Category Archives for Investment

Singapore Savings Bonds – more updates about the programme released

The Monetary Authority of Singapore (MAS) has just released a press release with more details about the Singapore Savings Bonds (SSB) programme that I blogged about earlier.

  1. SSB will only be available for individuals – will be launched in the second half of this year (New!)
  2. Investors can put in a minimum of S$500, and in subsequent multiples of S$500, for 10 years (New!)
  3. Savings Bonds are non-marketable securities and cannot be bought or sold in the secondary market (New!)
  4. Interest will be paid every 6 months and at issuance, rates are fixed based on the prevailing SGS yields and locked in for each issue (New!)
  5. There will be a limit to the total investment amount to maximise participation and provide a broad reach (New!)
  6. Investors can opt for a monthly issuance of their money or choose to withdraw all of their money any time with no penalty
  7. SSB will earn interest that is linked to long-term Singapore Government Securities rates
  8. SSB interest rates will increase over time so the average interest rate will be higher the longer SSB is held
  9. Savings Bonds programme is principal-guaranteed

Low barrier to invest and 6-month interest payout (Yay!)

The barrier to invest in SSB is a low sum of $500 which I would like to think that most middle-income Singaporeans should be able afford. This is half of what you would need to have in order to invest in a SGS bond or Treasury Bill. I also like that the payout of interest is set to every 6 months instead of once a year.

Ability to sell SSB and withdraw the money at any time without penalty (Yay!)

As an investor, the liquidity of bonds is always an issue because premature sale of bonds may result a loss in principal or interest. Giving bond-holders the flexibility of selling SSB without incurring any penalty is great because they can sell their SSB to capitalise on any investment opportunity that they come across.

Interest rate tied to Singapore Government Securities (SGS) rates (Meh!)

As SSB interest rates will be tied to SGS bond yields and increased over time, let’s look at how our SGS treasury bills and bonds are faring today (30 March 2015).

Year 1-Year 2-Year 5-Year 10-Year
Yield 1.00% 1.32% 1.88% 2.32%

If you invest $1,000 in SSB today, you will receive 1% interest ($10) in a year. If you put the same amount of money in a fixed deposit, the highest interest rate in the market today is at 0.63% ($6.30) offered by RHB Singapore. Sounds like SSB is good right?

Let’s say you put in another $1,000 in the second year because you like what SSB is offering. The average interest rate you will receive for the $2,000 worth of bonds is now 1.16% ($23.20), an average of 1-year and 2-year bond yields. The highest 2-year fixed deposit interest rate available today is 1.13% ($22.60) offered by RHB Singapore. In both cases, SSB offers a slightly higher interest rate.

A fluctuating interest rate (Yay and Meh!)

If you look at the SGS website, you would see that bond yields fluctuate every day. As SSB interest rates are tied to SGS bond yields, you would expect them to fluctuate on a daily basis as well.

The fluctuation could go both ways for investors. Over the past week, we see 1-year SGS bond yields gradually inching up bit by bit to 1% as of 30th March. That is a good thing, but there are also cases where SGS bond yields decrease due to various factors. Fortunately SSB bond-holders will be able to sell at any point in time without incurring any penalty. That means if SGS bond yields are too low, one could always switch to fixed deposits or other forms of fixed income investments.

Will I invest in SSB if it was available today?

As of today, the interest rates offered by SSB is definitely better than the current fixed deposits offered in the market. However, I don’t have any fixed deposits under my name anyway. Instead, my money is all kept in my OCBC 360 account which generates 2.05% interest per year. That is definitely higher than what SSB is offering so I’m unlikely to make the switch.

I would adopt a wait-and-see approach and find out how the market reacts when SSB becomes a reality. Banks would definitely have to increase their fixed deposit interest rates to retain their customers. I’m also hearing rumours that the OCBC 360 account may have some adjustments made to their current interest rates so it may be a reason for me to switch to SSB too.

Here’s an infographic about the Singapore Savings Bond that was created by Business Time.

BT-singapore-savings-bond-infographic

Singapore Savings Bonds – a new investment option for retail investors

The Government and Monetary Authority of Singapore (MAS) are planning to introduce Singapore Savings Bonds (SSB), a new type of bonds to help individual investors get a better return on their savings.

“In short, the Singapore Savings Bonds will offer the higher returns of a long-term bond and give what investors call a term premium, while retaining the flexibility of a shorter-term deposit, and the safety of an instrument guaranteed by the Government,” – Senior Minister of State for Finance Josephine Teo

While details about SSB are still being finalised, here’s what we know about this product:

  • It is a low-cost investment made widely available to retail investors to encourage individuals to save and invest to meet their long-term financial goals and retirement needs.
  • SSB will be principal-guaranteed by the Government which means the investor’s original outlay is fully protected.
  • Bond-holder will be able to sell the bond and get his money back in any given month without incurring a penalty.
  • SSB will pay higher coupons if the bonds are held longer unlike conventional bonds where the same coupon rate is paid each year.

