More On Properties, Leverage On CFDs and Gold / Silver

http://sg.news.yahoo.com/why-property-market-busts-happen-085048214.html

The above article talks about what causes property booms and busts. According to the author, the bigger cause is demand and supply of money, not the same for property. When demand rises faster than supply for money, interest rates creep up, choking off borrowing for investing. It causes forced selling of properties at a later stage. I believe that is one factor for predicting real estate cycles. But demand and supply of real estate is just as big a factor. Imagine a city that produces 40,000 jobs per year. Each household comprises 3 people. The total demand will be 40,000 homes. But what if 80,000 were built? There would have been 40,000 empty homes and sellers will have to lower their prices drastically to compete with those owning excess housing.

Next, if you're trading stocks using margin, or trading stocks via CFDs, how much leverage should you take? My advice is to leverage no more than 80%. This meant 4x leverage. The more "amateurish" you are, the less you should leverage. Why is that so? let's assume that you are able to exit most stocks using trend following methods within 5% from the top. A 5% drop with a 4x leverage means a 25% drop in your capital. But what if there is a "flash crash" within hours? The biggest observed single day drop in S&P500 is a 15% drop. If you leveraged 4x, your capital would have fallen by 75%. You would have survived to fight another day. If you had leveraged 85%, a similar crash seen in 1987 would have totally wiped you out. The more you leverage, the more you need to trade because you cannot afford big drawdowns. Transaction costs will eat into your return. Your job is to assess the trade offs between getting bigger gains from leverage and increased transaction costs.

Finally, I know I wrote about selling off gold and silver. But I reverted to buying gold / silver on 6 Nov. Since then, silver has risen by 5%. I took a big position and got paid off! Stock markets may be turning positive again. Stand by!

Stock Market Correction Is Accelerating: Not Too Late To Trim Positions

On 13 Oct 2012, after watching the close of 12 Oct, I detected signs of a topping of the stock markets via the AUDUSD indicator. The HYG turned bearish on 22 Oct.

http://musingsonwallstreet.blogspot.sg/2012/10/watch-out-for-pull-back.html

Early Nov, things look like stabilising. But after Obama won the elections, the avalanche began. The Hang Seng China Enterprise Index fell by 6.8% from the peak. I believe it will fall another 2 - 5% at most before stabilising. The S&P500 tumbled 8.5% from the peak. The MSCI World fell 6.8%, the Mining Index 8.2%, The Spanish ETF 9.5%.

I believe we are halfway through the correction, although one cannot be sure. It is still not too late to sell those equity funds that are in profits.

The key concern going forward is the earnings outlook, rather than the Fiscal Cliff. The Eurozone has entered a double dip recession. But for those pessimists, look at the US economy: The consumer spending has recovered. In China, the PMI seemed to have bottomed. Two out of three major economies picking up isn't too bad.

I have done most of my selling in Oct and I have hedged my portfolio somewhat. Now I am looking to buy when there are signs of stabilisation.

Another Lesson In Buying Overseas Properties: Please Visit the Place First!

There are many exhibitions in Singapore, Hong Kong and Malaysia selling properties in the UK, US, Malaysia and Australia. Buying properties in Malaysia is not so tricky if you just drive across the border to look at the place. But for the US (New York), Australia (Melbourne) and UK (London), it is imperative that you visit the place. There are many condos in New York being marketed here. Many of them are in the Lower and Upper East Side Manhattan. My suggestion is to make sure that the place has not been devastated by Hurricane Sandy. Also, a New York apartment of around 700 SF could cost around USD650k. The gross rental could be around 6.5%. But the Home Owners' Association (HOA) or conservancy fees could cost USD17,500 or more every year! The net yield as a result is only 0.8%!

Then there's London. When you buy off-plan and it's in an area that you've never visited before, it's best that you visit it first, even if it's a regeneration area. In London, regeneration can be very patchy. An area could be previously a slum, occupied by gangs, council flats, unemployed youths, and there are single buildings amidst the slums which are new. However, it will be difficult to attract tenants until the regeneration is complete. Even if there are new transport links to the area, new shopping malls and offices, if the general economy of London is declining, there may be problems attracting MNCs to locate their offices there. The key challenges in attracting investments to London are: 1) high personal and corporate taxes, 2) intrusive and inflexible labour policies that deter employers from hiring, 3) labour force that is ill prepared to meet the skills demanded by employers (not enough engineers, doctors etc).

Another issue with buying an apartment near the tube station is this: the tube tracks are often overland and they can be rather noisy. Here's a picture of an apartment located very near Stratford interchange. The place is Stratford Eye. The building is completed. The balcony overlooks 5 tracks. I wonder how noisy it will be with the trains screeching to a halt at the station nearby. The balcony could be an area to avoid if you want peace and quiet! If you buy an apartment there you could find it difficult to find good tenants who are willing to stay long.

We stayed in Copthorne near Kensington several months ago. The hotel was next to a train track, not even near a station. We could hear the faint noise of trains going past every few minutes even though the room was sound proofed and double glazed. 

There is a recent project launched by Telford Homes in Hong Kong, Singapore, Malaysia and the UK, called "Stratford Plaza". It is right next to the tube station and I can imagine the station will be extremely busy and noisy. I wonder if that's the reason they built a "winter garden" instead of a standard balcony. A winter garden is a balcony enclosed by sliding windows. Perhaps it is sound proofed so that occupiers won't be too bothered by the sound of screeching trains every few minutes. 

Ministry Manpower Moving Out From Office Near The Riverside Piazza

http://www.mom.gov.sg/newsroom/Pages/PressReleasesDetail.aspx?listid=317

The area around Clark Quay is becoming increasingly vibrant. Three factors cause residential property prices to rise:

1) Increase in offices near the area. The area vacated by MOM could be refurbished and GFA increased, although this is unconfirmed. People who live in Clark Quay will have no problems walking or taking a bus to Raffles Place to work.

2) Schools nearby. Raffles Education is shifting to Merchant Square at the end of 2012. There will be a shortage of student accommodation and it will spillover to higher rental demand for residential properties nearby.

3) Shopping centres and F&B outlets nearby. The area in Clark Quay has ample supply of good restaurants, and the nearby Chinatown area provides affordable and good hawker food. Perhaps what is lacking is a large shopping mall with cinemas etc. The Central has many food outlets but not enough residential critical mass to have a cinemas. Nevertheless, there is a lot of entertainment outlets around the Clark Quay area, from pubs, to coffee shops to KTV bars.

Since I first put up the article on The Riverside Piazza, the price has risen from around 980 PSF to around 1280 PSF. It is still the cheapest apartment around the area, definitely cheaper than Watertown at Punggol (1300 PSF), Sky Habitat (1700 PSF). Chinatown has a few very old, leasehold apartments, with around 60 to 70 years left, which cost around 1000 - 1200 PSF. There is no swimming pool however, and it can be a bit noisy at times due to the vibrant retail traffic downstairs. Chinatown area is also a little further away from Raffles Place.

Rental income for 2 bedrooms in The Riverside Piazza range from 3800 - 4000 per month, and for 3 bedrooms between 4400 - 4800. The rental yield based on current transaction is around 3.6%. But rental increase can be substantial once the GFA of the office vacated by the MOM and Raffles Education shifts in.