can you imagine if I could only get the 60% housing loan with a 40% downpayment based purely on my salary income and bonus? I would have to sell down even more of my investments. It was a difficult choice between the floating rate and fixed rate housing loan packages though. While the floating rate is about 25 basis points (0.25%) below the fixed rate for now, I’m not confident the interest rates won’t rise in the next 2 years. Given the inflation pressures (could be transitory in nature but it remains to be seen), I expect there to be about 1 to 2 interest rate increases by late 2023.

So I have decided on a 2 year fixed rate housing loan package with a free conversion at the end of the lock-in period to one of the available housing loan packages with the bank then. If I’m right and interest rates do go up, I will be paying a lower amount each month on my current fixed rate. If I’m wrong and interest rates stay low, I’m not paying too much more per month in the meantime and will reprice to another decent fixed rate housing loan package at the end of 2 years. What I want is more certainty on my monthly housing loan repayments for the next 2 years while I focus on rebuilding my cash and investments.

There are some big expenses coming our way with upcoming childcare, apartment renovation costs and new car purchase costs. Coupled with a possible risky career move by my wife on the job front that could take years of adjustment to a new work lifestyle. I have also been considering a similar risky career move with my job but I’m not sure whether it’s a good idea for everything to be changing at the same time. We believe in taking calculated risks when the opportunities arise so it really depends on the cost-benefit analysis of taking the chance or passing it up. Operating without a sufficient financial buffer for what I expect to be about 5 years could go either way. Would rolling the dice now help secure the future of our family and finances? That’s the question I’m asking myself and the answer to which I’m looking for.

Buying the property in single name or joint names

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My wife and I went for our 1st Comirnaty vaccine jabs today. We took the day off to rest and recover in case of side effects (nothing major so far). The entire vaccination process was smooth and efficient. Our 2nd Comirnaty vaccine jabs are in 4 weeks time and both of them have been brought forward from our original appointment dates. Might as well get this over and done with earlier rather than later. I feel it’s better to have some level of defence against the Covid virus and hope vaccination paves the way for restrictions to relax & countries to open up.

Anyway, my purchase offer price for the 3 bedroom apartment in this development has been accepted. After all, it has met the seller’s profit number and he doesn’t want to drag out the sale process from having to deal with the tenant & arranging for multiple viewings. I also want to avoid an extended sale process to ensure that the unit doesn’t get bid on by a few prospective buyers causing a potential price war in this hot property market. Before I move on to finalising the Option To Purchase (OTP) for the unit, I now have to think about how to structure this property transaction.

The important consideration is whether to buy the apartment in my name, my wife’s name or our joint names. My preference is for the property to be purchased under a single name as it allows us to better navigate Singapore’s difficult property market. If both of our names are used up to buy this apartment, we will have to decouple the next time if we want to buy a bigger family home or an investment property. That’s going to have administrative, legal fees and stamp duty implications. Although my wife earns more than me, I would like to keep her name free for the next place and not burden her with a big mortgage in the meantime. Let her have the luxury of being debt-free and she deserves it for having done so much for the family.

While it’s my turn to step up financially, the main problem is that I don’t earn enough to get the 75% housing loan (after 25% downpayment) from the bank to buy the apartment in my name. Even if I could get it, this would already require me to liquidate some of my investments to make up for the shortfall after using up my CPF-OA and cash. Based on my monthly salary (fixed income) and annual bonus (variable income), I can only get a 60% housing loan from the bank and this requires a 40% downpayment. Given the price of the apartment, the 15% difference in downpayment translates to a large sum of money upfront that requires an even bigger liquidation of my investments.

I’m in the process of discussing with my bank on how to increase the 60% housing loan to 75% and it’s likely to require me to show funds. Meaning I have to set aside cash or investments that cannot be used for the downpayment and show the bank that I actually have the assets to bridge that 15% gap. Given that my US$ investments have grown over the past year, I may have enough to show funds with them but I can’t liquidate any of them prior to housing loan disbursement. While I may qualify for the 75% housing loan from the bank after setting this up, I still have to liquidate some of my S$ investments to make up for the shortfall after using up my CPF-OA and cash.

Although I have not selected a housing loan package with my bank yet, I did a rough calculation of the monthly mortgage payments with a 30 years loan tenure & 1.5% interest rate and added in the associated monthly maintenance fees. Together with my share of the monthly living expenses (car, utilities, cable, broadband, childcare, contributions to parents, groceries and dining), it would take up most of my monthly salary. I will have a lot less savings every month to use as emergency funds or even for investments.

This is classic lifestyle inflation and I’m knowingly engaging in it. I could make all the excuses to justify it but it comes down to building a life I want for my family. It’s the same reason why I chose to rent a 3 bedroom apartment now in the same development for my family to live in. Instead of choosing to live with my wife’s parents at their house to save on rental costs. I rather spend the money for my family to have a lifestyle they are happy with than to save the money on a lifestyle they are not. It’s not about over-spending on every luxury item and buying expensive stuff. It’s about spending on what matters to us. And I truly believe that buying a place in an area we want to live in that works for us (even if it’s expensive) would do more for us financially in the long run.