I've completed my 5th acquisition. I've achieved around 10 - 15% returns per year from stocks, unit trusts and bonds for last 2 years. What do I do next?
Global stock market returns are not going to be great. I calculate only 3% upside next 12 months. Valuations are slightly above median because of the US. Earnings growth are slowing down. Yield curves in many countries are inflated or flat, indicating very slow economic growth ahead.
So what do I do next?
Well, in terms of stock investment cycle we are probably almost on the 70 - 80th minute of a soccer game. Early 2017 is where I foresee the economy goes into a recession or a drastic slowdown. Some bubbles may pop, especially real estate in Asia.
I won't be making any more investments in real estate until the US starts to hike rates several times. The UK will probably start to hike in Dec 15 or early 16. UK properties is one to be careful of now because:
1. Supply coming on stream from 2018 onwards. I expect equilibrium of London demand supply from that year onward, assuming all that the government promised, of speeding up the approval process for new permits come true.
2. Removal of mortgage interest tax deductions from 2020 onward. This will cause professional landlords, those with more than 10 properties think twice about expanding their portfolio. They will either need to park their properties in a company or slowly sell down their portfolio. If they park their real estate in a company, they may continue to enjoy the tax shelter, but upon selling the property, they will be taxed 50% of capital gains vs 28% of the increase from Apr 15 if parked under personal names. The tax will kick in before the shareholders can dividend back the profits. The other way is to sell the company but not the property. But capital gains might be taxed at 28%, which is the same as if held under individual names. However, the potential buyers of companies which hold properties shrink drastically. It may affect the resale value, which will culminate as a form of tax any way.
3. Gradual rate hikes will affect profitability of Buy To Let business.
Residential property investments is slowly being curbed in countries where citizens complain of lack of affordability. I've just mentioned the curbs on UK properties. Australian investors have to contend with ARPA. Singapore investors have plenty of stamp duties and TDSR to contend with.
Perhaps the best option is to go for commercial properties but that has its own risk as well. Unless we buy shops for F&B businesses, or have supermarkets or banks as tenants, demand for retail space is falling due to the internet retailing taking away traditional businesses.
Industrial and office properties are even more difficult. Offices are very sensitive to economic cycles. In a recession, many companies can be dissolved. Rents can plummet by 20 - 50%. Industrial property tenants are very price sensitive and can easily move their goods to another cheaper premise.
I may think of storage spaces or serviced apartments as well.
The next 10 years, in order to make money from real estate, will require a lo of creativity because technology will cause a lot of disruptions.
Global stock market returns are not going to be great. I calculate only 3% upside next 12 months. Valuations are slightly above median because of the US. Earnings growth are slowing down. Yield curves in many countries are inflated or flat, indicating very slow economic growth ahead.
So what do I do next?
Well, in terms of stock investment cycle we are probably almost on the 70 - 80th minute of a soccer game. Early 2017 is where I foresee the economy goes into a recession or a drastic slowdown. Some bubbles may pop, especially real estate in Asia.
I won't be making any more investments in real estate until the US starts to hike rates several times. The UK will probably start to hike in Dec 15 or early 16. UK properties is one to be careful of now because:
1. Supply coming on stream from 2018 onwards. I expect equilibrium of London demand supply from that year onward, assuming all that the government promised, of speeding up the approval process for new permits come true.
2. Removal of mortgage interest tax deductions from 2020 onward. This will cause professional landlords, those with more than 10 properties think twice about expanding their portfolio. They will either need to park their properties in a company or slowly sell down their portfolio. If they park their real estate in a company, they may continue to enjoy the tax shelter, but upon selling the property, they will be taxed 50% of capital gains vs 28% of the increase from Apr 15 if parked under personal names. The tax will kick in before the shareholders can dividend back the profits. The other way is to sell the company but not the property. But capital gains might be taxed at 28%, which is the same as if held under individual names. However, the potential buyers of companies which hold properties shrink drastically. It may affect the resale value, which will culminate as a form of tax any way.
3. Gradual rate hikes will affect profitability of Buy To Let business.
Residential property investments is slowly being curbed in countries where citizens complain of lack of affordability. I've just mentioned the curbs on UK properties. Australian investors have to contend with ARPA. Singapore investors have plenty of stamp duties and TDSR to contend with.
Perhaps the best option is to go for commercial properties but that has its own risk as well. Unless we buy shops for F&B businesses, or have supermarkets or banks as tenants, demand for retail space is falling due to the internet retailing taking away traditional businesses.
Industrial and office properties are even more difficult. Offices are very sensitive to economic cycles. In a recession, many companies can be dissolved. Rents can plummet by 20 - 50%. Industrial property tenants are very price sensitive and can easily move their goods to another cheaper premise.
I may think of storage spaces or serviced apartments as well.
The next 10 years, in order to make money from real estate, will require a lo of creativity because technology will cause a lot of disruptions.
