Regional counterparts are in no state to take advantage of the Lion State’s ‘money avalanche’
Singapore is a model property market for the Southeast Asian region and I always advise regional investors to watch it closely to observe how it affects the investment climate of other regional markets.
Today I see that the Singaporean market is in the doldrums. It is not because of lack of demand – locals and foreign investors can’t have enough of any type of property in this high-octane economy.
Rather, the country’s government finally succeeded in its efforts to drastically cool the local property sector.
After a series of contentious measures, loan limitations was the final straw that brought the market down. Coupled with a draconian additional tax of 15 percent on foreigners, the luxury property segment gave away somewhere between 10 and 15 percent of its value.
More significantly the number of deals has been reduced to a trickle.
On the one hand, cooling measures averted a market bubble. Some of the policies, such as a unit-flipping sales tax, meanwhile, are expected to keep the market healthy in the longer term, maintaining the Lion City’s reputation as a sound investment haven.
More: The last 5 decades of SG’s property industry under Lee Kuan Yew
But on the other hand, many investors – local and foreign – who don’t see any returns in the foreseeable future started diverting their investments overseas, translating into billions of US dollars pouring out of Singapore.
Alas, neighbouring markets are not in the best position to take advantage of this money avalanche.
With the record fall of the Malaysian ringgit against the Singaporean dollar (less than 3 to 1), Malaysia became a very affordable property market. Its volatile political situation, however, makes it far from ideal for foreign investors. Additionally Malaysia’s government is keen to control household debt, and its own cooling measures are expected to continue in the coming years.
The much publicised oversupply in Iskandar Malaysia – a developing economic zone targeting mostly Singapore-based buyers, who perceive the area as a Singaporean suburb – has also made investors think twice before crossing over to the Malay Peninsula.
It also appears that some Malaysians move their money elsewhere, mostly to Singapore to buy residential properties despite the high tax on foreigners.
Economically Indonesia is not in a much better position than Malaysia, with its currency, the rupiah, depreciating by around 40 percent in the last three years. While that may seem like good news for investors, the Indonesian residential market is still not open to foreign buyers.
More: Perhaps it is time for Singapore to cut back on its cooling measures
Going through another slowdown (but known for its economic resilience) is Thailand, which is a very attractive destination for holidaymakers. Nearly 30 million foreign visitors are expected to visit the kingdom in 2016, keeping the Thai hospitality sector active despite political woes. But not much activity is being witnessed in other property segments.
In short, the region’s property markets are not in a particularly advantageous position to absorb the billions of dollars spilling out of Singapore. But let’s take a look in our figurative crystal ball to make a few predictions…
The “umbrella protests” in Hong Kong might have prompted millionaires to relocate to Singapore instead of the Chinese territory, according to a WealthInsight report released in November 2015.
The report predicts that the population of millionaires will grow at a faster rate in Singapore than Hong Kong in the next five years: 18.3 percent versus 15.6 percent. One in 35 Singaporeans is now a millionaire, increasing by 17 percent from 130,000 in 2010 to 154,000 today, and reaching 188,000 in 2020. They collectively hold USD806.3 billion in net wealth (defined as one’s assets minus debts or liabilities). There is a large influx of Indian and Chinese millionaires, who love Singapore’s financial markets and high quality of life.
My take is there are many more unaccounted millionaires as a substantial number of local and foreign investors own multimillion-dollar properties with sizeable part of mortgages mostly or fully repaid. These holdings mostly do not register on the global wealth radar.
Singapore also remains the easiest place to do business, according to the World Bank’s “Doing Business 2016: Measuring Regulatory Quality and Efficiency” report, which covers 189 economies. The dynamic city-state held onto its business-friendly top ranking from last year.
More: Why now might be a good time to buy residential property in Singapore
Moreover, Singapore placed fifth in the Global Power City Index, a ranking of 40 global metropolises on attracting talented individuals and creative enterprises from around the world conducted by the Institute for Urban Strategies of The Mori Memorial Foundation.
While these are positive tidings, the cooling measures continue to keep the market in a deep freeze, with Singaporeans and foreign investors alike waiting for signs of a thaw.
A degree of hope lies with the Singaporean currency, which has given back around 16 percent against the US dollar since topping out in 2011 (although much of the move was made after the devaluation of the Chinese yuan last year). That translates to cheaper Singaporean real estate for foreign buyers.
Citizens of the United States and Switzerland, as well as those of Norway, Iceland and Liechtenstein are eligible for Additional Buyer Stamp Duty (ABSD) remission under a Free Trade Agreement. Simply put, they can buy into Singapore’s residential market without additional taxes.
With the arrangement facilitating discounts of up to 15 percent discount, in addition to the strength of foreign currencies against the Singapore dollar. now might be an optimum time for wealthy foreign investors to enter the attractive Singaporean luxury property market.
For mere mortals, however, the situation looks set to remain static for a while longer.
Read next: Is Singapore’s real estate industry ready to roar again?
Source : property-report.com
Read more…How Singapore has avoided losing out to neighbouring property markets
