Singapore beats both China and Hong Kong in buying overseas real estate

Singapore is ASEAN’s largest financial market, without any doubt. However, compared to China or even Hong Kong, it is still smaller. Nevertheless this does not stop it from beating both China and Hong Kong in investing overseas. According to Real Capital Analytics (RCA), Within the first 9 months of 2014, Singapore entities invested US$9.8 billion versus China’s US$8.4 billion and Hong Kong’s US$7.3 billion. The major reason stated was due to the lack of action in its own domestic property market. Just like many other markets which has implemented strict cooling measures, the Singaporean property market has been on a downtrend both in transactions and prices. Transactions are expected to half while prices has been declining for the past 4 quarters. The investment overseas is 300% higher compared to the same period of last year. in property values have caused residential prices to fall for four straight quarters, the longest period of declines since 2009.

singaporeAs reported in Bloomberg, something which is unusual is also happening in Singapore. The local developers are more vocal in saying that the cooling measures has ‘killed’ the market. Ho Bee Land’s executive director Desmond Woon said that developers face a difficult time in Singapore because their margins have been squeezed by the government measures in the property market. It’s extremely tough to do property development. Some of the measures include a cap of debt on borrower’s income at 60% and higher stamp duties on home purchases. Foreigners meanwhile have to pay 15% additional taxes on top of the usual stamp duty rate of about 3%. Should anyone sell their properties within the first year, they will be levied an additional 16%. Even if you are a seasoned investor, not many would be able to get any return at all and most probably a huge loss if you buy and sell within the first year.

It is said that the appetite for risk is now higher as these overseas investments are venturing into markets which may potentially offer higher returns versus home. While I think it is a serious risk but if the whole market is not moving and you happen to be a property developer, what else can you do? Developing in other emerging markets? Those would carry even higher risks! Capital flights happen fastest in these smaller and newer markets compared to the more matured ones like London, New York or even Australia’s property market. Oh yeah, many have predicted that the next crisis would happen in 2015, from early 2015 all the way to end of 2015 but majority are pointing to 2015. Read here: Next crisis is looming – PM of 6th largest economy in the world Buying in Iskandar may not be the best option either because it’s way too close and inter-related to Singapore’s own property market. In fact the returns may take longer time because while Iskandar is facing a potential oversupply, the US economy is said to be turning around positively.

written on 3 Dec 2014

Next suggested article:  65% probability – recession by end 2015


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