the dolphins had always believed that they were far more intelligent than man… for precisely the same reason.”

~ Douglas Adams

Consider again that dot. That’s here. That’s home. That’s us. On it everyone you love, everyone you know, everyone you ever heard of, every human being who ever was, lived out their lives. The aggregate of our joy and suffering, thousands of confident religions, ideologies, and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilization, every king and peasant, every young couple in love, every mother and father, hopeful child, inventor and explorer, every teacher of morals, every corrupt politician, every “superstar”, every “supreme leader”, every saint and sinner in the history of our species lived there – on a mote of dust suspended in a sunbeam.

~ Carl Sagan (1934 – 1996), Pale Blue Dot: A Vision of the Human Future in Space (1994)

UNITS UNSOLD – THE MARQ: Fewer than half the units at The Marq on Paterson Hill, completed last year, have been sold. Developer SC Global has warned of a first-quarter loss of $10 million.

8 NAPIER: The project has 18 unsold units out of 46. HSR Property Group’s Mr Donald Han said there were only 17 or 18 high-end property transactions in January.

TWO recent corporate announcements by luxury developers SC Global Developments and Ho Bee Investment have highlighted how the high-end residential market has almost ground to a halt.

SC Global has warned of a first-quarter loss of $10 million owing to the absence of significant profit recognition from projects that are ready for occupancy. Fewer than half the units at The Marq on Paterson Hill and Hilltops, both completed last year, have been sold.

The sluggish demand for upmarket homes has also affected Ho Bee, which saw its first-quarter earnings slide drastically by 71.6 per cent to $15.4 million compared with last year.

Its projects in Sentosa Cove, Turquoise and Seascape, were 46 per cent and 28 per cent sold respectively as at March 31. Both were completed in 2010.

Consultants said the recent dearth of interest in luxury properties is primarily due to the additional buyer’s stamp duty (ABSD) imposed in December last year, which has hit foreigners especially hard.

Foreigners pay 10 per cent ABSD.

Mr Alan Cheong, director of research and consultancy at Savills, estimated that foreigners constituted 40 per cent of property transactions last year in the prime district 10, which includes areas such as Ardmore and Tanglin.

‘Once you remove foreigners from buying, it also means locals who sold (homes) to foreigners also cannot recycle their capital that easily,’ he added.

HSR Property Group special adviser Donald Han noted that the percentage of high-end properties of total home sales had fallen considerably since the ABSD measures were implemented.

‘If you look at October to November numbers last year… the percentage of new home sales which are more than $2,000 per sq ft (psf) hit as high as 5 per cent. Then came the ABSD, and… (the number) went as little as 1 per cent,’ he said, adding that there were only 17 or 18 transactions of high-end properties in January this year.

International Property Advisor chief executive Ku Swee Yong noted that the ABSD could deter investors by dampening returns.

He said the 10 per cent ABSD for foreigners and 3 per cent for Singaporeans is a hefty sum. ‘It reduces immediately your return on investments because these are duties you pay upfront,’ Mr Ku said.

Mr Han pointed out that some luxury developers had stepped in with stamp duty rebates and furniture vouchers to attract buyers, although results have not been obvious: ‘While that may have worked for some of the lower mid-end projects… the high end hasn’t really taken off.’

He also noted that the scrapping of the financial investors scheme (FIS) last month, which allowed foreigners with at least $10 million of assets in Singapore for five years to apply for permanent resident status, may have played a part in dampening demand for luxury properties.

‘Previously, if you’ve got a few million, you can already buy your way in via the property route. But now, it takes more than that,’ Mr Han said.

Mr Cheong, however, begged to differ: ‘The whole of last year, there were only 26 transactions in Sentosa Cove, of which the majority were non-foreigners. So the FIS had naturally run its course, and its removal won’t have any impact (on the high-end property market).’

Citing the ABSD as the main reason for falling demand, he added: ‘Also, the lure of substitute properties from London and America are drawing high net worth foreigners to look at those instead.’

Mr Ku stressed that it is ‘not all doom and gloom’ for the luxury property market as the interest level remains high.

‘The interest level hasn’t subsided due to the ABSD, it’s just that it’s now more difficult to get them to commit. If you lessen the impact of the ABSD through a new policy, there will be a wave of investors who will quickly step up the demand for luxury properties,’ he said.

Mr Han added that while he thinks there may be price adjustments of about 10 per cent, ‘there will probably be no panic selling… because the rental market will remain resilient in the next six months’. He said the rental market hit a peak last year that is ‘still being sustained in the first quarter of this year’.

‘Because of that, lots of developers (with) high-end, completed projects have resorted to leasing them out.’

