Why I don’t like 5/95 housing plan?
I notice that there are several property developers providing this 5/95 housing plan nowadays, especially during recession period like this. I won’t mention which developer, but normally, you’ll be able see a lot of advertisements by such developers.
Before I continue, let me explain briefly what does it mean by 5/95 plan. Normally when you purchase a property, you need to pay at least 10% of downpayment in order to “buy”. Then after a certain period of time, you will start paying the bank for the housing loan and the interest charges. The problem here is that, you will need to ensure you have the enough fund to pay the 10% and also the progressive payments after that. The bank will penalize you if you’re not able to pay them back on time.
And 10% is not a small amount during times like this. A 300k property means you have to fork out 30k before you can start talking.
So some developers think of another way to attract more buyers during recession period and came out with the 5/95 plan. You pay 5% as downpayment, and nothing else UNTIL your property is completed. For a landed property, it normally takes 24 months and for highrise like condominiums, it’ll take 36 months but everything will be stated in your S & P. So, this does sound like a good deal right? You only pay 5%, which is as low as 15k for a 300k property, and then nothing else until the property is completed. This also means that if you don’t have money now, you can still buy a property. You don’t need to pay until 2 or 3 years later!
If it’s so good, why do I dislike it so much? I’m never a big fan of the 5/95 plan actually and this is due to 2 simple reasons.
- More expensive – if you calculate properly, the total price of the property is more expensive using the 5/95 plan due to the hidden charges and accumulated interest rates. I did not do a proper calculation and the examples I’ve seen before this are rough figures. I’ve read it somewhere in the papers actually. Do correct me if I’m wrong. But yeah, if you compare 5/95 plan to the old progressive payment plan, 5/95 will make you pay more for the same property.
- Speculation – in 5/95 plan, you don’t need to pay anything between your 5% downpayment and your property completion date, which is maybe 2 years or 3 years later. So if you are saying you opt for 5/95 because you don’t have the money to pay now (due to recession), then what makes you think you will have a stable income or enough money to pay for an even bigger amount 3 years down the road? You are actually speculating things here. What if the economy gets worse 3 years later? In my opinion, if you really want to buy a house, you need to be able to afford it NOW and in the future. So progressive payment vs 5/95 are still the same. If you can’t afford paying the progressive payments now, don’t assume you can afford it 3 years later.
That’s all. These 2 reasons are enough to make me stay away from 5/95 plan. I’m sure there are still a lot of other affordable housing plans out there and different people will have different opinions. But for me, I would prefer to go the traditional progressive payment way.
Feel free to comment or even correct me if you find my information here is not correct.
How to choose the right financial adviser?
Financial adviser is a difficult job especially during recession period like this. When he gave out a good tip or advice, people will not really give him the compliment but when things don’t work well, he’ll have to shoulder all the blames. After all, it’s natural for people to blame others for the wrong things and to praise themselves for doing the right things. 
For me, a financial adviser should never be blamed. He is, after all, just an adviser. And by saying financial adviser, I do mean anyone who is able to help you with your financial planning. The person does not have to be a qualified person or a CFA holder. He can be your stock broker, your family members, or even your friends. But no matter who the person is, it is not easy to find someone who can be your financial adviser….the right financial adviser.
So how do you determine whether someone’s financial advice is useful to you or not? Here are some of the characteristics that I can think of.
- Know and understand you well - the person needs to be someone who is close to you. It could be your stock broker for 10 years, or your dad, or your good friend. The main thing here is that the person MUST know you and understand you well. Are you a passive or aggressive person? Are you thrifty in your spending or you prefer to buy your WANTs? This point is particularly important because the last thing you want is to have a financial adviser who tells you to invest in risky petty stocks but you yourselves are not a big risk taker. Remember, a good adviser never ask his king to fight a naval war when his king cannot even swim.
- Not overly ambitious – a good financial adviser should be someone who goes for slightly above average return. There’s really no point getting those celebrity financial experts who can earn millions in a few hours. They’re not suitable for you. Also, higher the return, higher the risk. Your celebrity financial expert can earn you couple of millions in 1 hour and he can also make you lose the same amount within an hour. That’s why I feel a good financial adviser will advise you to go for a diversified portfolio – the safest and it also gives a decent return.
- Hardworking and knowledgable - what I mean here is that your financial adviser must be someone who loves to read, particularly business and finance related articles. One can actually learn a lot of stuff on a certain business by reading news about the business. If the person is very lazy to read or to do research, what makes you think his advice can be useful? Also, it certainly helps if the person knows as many type of investment as possible. It helps in creating a diversified portfolio.
- Unbiased - there are some friends of mine who are actually biased against certain businesses for no solid reason. There are also people who are strongly against certain type of investment like mutual funds or real estate investing. So for someone to become a good financial adviser, the person must be an open-minded person who can judge based on his research and knowledge, and not based on whether he likes or hates the business/investment. Because some of the best investment returns might come from areas which the person does not even care to explore.
- Cautious - I’ve mentioned in my previous post that an adviser should always go for the safest route or in other words, cautious. There’s really no point asking the client to jump into an investment which he or she is not sure about. For example, there are rumors that company A is going to acquire company B with a higher price than the current stock price…but this piece of news is unproven. A good financial adviser will always stay away from such rumors. Why? Because preventing the client from losing $1000 is always better than preventing the client from earning $1000. At least, the former allows the client to invest again.
