I have finalised the plans and quotes for the renovation of the new property purchase . I had to restrain my overly enthusiastic contractor/designer who had had urges for a much more ambitious project than I did. This is a rental project, not own use, and there is no point in spending money that is not going to be recovered through enhanced rental income.
When I signed the agreement, I negotiated multiple pre-completion visits. This will enable the building contractors to do all the measurements and start work immediately after completion (instead of taking 1-2 weeks to do the measurements etc.
I have also signed the formal sale and purchase agreement and had the lawyer check the title and the body corporate rules.
I have submitted a mortgage application to DBS for a loan equal to 60% of the purchase price. This level of gearing was selected because it will give me a small positive cash flow on a 20 year P+I mortgage with headroom for interest rates to rise to 3% and assuming that the property is rented at the mid-point of the agent's indicative rent. Of course, if interest rates remain where they are, I will have a positive cash flow even at the lowest rental level.
I also have to sell some of my equity investments to fund the rest of the purchase price, pay the stamp duty and other closing costs and fund the renovation - I do not have enough cash on hand. I'll make a decision over the weekend but am leaning towards selling all of the actively managed funds. With the increase in the number of relatively low cost ETFs, the justification for paying the higher MERs of actively managed funds is becoming very marginal.
Completion is due on 8 October.
Congrats on the purchase.
Regarding the actively managed funds. I have been wondering if the lack of capital gains tax here offsets some of the cost of owning these, therefore making them a viable investment option.
How have the actively managed funds performed against the HSI and the related ETFs in your portfolio?
Any thoughts on this?
The lack of taxes on capital gains, dividends and interest is one of the great things about Hong Kong - partly offset by the high cost of living in this town. Even on overseas investments, you pay either witholding taxes (typically at 30%) on distributions or nothing.
I attempted to do the analysis on whether the actively managed funds I purchased have outperformed their respective indexes. For three of the funds where I invested lump sums, the answers were no, no and yes - in all cases by relatively trivial amounts. For the two funds that I invested in by way of monthly installments, I was unable to produce an answer that I was confident was correct. My spreadsheet skills are not that good.
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