Pruksa Iamthongthong explains which positions paid off for the portfolio.

Apr 23, 2012

Hong Kong did not learn from the property crash and economic collapse of 1998. Instead, it has tried hard to reinflate the bubble. After squeezing supply for over a decade and with the help of the US Federal Reserve’s zero interest rate, the bubble is back. But it is a Pyrrhic victory.

Hong Kong’s economy is suffering. Between 1997 and 2011, nominal gross domestic product grew by 2.6 per cent, per capita income by 2 per cent, and the average salary by nearly 2 per cent every year. Over the same period, the cost of living shot up – oil prices quintupled and food prices doubled – while China’s labour costs tripled. It’s easy to see why Hong Kong people are not happy.

More damaging is how concentrated in property and finance the Hong Kong economy has become. In 1997, aside from the property bubble, Hong Kong was leading the Pearl River Delta’s industrialisation with the attendant high-valued-added activities such as research and development, trade finance and marketing based in Hong Kong.

But the high cost of doing business due to high property prices and rent has pushed away such businesses. The only new business that has helped Hong Kong is retailing to mainland tourists. But selling European products to Chinese tourists is a low-value-added business. Only landlords benefit significantly from it.

The social cost of squeezing supply to support a high price could precipitate social turmoil. While Hong Kong is considered a high-income economy, numerous families, many with members of three generations, live in one room. More than two-thirds of Hong Kong’s land is undeveloped. And reclamation, the main source of new land for Singapore, has potential in Hong Kong. So, while popular perception attributes high property prices to a land shortage, it is utterly untrue. Hong Kong’s elite fuels this misperception because they want to keep people in the dark.

Despite its gross mismanagement, Hong Kong hasn’t collapsed because it can suck juice out of China. Hong Kong’s prosperity depends on arbitrage opportunities arising from the mainland’s inefficiencies. As the mainland becomes more efficient, such opportunities will become scarcer.

Mainland prosperity has also created a new business for Hong Kong – monetising China’s political power offshore. This round of Hong Kong’s asset boom has much to do with this force. That business, however, won’t last, either. China’s political reforms will come sooner than expected.

No great city can thrive just on dodgy businesses like property speculation, arbitrage exploiting someone else’s loopholes, or helping powerful people rob their countries. True, such businesses also exist in London and New York. But those cities have diversified activities to provide a decent living for the local populations, even as the elite profit from the dodgy activities. If Hong Kong’s economy is to thrive, it must make Hong Kong people competitive.

After the 1998 collapse, the Hong Kong government took to setting a minimum price for land auctions. As the government is the only land supplier, it caused the economy to restructure around the government-mandated land price. Economic activities that compete globally couldn’t survive in such an environment and decamped as a result. On the other hand, Hong Kong’s Cantonese education has produced a generation ill suited for economic activities related to serving mainlanders’ needs, dodgy or otherwise.

Hong Kong’s economic winners and losers are determined by a game of when one buys a property. This game redistributes income; it doesn’t make the pie bigger. Because land supply is controlled, downstream activities are just ripples in a river where the water level is fixed. Hong Kong’s market economy, while often touted as laissez-faire, is not really market oriented.

Unless Hong Kong cuts property from its economic centre, it doesn’t have a good future. Property isn’t a productive asset. It is worth money only because the people who use properties are competitive. When policy squeezes up property prices by restricting supply, it just prices more and more people out of the modern economy. As their numbers accumulate, discontent will grow.

Hong Kong must control land supply according to its development needs, not to set prices. The city should first set targets for the size of its population and housing conditions – say, a minimum living space of 200 square feet per person – and land supply should follow. The current property bubble will eventually burst, like the ones before, when the US Fed raises the interest rate. And when it does, the government must resist manipulating supply to support prices. It should be viewed as an opportunity to restructure the economy.

To control the damage from a property crash, the government should tighten prudential regulations on the banking system. Hong Kong has an unusual capital accounting requirement for mortgage lending. At 8 per cent of the standard capital requirement for lending, Hong Kong banks essentially need no capital for mortgage lending. This is why Hong Kong’s mortgage interest rate is so low.

Hong Kong’s banking system is a massive volatility amplifier for the property market. It may be good for developers, but it’s not good for the economy. Raising the requirement to 50per cent, as it stands in mainland China, is a step that the government can take immediately to strengthen the economy.

