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Repay the mortgage v. buy shares

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  1. #21

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    Feb 2017
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    Quote Originally Posted by honkkongjohn:
    Regarding the original post, I'm surprised no one has offered the argument that if interest rates are between 2 and 3% for a mortgage, would t not make more sense to invest in stocks / index funds where the return should be around at least 4 - 5%?

    And should interest rates on mortgages increase towards 4%, then we could all just re-direct savings towards mortgage overpayments rather than stocks / shares etc...
    Some people did say something like "with two tiny kids, it's safer first to pay off the mortgage", and that a 2% difference between the mortgage interest rate and the dividend isn't worth the risk.

    While flat prices in HK are at their historic highest, it's the same for shares. I can easily see share prices drop 20-30%, and entering a 1-2 year period of dropping prices. Under these conditions, it might be safer to just pay off the mortgage.

    I am talking about the property I live in, not an investment property, so I am not so concerned about a drop or an increase in price. If it was an investment property, then it might be a completely different story.
    shri likes this.

  2. #22

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    Feb 2017
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    Original Post Deleted
    OK then

    But where do you get 3.6%? 2800 gives 3.17% today.

    But I would buy 0823 (dividend 3.93%) rather than a second property.

  3. #23
    Quote Originally Posted by Jeff_:
    OK then

    But where do you get 3.6%? 2800 gives 3.17% today.

    But I would buy 0823 (dividend 3.93%) rather than a second property.
    property has it advantages too, namely leverage + no margin call so long as you make your mortgage repayments

    can't say the same for leveraged shares

    past 5-6 years some of my very highly educated friends who used their money to plump into the stock market have made nowhere near as much money as those who just simply bought a few properties in HK / abroad

    (not saying property is better than shares, both have their advantages)

  4. #24
    Original Post Deleted
    some great points raised.

    comparing apple for apple (leverage property vs leverage shares):

    - leverage shares (REITS) you get financed at 6.5-7.25% (P+1.5% or more)

    - leveraged property you get financed at around 2% (P-3% for apple to apple comparison using prime rates)

    Financing rate thus differs by P+1.5-(P-3) = 4.5% per year

    the difference substantial if you want to talk about returns over a longer time horizon.

    LVR also is 30-50% max i believe for different classes of shares (of course similar can be said for HK properties in the 10m+ range these days but 6-7 years ago it was different as long as it was vacant posession).

    *this illustration is a separate point to the OP thinking of refinancing a house to purchase shares

  5. #25

    Join Date
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    8,279
    Quote Originally Posted by aussie_oi_oi_oi:
    some great points raised.

    comparing apple for apple (leverage property vs leverage shares):

    - leverage shares (REITS) you get financed at 6.5-7.25% (P+1.5% or more)

    - leveraged property you get financed at around 2% (P-3% for apple to apple comparison using prime rates)

    Financing rate thus differs by P+1.5-(P-3) = 4.5% per year

    the difference substantial if you want to talk about returns over a longer time horizon.

    LVR also is 30-50% max i believe for different classes of shares (of course similar can be said for HK properties in the 10m+ range these days but 6-7 years ago it was different as long as it was vacant posession).

    *this illustration is a separate point to the OP thinking of refinancing a house to purchase shares
    Well I managed to leverage shares at P-3.5% (1.75%) at maximum LTV 80%. Well, actually is a unit trust not shares, but for me at least a similar concept. eg I invested HK$1m in unit trusts, which go up and down every day and issue dividends just like shares, and then at the same time I can secure an overdraft for 80% value at P-3.5% to do whatever else I wanted with that money. I could buy more shares, pay off mortgage, buy some more unit trusts, buy a 2nd property, etc.

  6. #26

    yes of course leverage is the reason why theyve done so much better, and one of the poitns i raised in my original post was you will never get a margin call for property so long as you make your interest payments.

    if you can cite me an example where a property owner has gone into negative equity and forced to repay their outstanding mortgage despite making all their payments on time then I'd be extremely surprised.


  7. #27
    Original Post Deleted
    yes of course, another difference is to look at dividend reinvestment for shares in a long horizon

  8. #28

    thanks for your insights jr

    out of curiousity how do you measure your risk adjusted returns for property?

    are you using simply return / std deviation of the weekly centadata index?


  9. #29
    Original Post Deleted
    thanks for sharing your approach, it is very helpful

    I guess in terms of looking at property risk weighted return to account for leverage it would be

    return =

    (change in property price - expenses incurred during time period) / total equity in property

    (where equity = property value - outstanding mortgage)


    risk adjusted return:
    return / std deviation of return (of the above)

    also I assume with a multi currency portfolio you also convert everything back to HKD at the prevailing spot rate on the day correct? (mainly SGD would be affected I guess)

    appreciate your insights - youve given me some great ideas in terms of tracking my monthly portfolio (residential / industrial property in aus/hk, hk / us stocks, various HKD TD's and foreign currencies) which ive never really tracked