Lease Buyback Scheme

I am not yet over 30 but I guess it will be interesting to explore certain options that are available to me when I pass the age of 62.

The Lease Buyback Scheme or LBS is a new monetisation option to help lower-income elderly flat owners unlock the value of their homes to meet their retirement needs. As it has always been reported in the news, most Singaporeans are asset rich but cash poor. After pouring in alot of their money into buying a house, they are often left with insufficient money for their retirement needs. This scheme will help them to stay on in their own flat.

Under the LBS, HDB will buy back the tail end of the flat lease from the elderly household. On top of the housing value that is unlocked, HDB will provide an additional $10,000 subsidy. Out of the total amount, $5000 will be given to the household as upfront cash. The rest of the money will be used to buy a CPF LIFE Plan to provide a monthly stream of income for life. The household will continue to stay in their flat which will be left with a 30-year lease.

Eligibility

LBS is eligible for Singapore Citizens households who:

• are living in a 3-room or smaller flat
• are at CPF draw down age (currently 62 years) or older
• have not enjoyed more than one housing subsidy in the past
• have not previously owned a 4 room or bigger flat, or private residential property
• have lived in the flat for at least 5 years
• have a monthly household income of $3000 or less
• Do not have any outstanding loan of more than $5000

So am I eligible for it when I turn 62?

Firstly, I do not live in a 3-room or smaller flat so I will obviously not be eligible for it. It seems that this scheme is targeted at the elderly now and from statistics, only 25,000 households are eligible for LBS. This households will be those that fulfill the eligibility conditions stated above.

The amount that a household gets from the LBS depends on the valuation of their homes as well as the remaining lease.

LBS is not the only option for households who meet this criteria. Other monetisation options are also available for those with HDB flats. This might include renting out the HDB flat/room, moving to a HDB Studio Apartment or moving to a smaller, cheaper HDB flat.

For many Singaporeans, a HDB flat is their main asset and it will be useful to know that there are various options to generate income from their flats to meet their retirement needs.

In summary, elderly Singaporeans basically can explore 4 different options to generate income from their flat for their retirement needs. They are:

1. Rent Out Flat/Room

2. Move to a HDB Studio Apartment

3. Move to Smaller, Cheaper HDB Flat

4. Lease Buyback Scheme

Change of Ownership for AIG Global Investment Corporation (Singapore) Ltd

I received a letter from American International Assurance (AIA) about a week back regarding the change of ownership for AIG Global Investment Corporation (Singapore) Ltd. Here is the news:

American International Group, Inc (AIG) has announced on 29 March 2010 that it has completed the sale of a portion of its investment advisory and asset management business, including the entity formerly known as AIG Global Investment Corporation (Singapore) Ltd., to Bridge Partners, L.P., an exempted limited partnership owned by Pacific Century Group, an Asia-based investment firm. The divested portion of the asset management business has been branded as PineBridge Investments and operates in 31 countries. With effect from 26 March 2010, PineBridge Investments is an indirect wholly-owned subsidiary of Bridge Partners, L.P.

The resulting change in ownership has resulted in a change of name of AIG Global Investment Corporation (Singapore) Ltd. to PineBridge Investments Singapore Limited. Changes has also been made to the name of AIG International funds and sub-funds. PineBridge Investments is the fund manager for AIG International Funds. This change does not affect the names of AIA Investment-Linked Policy (ILP) Funds.

I hold an AIA ILP which I bought some years back. Here are the consequences for me as far as I can tell:

1. No change to the AIA ILP name. Mine is AIA Achiever.

2. There will be a change in names for all the AIG International Funds. For example, the AIG Greater China Equity Fund is now known as PineBridge Greater China Equity Fund.

Lending Money to Friends or Relatives

I realised that alot of readers like me to share my personal experience on financial matters.

Afterall, pure textbook knowledge about financial planning matters are available everywhere and sometimes, humans learn best from the experiences of others. I have thus created this tag on personal experience where I share my very own personal experience with readers and hope that you will be enlightened by it too. My personal experience are not textbook examples of how you should deal with your personal finance. It is how I dealt with my personal finance given my unique circumstances and scenarios. Sometimes, I acted against head knowledge because I treasure certain things more.

Lending Money

Lending money to friends or relatives is a common issue that crops up in personal finance. Very often, we might get unexpected requests from friends to borrow some money. I am not talking about $10 kind of money because they forgot to bring money with them. I am talking about them borrowing money that ranges from the hundreds to thousands of dollars.

I have one principle I use when I lend money to others. My father was the one who taught me this:

"If you ever lend money to others, treat the money as gone."

This is indeed a wise saying.

Once you decide to lend money to somebody, you should be prepared to write off the debt and the treat the money as a gift to them. If you are not willing to do so, then do not lend them any money.

Once you lend a friend or relative money, it will be very difficult to get the money back. It is a "face" thing amongst Chinese I guess to never ask people to repay back loans especially if they are close friends and relatives. So you will basically be at their mercy when it comes to repayment unless you have bothered to draft up a comprehensive IOU statement.

I am glad to say that I have lent money to friends and relatives on two separate events. I thought about it and asked myself whether I was willing to GIVE away this money and treat it like I will never get it back. Both times, I decided that I was in a position to give the money as my finances was good. Afterall, I view myself as only a steward of the money that God has entrusted me with. I also figured that since this people dared to ask me, they must really need the money.

I am glad to say that I got repaid back both times. One was paid back in a few weeks while the other took a few years. I did not ask for any repayment at all and did not charge any interest. To me, the money was a gift to them and getting paid back was considered a bonus.

