Thursday, January 18, 2018

5 Ways To Prepare For The GST Hike (That Is Most Probably Coming)

Judging by recent chatter, a GST hike is on the cards. Consider making these 5 changes to soften the blow when the increase lands. While the date isn’t fixed yet, it looks like Singapore is in for a Goods and Services Tax (GST) increase. Whatever your views are on this, one thing’s for sure: the cost of living is about to go up again, and it’s time to prepare for the inevitable. Get started today with a few simple steps.
1. Rework Your Budget
We don’t know what the actual GST rate will be, but we can make a good guess. At present, Singapore’s GST rate is seven per cent. The GST rate was three per cent when it first started in 1994, and was raised to its current level in 2006. That’s a raise of four per cent in just over a decade. At the same time, we can see that GST in regional counties, such as Vietnam and Australia, is around 10 per cent. As such, it’s probably safe to plan for a GST rate of about 10 per cent, in your budget. While the GST hike probably won’t happen soon (it could be several years in the future), you might want to try to acting as if it’s already here – that will help you to prepare for it. Treat everything as if it’s 10 per cent GST in your budget, and set aside the monies you save this way. Note that the government is also considering applying the GST to online purchases (currently it only applies to purchases with a value of S$400 or more). Don’t count on e-commerce to help you bypass the tax for much longer.
2. Get Big Ticket Items Before the GST Hike Kicks In
If you’re planning for any major purchases that could incur GST, such as a new refrigerator or air-conditioning system, you may want to speed up the buying decision. You’ll want to get these items before the GST kicks in, as the savings will be substantial. An added three per cent GST on a S$5,000 air-conditioning system, for example, would be S$150. Again, you probably have a few years before the GST hikes comes, so there’s no need to rush out and do it tomorrow. But you may want to ramp up your savings, in case you need to hurry and buy it when the GST hike finally lands.
3. Review Your Long-term Financial Plans
The GST hike will cause a general rise in cost of living. Remember it’s not just your personal expenses that will be impacted – businesses have to pay GST as well, and some of them could pay more for costs like supplies and delivery. These are costs that they might pass down to you.
You should revise your desired income after retirement, as well as the amount you need to save for emergencies. Speak to a financial planner for more help on this. A quick and easy way, however, is to try and nudge up your intended post-retirement income (e.g. instead of aiming at S$2,000 a month after retirement, aim to get at least S$2,200 per month. You may also want to review any fixed income assets you possess, such as bonds. Remember that the fixed income (such as bond coupons) won’t change, even if the cost of living rises – they may now be worth less in your portfolio, in the face of climbing taxes. Ensure your financial planner reviews your asset allocation, in light of this.
4. Switch to Smaller “Mom & Pop” Shops
Businesses only have to be registered for GST once they have an annual revenue of S$1 million. This means that some small businesses, such as corner store eateries, won’t be affected by the hike in GST. This helps fledgling businesses to grow, and keeps small, family-operated type stores in business. There are many of these small shops in heartland areas, often scattered around HDB estates. By shopping at a small, family-owned provision store, instead of a chain supermarket, you can save money on GST. At the same time, you’re also helping to keep another Singaporean family afloat. Look around for these businesses, and try to get into the habit of using them for everyday essentials.
5. Check for Ongoing Costs that may be Affected
Take note of any ongoing costs, which may be affected if there’s a GST hike. For example, if you have a cable subscription and a gym subscription, regular payments may rise in accordance with an increased GST. Keep track of them, as automated payments are quite easily forgotten about. You may want to review your need for such services in future. If you’re really only watching a few programmes, or using the gym once or twice a month, consider cancelling your subscriptions in favour of other activities.'s #1 personal finance comparison platform by transaction volume, provides consumers with timely money insights and aggregates the latest credit card offers and up-to-date personal loan deals.

Friday, January 12, 2018

Dividend Warrior 2018 Investment Outlook

Happy New Year, my fellow warriors! 2017 has been a year of the 'rising tide lifts all boats'. If one was vested in banks, REITs, property developers and semi-con companies, his portfolio would have been lifted by this 'rising tide' throughout 2017. All the doom & gloom forecasts made by most analysts at the start of 2017 seemed rather laughable now. I guess it was partly down to luck that I decided to go heavy on banks & REITs in 2017 as I returned to my income investing roots.

Below is a snapshot of my Singapore dividend portfolio's year-on-year performance. (Data extracted from website on 29 Dec 2017)
  • Market value of portfolio increased 26.5% from S$345k to S$436.5k. This increase came from price appreciation, injection of fresh capital and re-investment of dividends received.
  • Total annual dividends collected increased 33.6% from S$15.5k to S$20.7k
  • Outperformed the STI ETF slightly by 2.83%. My 5-year investing returns are significantly better than the STI ETF.

