Singapore is perhaps the most cosmopolitan world city in Asia. Its established residential market and strategic position makes it a firm favourite with buyers from all over that global region. Nearly a third (31%) of all home buyers in the city during 2011 were foreign, double the number seen a decade ago.

Singapore’s overseas market is dominated by Asian buyers, who are attracted by a familiar language and culture. Malaysians, Indonesians and Indians are all active in Singapore, but the group driving sales at present are the Chinese. The number of Chinese buyers has tripled since 2007, as they seek to diversify their investments abroad. As in London, they are relatively small ticket purchasers – almost half of Chinese buyers focus on lower priced units, typically less than $800,000.

Singapore’s introduction of increased Additional Buyers’ Stamp Duty in a market already feeling the heat of the challenging economic environment is likely to cool some of this demand. Nonetheless, the city’s position as a growing global centre for finance and business will underpin international investment in the long term.

Strong growth

Singapore’s residential property prices have shown strong growth of 115% since 2005 and were barely dented by the 2008 downturn, reflecting the continued ascendancy of Singapore as a world-class city. Annualised growth in residential prices is currently running at 16%. These have grown by 39% since 2009 and seem to be amply supported by the fundamentals of supply and demand, as illustrated by a similar growth in rental levels, which are not subject to speculative investment.

Ultra-prime property in the city has risen by 232% since 2005, putting it high even in the “new world” league of billionaire destinations. In fact, Singapore’s stands out as a property market in the new emerging economies which, although increasingly expensive and having shown high growth, can be described as fully priced rather than potentially over valued. Yields are slightly lower than in the “old world” cities, but much higher than in Hong Kong and Shanghai.

Capital and rental value price growth increased by 3.5% in the first half of 2012 and -0.1% in the second. This compares to 15% and 9% respectively in the previous year. It appears that government attempts to cool the markets by increasing supply may be working. Like Hong Kong, Singapore has increased property taxes, especially for overseas buyers and this has had a significant dampening effect, particularly on volumes at the top end of the market.

Booming region

Singapore has seen high levels of development activity in recent years, deliberately engineered by the government to boost supply and suppress capital value growth. It appears to have worked in as much as capital values have not grown out of kilter with rental income. Singapore’s rental yields are high by “new world” standards. But the strong economy and ever increasing international purchasers from a booming Asia region, coupled with naturally restricted land supply in such a small state and, at the very top of the market, extremely limited stock, has led to big price rises.

The mainstream market remains strong, buoyed by a strong economy, growing wages and one of the highest home ownership rates in the world. This should prevent any more significant slowdown in the short to medium term. The city state’s open door policy towards top end foreign economic contributors, who traditionally gravitate towards prime districts, means rental demand is high. Investor demand is also strong because Singapore has the highest concentration of millionaire households in the world (16% with $1 million plus), and their capacity to buy residential property is high. There is therefore a good balance between rental demand and supply.

The rental market has suffered only inasmuch as expatriate housing budgets have shrunk due to multinational companies’ cost-cutting measures. But this will be ameliorated, in the longer term, by high levels of immigration, which the Singapore government continues to encourage.

Economic performance

Singapore shows how the economic performance of a city and its ability to attract residents from overseas can have a significant impact on real estate markets. That fundamental underlying demand trumps all other attempts at market control, so the fortunes of the city’s real estate market are likely to be tied to the economic strength and diversity of the local economy, as well as the global nature of commerce and the different nationalities it can attract.

The other thing that Singapore illustrates, along with Hong Kong, is the absolute pricing levels that these cities have reached. They are on a par with “old world” cities and significantly above even New York. This makes North American and European cities look very good value to Asian eyes.

Taken from
Candy Global Prime Sector Report