The value of mental-training games may be speculative, as Dan Hurley writes in his article on the quest to make ourselves smarter, but there is another, easy-to-achieve, scientifically proven way to make yourself smarter. Go for a walk or a swim. For more than a decade, neuroscientists and physiologists have been gathering evidence of the beneficial relationship between exercise and brainpower. But the newest findings make it clear that this isn’t just a relationship; it is the relationship. Using sophisticated technologies to examine the workings of individual neurons — and the makeup of brain matter itself — scientists in just the past few months have discovered that exercise appears to build a brain that resists physical shrinkage and enhance cognitive flexibility. Exercise, the latest neuroscience suggests, does more to bolster thinking than thinking does.

The most persuasive evidence comes from several new studies of lab animals living in busy, exciting cages. It has long been known that so-called “enriched” environments — homes filled with toys and engaging, novel tasks — lead to improvements in the brainpower of lab animals. In most instances, such environmental enrichment also includes a running wheel, because mice and rats generally enjoy running. Until recently, there was little research done to tease out the particular effects of running versus those of playing with new toys or engaging the mind in other ways that don’t increase the heart rate.

So, last year a team of researchers led by Justin S. Rhodes, a psychology professor at the Beckman Institute for Advanced Science and Technology at the University of Illinois, gathered four groups of mice and set them into four distinct living arrangements. One group lived in a world of sensual and gustatory plenty, dining on nuts, fruits and cheeses, their food occasionally dusted with cinnamon, all of it washed down with variously flavored waters. Their “beds” were colorful plastic igloos occupying one corner of the cage. Neon-hued balls, plastic tunnels, nibble-able blocks, mirrors and seesaws filled other parts of the cage. Group 2 had access to all of these pleasures, plus they had small disc-shaped running wheels in their cages. A third group’s cages held no embellishments, and they received standard, dull kibble. And the fourth group’s homes contained the running wheels but no other toys or treats.

All the animals completed a series of cognitive tests at the start of the study and were injected with a substance that allows scientists to track changes in their brain structures. Then they ran, played or, if their environment was unenriched, lolled about in their cages for several months.

Afterward, Rhodes’s team put the mice through the same cognitive tests and examined brain tissues. It turned out that the toys and tastes, no matter how stimulating, had not improved the animals’ brains.

“Only one thing had mattered,” Rhodes says, “and that’s whether they had a running wheel.” Animals that exercised, whether or not they had any other enrichments in their cages, had healthier brains and performed significantly better on cognitive tests than the other mice. Animals that didn’t run, no matter how enriched their world was otherwise, did not improve their brainpower in the complex, lasting ways that Rhodes’s team was studying. “They loved the toys,” Rhodes says, and the mice rarely ventured into the empty, quieter portions of their cages. But unless they also exercised, they did not become smarter.

Why would exercise build brainpower in ways that thinking might not? The brain, like all muscles and organs, is a tissue, and its function declines with underuse and age. Beginning in our late 20s, most of us will lose about 1 percent annually of the volume of the hippocampus, a key portion of the brain related to memory and certain types of learning.

Exercise though seems to slow or reverse the brain’s physical decay, much as it does with muscles. Although scientists thought until recently that humans were born with a certain number of brain cells and would never generate more, they now know better. In the 1990s, using a technique that marks newborn cells, researchers determined during autopsies that adult human brains contained quite a few new neurons. Fresh cells were especially prevalent in the hippocampus, indicating that neurogenesis — or the creation of new brain cells — was primarily occurring there. Even more heartening, scientists found that exercise jump-starts neurogenesis. Mice and rats that ran for a few weeks generally had about twice as many new neurons in their hippocampi as sedentary animals. Their brains, like other muscles, were bulking up.

But it was the ineffable effect that exercise had on the functioning of the newly formed neurons that was most startling. Brain cells can improve intellect only if they join the existing neural network, and many do not, instead rattling aimlessly around in the brain for a while before dying.

One way to pull neurons into the network, however, is to learn something. In a 2007 study, new brain cells in mice became looped into the animals’ neural networks if the mice learned to navigate a water maze, a task that is cognitively but not physically taxing. But these brain cells were very limited in what they could do. When the researchers studied brain activity afterward, they found that the newly wired cells fired only when the animals navigated the maze again, not when they practiced other cognitive tasks. The learning encoded in those cells did not transfer to other types of rodent thinking.

Exercise, on the other hand, seems to make neurons nimble. When researchers in a separate study had mice run, the animals’ brains readily wired many new neurons into the neural network. But those neurons didn’t fire later only during running. They also lighted up when the animals practiced cognitive skills, like exploring unfamiliar environments. In the mice, running, unlike learning, had created brain cells that could multitask.

