After speaking to a few en-bloc owners in the first week of January, who asked me what I think they should do after they collect their en-bloc proceeds in the next few months. I decided to write this article immediately.
Collecting en-bloc proceeds is similar to winning the lottery. Recently, on 14th January, one lucky punter won over S$9 million from the TOTO draw. Without proper financial education and knowledge, it can be easy to lose everything in a short period of time.
That happened to one en-bloc owner in the 2007 en-bloc wave that was much bigger than the current wave. This is the story of an en-bloc owner who lost $1.37 million of his en-bloc proceeds.
Now I am not saying that en-bloc owners don’t know how to manage their money nor am I suggesting that they will definitely lose money. With majority of en-bloc owners now entering the next stage in life, and the younger en-bloc owners now venturing into what many experienced property investors call the – New Era of Singapore’s Real Estate Environment, where property investment will never be the same again.
It is therefore critical for en-bloc owners or anyone looking to buy real estate in Singapore to understand the current property market environment (as mentioned in my new En-bloc eBook) and not just listen to agents and analysts, the experienced investors will definitely agree.
In the investment world, it is important that we learn from other’s mistakes. To protect this en-bloc owner’s identity, I will be calling him Mr Ng. He is someone whom I met years ago in 2011 and his story changed my perspective about investing. Lets get straight to his story.
What did Mr Ng do?
Mr Ng owned a unit at Farrer Court (currently the new D’leedon) which was en-bloc in 2007. He was 53 years old and had 2 children who were, 26 and 23 years old. Mr Ng was running his own business and was doing really well at that time.
In the same year in 2007, Mr Ng decided to buy a Condo at Citylights for his Son as well as for an investment. This cost slightly more than $900k. He paid 20% downpayment which is just above $200k including taxes. The remaining loan was taken with his Son. (note that there was no TDSR in 2007/08)
In early 2008, Mr Ng decided to buy a Condo at The Waterside, about 2400sqft unit for $3.8 million, this would be his family’s home. He took a 75% loan at that time, and the downpayment worked out to be slightly more than $1 million including taxes.
Mr Ng also bought a large amount of stock investments in the US. Based on “insider” advise from some friends, he bought more than $500k of stocks in mid 2008.
What happened to Mr Ng?
When Mr Ng thought that all was well, the Oct 2008 financial crisis came unexpectedly. The 2008 subprime mortgage crisis not only caught Mr Ng by surprise but it also caught majority of the global population by surprise. There was chaos everywhere with stock markets crashing, home prices dipped.
In 2009, Mr Ng’s business, which was in the wholesale electronics business took a bad turn and began a downward spiral. His customers delayed payments and he was soon filled with a huge account receivable crisis of more than $700,000. This was the turning point in his life.
How did he lose $1.37million?
As Mr Ng was in the rush to buy his replacement home and to re-invest his en-bloc proceeds, as mentioned in the part 1 of my ebook – this is one of three worst decisions en-bloc owners will make in their lifes, read the ebook here.
He bought that investment property with some of his own funds before waiting for en-bloc proceeds to come. After he got his en-bloc proceeds, he went to buy a property that cost almost double of the amount of en-bloc proceeds he was going to get. (as mentioned in part 3 of my ebook, en-bloc owners consider not be over-extending their finance)
He further was tempted to invest in “insider” news that he has gotten from some friends. Due to all these investments, he had used up most of his en-bloc proceeds to reinvest into properties and stocks. Unfortunately, he listened to advise of many friends and did not plan for the worst-case scenario.
In 2009, Mr Ng was forced to sell off Citylights that was bought for his son, during this period his son was also facing job uncertainties in the finance industry. His citylights unit was sold at a $110k loss in 2009.
At the same time, as the US stock market dipped by 50% from its peak, some stocks had lost almost 70-80% of their value during the bear market of 2008. Mr Ng had paper losses of more than $350k on his stocks at one point. When the market had a small rally in early 2009, he cut his losses, so that he could have more liquid cash for his business. He lost a total of $280k in his failed stock investments, if you were trading or investing in the markets then, you would know that there were people who lost much more. This was a result of not having a trusted wealth manager who was trustworthy and honest in providing professional advise (elaborated in part 3 of my enbloc ebook)
To make matters worst, the weak local and global economy does not help with his business. He still had a lot of account receivables not paid yet. It was a very painful period. You may be asking, how about his wife and children? Could they help?
Well, his sons had just started work, and given the weak economy still present, their income was not sufficient to be of much help due to the large amount of money Mr Ng had to pay every month from mortgage, to business expenses, to housing expenses. Mr Ng’s wife was helping Mr Ng in his business daily and even went to work as an admin executive for one of Mr Ng’s friend’s company in order to contribute some funds to the family.
In 2010, Mr Ng’s business still couldn’t recover his accounts receivable fully. He only managed to keep get back $270k out of the $700k owed to him. That equates to a $430k loss that he had to fork out and repay his suppliers. All these, while his business was not doing well and he was on the brim of bankruptcy.
In 2011, he had no choice but to sell off his unit at Waterside in order to free up capital. Remember that he had put in 25% equity into the house which was almost $1 million. Although the market value was much lower today, he eventually sold the unit at a $300k loss. If you count in the $250k renovations that he did. It is a total of $550k loss that he had to take.
Summary of Losses Below:
Loss on failed stock investment – $280k
Loss on city lights – $110k
Loss on the waterside – $550k
Loss on the account non-receivables – $430k
Total Losses Incurred: $1.37 million
What lessons can we learn from Mr Ng’s experience?
When getting a huge amount of money, in Mr Ng’s case was $2 million. Anyone can be in this situation, from en-bloc, striking the lottery, receiving inheritance or just getting your business IPO or sold off.
It is important not to get carried away but to ensure a proper plan is in place to invest the money in a safe and profitable manner with proper risk management.
It is also important to keep track of your own financial health and not to over-leverage. Mr Ng managed to sell off his home, equities and was fortunate not to go bankrupt. But he went from a multi-millionaire staying in a large condo to staying in a 3-room HDB, nothing wrong with that isn’t it? He still has a home, his family and children (which is fortunate for him that they supported him).
The thing is that he could achieved much more and if he had been given good advise, he would be retiring early and in 2019, he would already be travelling the world with his wife. Instead today, he is still not able to retire comfortably. This brings forth the question – How not to Screw up your En-bloc Proceeds?
How not to screw up your enbloc Proceeds?
After speaking to a few people who had the same experience as Mr Ng, the people who lost money, the people who did not get good quality investment education, and the people who wish that things were better.
I decided to create a resource and knowledge base specifically for en-bloc owners, so that they can make well-informed decisions. For the savvy en-bloc owners, you will benefit from understanding where we are in the property market cycle (part 2 of the enbloc ebook). For the enbloc-owners that are looking for insights into the investment world, this e-book will provide you with a very good understanding on what NOT to do.
My believe is that when investing your en-bloc proceeds, the first thing you need to think of is how NOT to lose money. This is a quote by famous investor Warren Buffet –
Rule #1: Don’t lose money,
Rule #2: Follow Rule #1
I think that while most investment gurus, agents and brokers are telling you how much money you can potentially be making, it is even more important to look at how much money you could be losing if you made a bad investment. Only then an you truly be profitable, without depending too much on the element of luck.
If you want to take charge of your en-bloc proceeds and find out how NOT to SCREW up your en-bloc proceeds, you can download my free eBook here
There has been more than 300 downloads to date. Even if you are not an en-bloc owner, this eBook will give you insights into how you can invest your savings, your inheritances and your business profits with property risk management.