From the look of things, it’s pretty difficult to find the right financial adviser nowadays. That’s why most people are their own financial adviser, myself included. I do occasionally get some opinions from my dad though. But other than that, most of the time it’s all up to me. Because the thing is, nobody can understand me better than myself, and maybe my family. Perhaps there are some very good financial advisers out there, but they don’t know me well and they don’t come cheap.
So my advice to you is, if you can get one, go and find the right one but if you can’t, then try to find among your family members or friends. And if you still can’t, you will have to be your own financial adviser. That’s the cheapest option after all.
Oh, and don’t ever blame your financial adviser for any mishaps/mistakes. In the world of investing, there’s no certainty. Anything can happen. So don’t start blaming people if things don’t go your way – this includes don’t blame yourselves.
Why is our stock market going amidst the economy crisis?
Malaysia’s stock market has seen an unlikely rally in recent weeks. Nobody can be sure why is the market going up when the economy does not look likely to recover in the next 6 months.
Take a look at this article from The Star – Can the market rally be sustained?
Let us take a look at some of the reasons which I think have contributed to the market rally one way or another.
- Malaysians are still spending especially with the smart marketing moves made by the businesses. We’ve seen a LOT of warehouse sales this year.
- Some Malaysians are still unaware of the actual economy situation in other countries. Malaysians tend to be oblivious at times. This indirectly leads to more spending from this group of oblivious Malaysians. So in a way, they are helping our economy.
- 2006-2008 are 3 years where a lot of people get their hands into property investing. Most of them buy for their own use and 2009 is about the right time their properties get completed. And of course, upon completion, people will need to spend a lot of money.
- A lot of operations in the US, UK, Australia, etc are moving to Malaysia as a cost cutting measure. It’s cheaper here so a lot of companies are going for the offshore model. This has in turn create more job opportunities for the people here. True, we still have jobless people but we’re not as badly hit as US or UK.
- Kudos to our Bank Negara. The folks over there are really doing a good job. Without them, I’ve no idea where our economy will be heading.
Those are some of the reasons I can think of which I feel have helped our country in this recession. But having said that, I do feel that the stock market has gone a little bit too high up. Perhaps the fund managers are doing something there, I don’t know. But if I were you, I’ll be extremely careful. I do have a feeling that the bubble might burst anytime.
Well, again, I must say that I am not an expert. For me, I’ll stay put for now and will only invest in a company if I feel the company has good prospects AND the stock price is reasonable. I’ll do that irregardless of the economy and the stock market movement.
It’s investing we’re talking about here, not gambling. So don’t speculate too much. If you feel it’s cheap, buy. Else, just wait. It pays to be patient.
Is debt free really good?
Nobody loves debts (do tell me if you think otherwise) and everyone I know is always trying their best and working hard to be debt free. And for some, that is one of the 2 main reasons they work so hard everyday (another reason is to survive).
My question to them – after becoming debt free, what’s next?
And I believe that is a very important question one should ask oneself. Why are you working so hard to be debt free? What are you going to do once you have the extra cash after finish paying the housing loan or car loan?
You know what? Some of the people I’ve asked, they told me that the reason they are working so hard to finish their current loan, is so that they can take up another loan for a bigger car or a nicer house.
Hmm…so they want to end the current loan…so that they can re-enter the very same vicious cycle they are trying to get out from? What’s the difference then? The cycle will never end if you plan to do it that way.
That’s why in my humble opinion, being in debt is OK and it’s not that bad provided you can still live comfortably in this world. Why? Because living in this world, it is very hard for someone to be completely 100% debt free. Therefore, depending on what is your end goal, debt free can be good or it can mean nothing at all.
Last but not least, stop cursing your loans and banks and keep praying that you can be debt free….if all you want after that is to get on another debt.
p/s…. i also notice that the older you are, the bigger your debt will be. So the debt you have while you are in your 20s could be significantly lower than the debt you acquire in your 40s (inflation, more commitments, etc). So, getting rid of your lower debt (the one from the 20s) and getting on a larger debt (the one in the 40s) is not an entirely smart move.
Don’t blame your stock brokers
I was in Johor over the weekend and my relatives talked about their experiences with the stock brokers. Few of them have this same stock broker who always told them not to buy this and that. To them, this stock broker is a coward who does not dare to take risks. 1 of them wanted to get into KNM but the stock broker told them not to, and they ended up making 20-30 sen less per share. That’s quite a big “loss”, to them.
And then I interrupted.
I said that it is true that this stock broker is a very careful person. But a stock broker is, after all, just a stock broker. He earns if you buy/sell and by telling you not to buy, he ends up not earning anything. But if you insist, you can still buy! Nobody is stopping you from that. The stock broker’s role here is just to give you his opinions and advice since stock brokers tend to get news faster than us.
To be honest, I rather not lose 1000 than not earn 1000. So having a cautious stock broker is always better than having a stock broker who always gives me wrong information.
Also remember that at the end of the day, stock brokers rely on news most of the time. You still need to do your own research before making a buy/sell decision. If you don’t do that, then don’t start blaming people (stock brokers) if things don’t go your way.