Just how exercise remakes minds on a molecular level is not yet fully understood, but research suggests that exercise prompts increases in something called brain-derived neurotropic factor, or B.D.N.F., a substance that strengthens cells and axons, fortifies the connections among neurons and sparks neurogenesis. Scientists can’t directly study similar effects in human brains, but they have found that after workouts, most people display higher B.D.N.F. levels in their bloodstreams.

Few if any researchers think that more B.D.N.F. explains all of the brain changes associated with exercise. The full process almost certainly involves multiple complex biochemical and genetic cascades. A recent study of the brains of elderly mice, for instance, found 117 genes that were expressed differently in the brains of animals that began a program of running, compared with those that remained sedentary, and the scientists were looking at only a small portion of the many genes that might be expressed differently in the brain by exercise.

Whether any type of exercise will produce these desirable effects is another unanswered and intriguing issue. “It’s not clear if the activity has to be endurance exercise,” says the psychologist and neuroscientist Arthur F. Kramer, director of the Beckman Institute at the University of Illinois and a pre-eminent expert on exercise and the brain. A limited number of studies in the past several years have found cognitive benefits among older people who lifted weights for a year and did not otherwise exercise. But most studies to date, and all animal experiments, have involved running or other aerobic activities.

Whatever the activity, though, an emerging message from the most recent science is that exercise needn’t be exhausting to be effective for the brain. When a group of 120 older men and women were assigned to walking or stretching programs for a major 2011 study, the walkers wound up with larger hippocampi after a year. Meanwhile, the stretchers lost volume to normal atrophy. The walkers also displayed higher levels of B.D.N.F. in their bloodstreams than the stretching group and performed better on cognitive tests.

In effect, the researchers concluded, the walkers had regained two years or more of hippocampal youth. Sixty-five-year-olds had achieved the brains of 63-year-olds simply by walking, which is encouraging news for anyone worried that what we’re all facing as we move into our later years is a life of slow (or not so slow) mental decline.

One of the most basic rules for personal financial planning is to establish a personal emergency fund for a rainy day. The conventional wisdom is that the emergency fund should comprise between three and six months’ worth of one’s salary. So for instance, if a person earns $4,000 a month, his emergency fund should be built to at least $12,000.

But increasingly, this conventional wisdom is being challenged on many fronts.

For one thing, financial advisers say that the uncertain economic outlook and higher costs of living mean that three months of savings may simply not be enough.

Mr Patrick Lim, director of financial advisory firm PromiseLand, advises his clients to save between six and 12 months of salary as an emergency fund.

“I see a lot of people who, in their 40s, get retrenched, and they can’t find a job easily. They may take up to a year (to find another job) and even then, they may have to face a pay cut,” he says.

“Call me conservative but I prefer to be safe than sorry.”

Mr Christopher Tan, chief executive of financial advisory firm Providend, agrees and adds that it is not surprising that in the United States, financial experts are saying 10 months of expenses should be set aside as emergency funds.

But whether it is six or 12 months, all financial experts say putting aside a sum of money should be a top priority for everyone.

Financial adviser Leong Sze

Hian says it is absolutely crucial that people focus on building this fund first, even before thinking of buying a house or car.

“They spend and spend, then they lose their job. They end up having to sell off to pay debts or cashing out on their insurance policy before maturity which will cost them a lot more,” he says.

It is unclear whether Singaporeans have adequate savings for such emergencies, but anecdotal evidence from financial advisers points to an alarming lack of awareness.

Mr Lim and Mr Leong say the majority of people they meet do not consciously set aside such funds, either because they think it is not important or they are unaware that they need to.

Says Mr Leong: “It’s not that difficult to achieve and everyone, whether low-income or high-income, should try to do this.”

For the big spenders, here are five tips to get started on building the emergency fund:

Budget, budget, budget. You can’t start saving until you know how much you spend, says Mr Leong.

“Get your family together to sit down and figure out what money comes in and what goes out. Then you will be able to see what can be cut and how to save,” he says.

Set up an automated transfer that channels part of your salary to a savings account.

Says Mr Tan: “Every month, upon getting your net salary, before you even spend your money, stash away your monthly saving amount to another account.

“Continue to do this till you reach your emergency fund. Beyond that, the monthly ‘saveable’ can now be invested.”

Save before you invest. If you have just started working, you should save first before buying a car, says Mr Lim.

“One way to accumulate savings is to look at topping up your Central Provident Fund. For the first $20,000 of your Ordinary Account, you get 3.5 per cent; for the Medisave and Special accounts, you get 5 per cent for the first $40,000,” he says.

“Given the low interest rate environment, that’s a gold mine. Focus on maximising the returns first from these savings.”