I know of people who have lent lots of money to others and have failed to get their money back.

Invest with Temasek through Seatown

In the near future, it might be possible for the public to co-invest with Temasek. A new investment firm called Seatown has been established last year and it will admit sophisticated investors in 3 to 5 years and the public in 8 to 10 years.

That means that around the year 2018 to 2020, the public might get the opportunity to co-invest with Temasek Holdings.

This news was first announced by Ms Ho Ching last year.

Temasek Holdings seeded Seatown with over $4billion and has experienced executives running Seatown.

I am looking forward to this.

Cheap and Good Books

I am always on a lookout to buy cheap and good books to read. I am addicted to reading and always need a book in hand to keep my sanity. It isn't the coolest of hobbies as there really isn't much to talk about after reading a book. Nevertheless, I get immense pleasure from just reading books, especially if they are good.

I guess deep down inside of me, I always wanted to be a sort of novel writer or something. But perhaps that dream might never get fulfilled. Afterall, how many famous authors do we know from Singapore? Most of the famous authors hail from countries like the United States and Britain. Very few come from Asia. This is especially so when it comes to writing in English. Who will want to buy a English novel written by a Chinese writer? The market is really limited in that sense.

Anyway, back to cheap and good books.

I found out that Penguin books are usually really cheap and good. Recently, I bought The Beach by Alex Garland for $10.70 at PageOne. I devoured the entire book in less than three days.

Just today, I also managed to grab another Penguin book that cost $10.70. Apparently, there is a whole list of this Penguin books that have this plain orange coloured cover that are all going for $10.70. A really good deal if you ask me.

So if you are really looking for a cheap and good book, look no further. Penguin books are really worthwhile in my opinion.

Every once a year, there is also a Penguin BookFair that is held at the Singapore Expo. If you are patient enough, you can get the books there for an even cheaper price.

Cheapest Way to Invest (Part 2)

Last month, I wrote a very quick and dirty post on the Cheapest Way to Invest. This post has also been published at CPF's IM$avvy site.

In the previous post, I outlined that the cheapest way to invest is probably a "wrong" question. Instead, the question should be posed as follows:

1. What investment incurs the lowest brokerage charges, sales charge or commissions?

2. What is the cheapest form of investment (cheapest in the sense of lowest monthly premium committment or lowest initial capital outlay)?

Lowest brokerage charges, Sales charges or commissions

There is no easy solution to finding a good investment with low brokerage charges, sales charges or commissions. Afterall, people who sell investment products need a way to make their living and very often, these people are compensated based on the amount that the customer invests.

As a rough guideline, the charges one should expect to pay for investing in shares should be around a minimum of $20 to $30 per trade (depending on the size of the trade). If the amount you are buying or selling is larger, the brokerage charges are actually a percentage of the amount. For lowest brokerage charges, do shop around in Singapore for the lowest charges. Carrying out the trades by yourself through the internet is often cheaper than getting the broker to carry out the trade for you.

For investments into funds (e.g. Fundsupermart or investment linked plans), the norm is a 5% sales charge. Over the years this has been reduced and some funds are now offering sales charges for as low as 1% or even promotional rates of 0.2%. One needs to understand that the sales charge is the difference between the bid-offer spread of the fund prices. Some platforms or companies also charge an annual ongoing fee based on your investment amount. This means that the larger your investment amount, the larger the ongoing fee. Take for example an investment of $10,000 into a fund with a 5% sales charge. That basically means that your investment amount is reduced to $9,500 almost immediately upon investing into the fund.

Commissions are paid out to insurance agents/financial consultants/relationship managers/financial planners/brokers/etc whenever they make a sale of an insurance product. In today's context, many investment products are now tied in with insurance and the insurance companies pay a distribution fee to the agents who manage to sell the products to customers. This distribution fee is the commissions that are paid out as wages/commissions to the various levels of people in the insurance company.

Whatever the case, it is always good to source around for the lowest charges. However, it is also important to note that such charges are hard to escape from and there will definitely be charges to pay. Take a look at the Benefit Illustration for products from insurance companies to make the comparison.

Lowest Monthly Premiums or Lowest Initial Capital Outlay

Based on what I know, $100 is usually the lowest monthly premium for any regular investing/savings plan. However, it is not uncommon to see endowment savings plans that allow you to commit as little as $50 per month. Philips also has a ShareBuilders Plan that allows you to buy certain blue-chip stocks on SGX for as little as $100 per month.

For investment into funds, the usual minimum investment amount should be $1000 though it is not uncommon for some to have investment amounts of $5000.

Unregulated Investments

MAS does not regulate certain investment products so the consumer has to beware when investing in the following:

1. Land Banking

2. Oil pods

3. Wine Investments

Others like ponzi schemes and multi-level marketing are also investments which consumers should take note of. I did not include these products into this post because I feel that they are not really worth the risk. You make your own call =)

New Look For This Site

Hi People!

I finally did the thing that I have been procrastinating for the longest time. I gave this site an overhaul using the latest design features from Blogger.

I have always been afraid of tinkering about with the design because I was afraid that it might corrupt my files and stuff. Silly me!

Anyway, since I had some time to burn today, I just fiddled around with Blogger's latest design tab functions and chose the simplest design for my blog. I think the new look is much better than the previous look.

For your info, to comment on this blog now, you will have to click the comments link that is located near the title of the post.

Hope you like the new layout of this blog. Do let me know if there is anything that you feel needs to be tweaked to make this blog look better.

Best regards,

FF