Given that my current portfolio is 100% equities instead of an 80-20 split between equities and bonds, I certainly look forward to rebalancing my portfolio after SSB becomes available.

In my opinion, SSB has a steep hill to climb in order to be well-received by retail investors.

Offer higher interest rates than the regular bank deposits

I don’t think this will be difficult seeing how the average interest rates that banks are offering for deposits are very low. The highest bank deposit interest rate offered in the market right now is the OCBC 360 deposit account where account holders can earn up to 3.05% per year in interest by performing these tasks every month:

  • Crediting their salary to the account
  • Spending at least $400 on an OCBC credit card
  • Paying any 3 bills using OCBC online or GIRO

If SSB could offer an interest rate of approx. 2.5-3.5% per year, I’m pretty confident that investors would move their deposits from OCBC to SSB because it is much more simple. I for one would love to not have to spend at least $400 on my OCBC credit card if I don’t have a need to.

Be more attractive than Singapore Government Securities (SGS) bonds

Singapore Government Securities (SGS) are marketable debt instruments of the Government of Singapore. These debt instruments take the form of either Treasury bills (T-bills) or bonds and are backed by the full faith and credit of the Singapore Government.

They are offered in the following options:

  • 3-month Treasury Bill
  • 6-month Treasury Bill
  • 1-year Treasury Bill
  • 2-year SGS bond
  • 5-year SGS bond
  • 7-year SGS bond
  • 10-year SGS bond
  • 15-year SGS bond
  • 30-year SGS bond

The SGS bonds and Treasury bills are not widely marketed and I’m quite sure that the average investor would not have the knowledge on how to go about applying for one. I personally have participated in a 1-year Treasury Bill auction many years ago when the interest rates offered back then were quite attractive. In recent years, the interest rates offered for SGS bonds and Treasury Bills have been rather unattractive for me to make the effort to add them into my portfolio.

Our senior minister has mentioned that SSB offer interest rates close to long-term SGS bonds and would not have any lock-in periods tagged to them. Awesome! The next hurdle to cross would be to make SSB easy to buy (and sell). The best way to do this would be to allow investors to purchase SSB through internet banking platform of local banks and making payments with their deposit accounts.

Remain simple to understand and sustainable in the long run

With lofty ideas such as to offer interest rates close to long-term SGS bonds and allowing investors to get their money back any time without penalties, this product will need to be well-planned and given a thorough scrutiny to ensure that it is self-sustainable and not become a ponzi scheme.

As an investor, I would want to know how the money in the bond is being invested in order to generate the returns promised. As they say, if it sounds too good to be true, it probably is.

If done correctly, the SSB could become a disruptive innovation that forces the fixed-income market to improve on its offerings in order to retain its investors. Banks may be pressured to increase their interest rates for deposit accounts to keep account holders from withdrawing their money to buy SSB. Bond issuers will have to think out of the box in order to entice investors in parking their money in their bonds.

The Buyer’s Guide for Cambodia property investment

I have received a request from a reader who was interested in finding out more about buying a property in Cambodia as a foreigner and what are the charges and taxes involved.

Below is a summary of the charges and taxes involved in my purchase of a SOHO unit in The Bridge Cambodia.

Upon selection of property

  • Booking Fee USD1000/S$1250 (one-time payment)

Sale & Purchase Agreement (SPA) will be provided to you within 14 days

  • Upon signing SPA, 10 % of the Purchase Price (minus Booking Fee) to be paid to developer
  • Legal fees of around S$50 – S$150 to be paid if using Notary Public Fee for Witnessing Signature
  • Legal fees of >US$300 to be paid if using a Cambodian lawyer (optional)

Deferred Payment Scheme

For my property purchase, I will have to pay 10% of the Purchase Price every 6 months in cash until I have completed paying 50% of the Purchase Price. Upon completion, I will need to pay the remaining 50% of the Purchase Price (either in cash or mortgage loan) and Stamp Duty Fees (Transfer Fee for Hard Title) of 4% of property value.

Taxes

  • 0.1% per annum tax on Immovable Properties (value determined by Immovable Property Assessment Committee)
  • 10% per annum tax on Gross Rental Income
  • Capital Gain Tax not applicable for individuals and 20% for corporates
  • 10% VAT (one-time) is absorbed by Developer
  • VAT On Resale (one-time) applicable only for VAT registered companies

If you have more questions about investing in properties in Cambodia, please feel free to contact me.