Break down your expenditure to the last dollar, including credit card bills. Once you see exactly how much you spend versus how much you bring in, it will be clear how much you need to cut back on, says Mr Tan. Stay clear of debt, including charge and credit cards. If you need to swipe the plastic, make sure you pay it back in full. There is always the temptation to spend more than one has, since one does not quite see the bill until later.
But if you need to use the credit card, pay it back in full. Snowballing on credit card debt is the surest way to destroying any kind of savings.

MOST of us tend to relate our financial goals with our investments. Within this framework, success in our investments correlates with meeting our investment goals, while protection is usually incorporated to the extent that it addresses the downside risks of the investment portfolio.

We think protection and its role in meeting one’s overall financial goals, however, have a much wider meaning. Downside risk extends beyond the risk of losses on one’s investment portfolio. For example, if an individual were unfortunate enough to be rendered disabled such that returning to a regular job was impossible, his or her income would be reduced or stop completely. But financial commitments and goals will not change. Without a similar level of income, it would be increasingly difficult or impossible to meet their financial goals.

In our view, investment and protection are two separate, but highly complementary activities that work together to help you meet your financial goals. Investments focus primarily on growing your capital (or just staying ahead of inflation). Protection, on the other hand, focuses on ensuring continuity of cash flows so that you are able to meet your commitments even if your primary source of income reduces, or stops.

There are, in our view, two significant risks that should be addressed through a protection plan, over and above any existing investment strategy that one may have in place.

The first is the risk of early mortality or disability. This is the obvious one – however unfortunate and unlikely, if mortality or disability were to occur then your income would cease. Your family’s financial commitments, however, would not. An investment portfolio cannot fully address this risk because a financial market instrument that allows you to directly hedge against this risk does not exist.

The risk of early mortality or disability is also highly uncertain in terms of timing and likelihood. Protection – in this case executed via insurance – is necessary over and above one’s investment portfolio in order to mitigate this risk and ensure one’s family is able to meet financial commitments such as education costs and ordinary living expenses.

The second is the risk of longevity. This is less obvious. According to World Bank data on life expectancy, the average Singaporean national born in 1965 could expect to live till the age of 67. The average national born in 2009, however, could expect to live till the age of 81. There is a greater risk, thus, that an individual born in 2009 outlives his or her savings or investments.

Investments can help somewhat in the second case, but they cannot provide a solution alone. Assuming a retirement age of 60, the individual born in 1965 would have to fund only seven years of retirement without a regular income. The person born in 2009, however, will have to fund 21 years of retirement without an income. This additional money has to come from somewhere.

In our view, there are a few ways in which individuals can mitigate this risk.

• Setting aside additional funds is the intuitive solution, but this is easier said than done. All factors held constant, this would require a higher savings rate over one’s lifetime on average.

• Working longer would be one solution. This would both raise total lifetime earnings (and therefore savings) and reduce the length of retirement without income.

• Starting to save and invest earlier would also help. This, together with a strong asset allocation approach, would help increase the chances that investment returns meet target levels.

To mitigate longevity risk, it makes sense to start the savings and investment process early, and to use a long-term asset allocation process. This is important simply because it increases the chances of meeting one’s financial goals while potentially lowering the volatility of returns.

Following a good asset allocation strategy can be central to capturing solid investment returns over time by (a) reducing the chances of not being invested in a winning asset class, and (b) helping avoid selling at the worst possible time.

To use an illustrative example, a portfolio consisting of 100 per cent global equities would have generated a cumulative return of 181 per cent over the past 20 years. However, a diversified portfolio consisting of 60 per cent global equities and 40 per cent global bonds would have returned 233 per cent over the past two decades.

While intuitively one can put together a good argument that equities should outperform bonds over the long run, clearly this was not the case over the past two decades. An asset allocation-based approach helps to ensure you remain invested.

The aspect of timing brings us to our second point – end-points do matter. In the above example, year-by-year comparisons would show that the somewhat counter-intuitive returns can be attributed to poor returns in equities in the last few years alone. However, for someone retiring around this time and selling their investments, this particular choice of end-point would have a real impact.

This risk can be reduced by

• Starting to invest early so that over the course of many business cycles one can reduce the risk of missing out on the best parts of a business cycle.

• Modifying the asset allocation breakdown as one approaches retirement

Investment and protection are two distinct strategies that aim to address two very different needs. Both, however, are necessary in order to meet an individual’s financial goals.

The risk of early mortality or disability and rising average longevity are two risks that are an important component of an individual’s financial plan, but they both cannot be addressed by investments alone. It is, in our view, important to have protection in place together with an investment plan in order to mitigate the risk of not meeting one’s financial goals.