Biggest Lesson From 2017 - Be Disruption-Proof
Comfort DelGro (CDG) traditional cab rental business being disrupted by Uber & Grab. In the old days, conservative investors usually go for solid, boring blue-chips which are considered more recession-proof. Unfortunately, in this new era of tech disruption, being recession-proof is no longer enough. A company needs to be disruption-proof too. Fast eats slow!

In my opinion, the real-estate industry is rather disruption-proof in general. The 'tenant-landlord' business dynamic has been working reasonably well in the capitalistic world over centuries. There would always be people developing properties, people who owned properties and people who pay rental to use these properties.

People rent properties to conduct all sorts of economic activities - selling products, providing services, storing goods etc. There would always be demand for real estate, even when there is disruption. For example, e-commerce is giving traditional brick-and-mortar retail stores intense competition. However, for e-commerce to work, the products have to be stored & sorted in a warehouse/logistics facility before eventually arriving at your doorsteps. Another example, doctors need to perform surgery in a hospital's operating theatre. The ever-increasing elderly population require nursing homes. Both are near-impossible to disrupt with just a smartphone app. So, we need to figure out which real estate sub-sector would be in greater demand in the future. I am placing my bets on the logistics, healthcare and data centre sectors due to the rise of e-commerce, aging population and growing digital economy.

2018 -  A Year Of Rate Hikes & Crypto-currencies
Markets are expecting the US Federal Reserve to hike rates thrice in 2018. Naturally, this brought back memories of the frenzied 'Taper Tantrum' period in 2013 when REIT prices tanked. Investors were fearful that rate hikes would lead to higher borrowing costs and eventually hurt distributions of REITs.Contrary to popular belief, a rate hike cycle might not be all negative for REITs. During the previous major rate-hike cycle from June 2004 to June 2006, prices of S-REITs had appreciated strongly. 

We are seeing a similar trend in the current rate-hike cycle. Ever since the Federal Reserve raised rate back in December 2016, the ST REIT index had returned +23.6% so far.

The impact of rising rates could be mitigated. Those well-managed REITs have already hedged 75% - 80% of their debts into fixed rates. Furthermore, on average, REITs only have 17%, 18% and 1% of total debt up for refinancing over 2018, 2019 and 2020. In general, branded REITs from the Mapletree, CapitaLand and Frasers CentrePoint 'families' are fairly prepared for the rate-hike cycle. 

Three factors are aligned for the 3 local banks to soar to greater heights. Higher interest rates generally lead to higher interest margins for the banks. A buoyant local property market (surging en-bloc deals) and synchronised global recovery bodes well for loan growth. Recovering oil price means lower provisions for O&G loan portfolio. This trifecta should add up to a positive year for the banks!

Now, we move on to the hottest topic in financial markets - crypto-currencies. What's my take on the meteoric rise of Bitcoin, Ripple, Ethereum etc.? Well, I prefer to stay within my 'circle of competence', which is dividend investing. Compounding dividends over long-term would have a powerful effect on overall returns. Unfortunately,as far as I know, crypto-currencies do not distribute cash dividends. One simply aim to buy low, sell high. Or in recent weeks, buy high and hope to sell higher. Being vested in the equity market is already risky enough, I do not need to expose myself to the extreme volatility of crypto-currencies too.

All I know about crypto-currencies is that they are basically a string of algorithms built on blockchain technology. To me, crypto-currencies fall into the category of 'alternative investments', like fine art, wine, antique cars, precious metals. These investments are definitely far from my 'circle of competence'. Don't get me wrong, I am not against crypto-currencies. People have amassed huge fortunes literally overnight. Good for them! I don't judge how people invest/speculate their money as long as it is within the boundaries of law. Whatever floats your boat.

Projected Dividends & Distributions in 2018 (ranked in descending order):
  1. Frasers Logistics & Industrial Trust: S$3,150
  2. Mapletree Logistics Trust: S$2,563
  3. Mapletree Commercial Trust: S$2,124
  4. Singtel: S$2,100
  5. Ascendas REIT: S$1,920
  6. Frasers CentrePoint Trust: S$1,785
  7. Parkway Life REIT: S$1,320
  8. Keppel DC REIT: S$1,296
  9. OCBC: S$1,087
  10. Mapletree Greater China Commerical Trust: S$888
  11. DBS: S$775
  12. CapitaLand Mall Trust: S$770
  13. Suntec REIT: S$588
  14. SPH REIT: S$548
  15. Comfort DelGro: S$416
Total estimated dividends: S$21, 330
2018 Dividend Target: S$22, 000