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Real Estate in Singapore: Explorations of Asia for Property Investors

by Ziv Magen on May 18, 2012 · 8 comments

  
Asian real estate & Singapore

Ah, Asia.

It used to be so mysterious, exotic and dangerous. And in many peoples’ minds, it still is largely populated by martial artists and dragons, mysterious and foreboding, head-to-toe tattooed organized crime figures, deranged and dangerous regimes and bewildering technology, all nestled against a backdrop of incomprehensible cultural norms, sights and alien alphabets. All in all, more the substance of fiction and romance, travel reviews and unearthly cuisine than a place to invest one’s money in.

It’s almost a shame, therefore, in a “MythBusters” kinda way, that for a larger and larger percentage of foreign investors, the far-east has already become far less mysterious and alien. As technology, multi-lingual and global reaching corporations couple with minds and hands freely migrating from one corner of the globe to the other, cultural chasms become bridgeable gaps, and language barriers become little more than wisps of smoke, easily dispersed with the placement of competent teams in particular areas, or the utilization of such existing, localised teams, in much the same way that one manages properties on the other side of town. As always, due diligence is key.

As previously discussed in BP and other leading online forums, there are many out there who believe that staying local isn’t necessarily the safest, nor the wisest route to take, in today’s global financial climate. This series of posts isn’t an attempt to debate the “correctness” or “validity” of one school of thought over the other, but rather to try and establish 21st century Asia, and various real-estate hubs contained therein, as viable alternatives for foreign investors – hopefully achieving this by providing some up to date, reliable information regarding financials, legalities, risks and reasonable expectations for returns –enabling would-be investors to make informed considerations and decisions regarding investment in Asia generally, or in any country specifically.

I’ve decided to open with Singapore, one of the world’s safest and favourite corporate havens and probably one of the easiest of Asian countries to enter for the foreign investor, due to its international nature and English-oriented environment. It’s also tiny and highly populated, so you can’t really buy in a “bad area” – although there are certainly better ones.

In this, as in the next posts in this series, I’ll try and focus on general and unique characteristics, recent history and trends, taxation, finance and current potential opportunity, and leave you savvy folk to draw your own comparisons between the various environments, as well as between each of them and your own familiar back yards.

Singapore as a Destination for Real Estate Investment

Singapore real estate

“Singapore boasts of a competitive, corruption-free, open business environment. The Port of Singapore is one of the busiest in the world as the country focuses on electronics and chemical exports to richer industrialized nations…over the years, Singapore has diversified its economy and today it has become a research & development hub, bio-medical hub, banking and finance center and in recent times the health-care destination of Asia. Today, Singapore is a knowledge-based economy and attracts multinational investments. Its open trade policies, social stability, world-class infrastructure and international communication links, are some of the reasons why foreign investors flock its shores.”

(Extract and following taxation info from “Guide to Quality of Life in Singapore – Economic Environment” & information sections on www.guidemesingapore.com – also compiled from lengthy forum discussions on leading Singapore property forums)

Singapore Facts (Death, Interest & Taxes)

The above, while certainly a tad rose-tinted, is not far from the truth. The city-state is a highly-regulated, purposefully international business-centered economy, and home to a growing number of multi-national corporations who chose it as their headquarters due to its safe, crime & corruption free and tax-friendly financial environment.

With corporate income tax capped at 17% and personal income tax rising slowly from 0% to a comfortable 20% cap (non-residents, unfortunately, are taxed a flat 15%), the average Singaporian is a competitive, success driven, highly educated, English and Chinese speaking, multi-lingual capitalist citizen of the world in every sense of the word – and knows it well. This mentality probably accounts for the fact that Singapore banks can and will lend money to non-residents based on foreign income – up to 80% officially (more like 50-70% in practice), at very reasonable interest rates.

If you think this means you can borrow and bolt – don’t get funny ideas. These guys will hunt you down anywhere in the world, and can afford to (think HSBC for a typical Singaporian global approach & penetration philosophy). Property tax is based on the rental value of the property, and can come up to 4% of the income again, so a “better safe than sorry” approach that factors in something like 20% in “income-related” taxes is probably not a bad idea. An annoying 10% additional tax for non-reisdents on new development properties is often negated by vendor discounts, as an incentive to enter the market.

There’s no CGT, which is nice considering prices went up 75% in the last decade, but don’t bet on this to continuein the next post we’ll discuss Singapore’s unique, heavily regulated residential property market and what this means for the foreign investor in practice, compare current prices, expenses and cashflow, and present some speculations by analysts as to what’s coming in the next few years.

Please feel free to query, comment, and steer this discussion in any other way, shape or form – would love to hear your thoughts :)

Ziv

Images: Tommaso Meli – Kabuki Mask, Dinukshan Kuruppu – Singapore Skyline

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{ 8 comments… read them below or add one }

Joshua Dorkin May 18, 2012 at 8:11 am

Lots of great info here, Ziv. Thanks for the post and welcome to the blog. I’m looking forward to learning more about the intricacies of the Asian real estate markets.

Reply

Steve Toohey May 18, 2012 at 8:40 am

Ziv, Very well written and interesting! If you have any insight into the New Zealand market, I’d love to hear it at some point… I know, that may well be like you asking me what I know about Real Estate in Mexico when I live in Colorado (which would be nothing)!

Thanks, Steve

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Joshua Dorkin May 18, 2012 at 9:25 am

Hey Steve – I’m sure Ziv is going to chime in, but he’s planning to cover many of the countries in East Asia as well as Australia / NZ. Stay tuned Fridays for more insight into some new markets.

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Ziv Magen May 18, 2012 at 2:46 pm

Thanks, Steve, glad you liked it! :) I’ve decided to start with the more “exotic” Asian countries- will happily cover AUS and nz as well down the track.

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VV May 18, 2012 at 1:44 pm

Ziv,

I am a new member here, read the entire post, nice read. And then read the comments, so, thought maybe I would also go with the trend of the comments. Maybe some day you can do a similar survey on Indian market also. Few major benefits that I see in Indian market are:
1. India is one of the largest growing economies as of now.
2. Population in India is more than enough to ensure that a Financial crisis that hit US around 2002-2005 never happens.
3. Indian culture is bit different and even till today, more than 70% people don’t believe in a life on credit, rather still spend some and save some every month.
4. Huge English speaking Indian population.
5. And not to debate, but just my personal thought. Smaller countries already have had their share of appreciation boom, whereas buying land around metropolitan cities in bigger countries ensure a boom as a long term investment.

Personally, I like to invest in land rather than apartments. You would be shocked to know how much appreciation there is these days.

Thanks!
VV

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Jeff Brown May 18, 2012 at 3:40 pm

Welcome, Ziv — so good to see you here.

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Ziv Magen May 18, 2012 at 4:55 pm

Cheers :)

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Ziv Magen May 18, 2012 at 11:35 pm

Thanks, VV, very interesting comments. I have to admit that I know very little about the Indian realty market. I’ve met quite a few Indian investors and businessmen, but always in a japanese realty context. Would be very interesting to explore- I get a feeling that, similar to china maybe, and to a smaller extent japan, there would be vast differences in areas due to sheer size, variety of subcultures and languages, religions and philosophies.

I also found what you described regarding cash and debt mentality fascinating- I think a return to cash geared transactions as opposed to debt addiction is key to a balanced and financially healthy and responsible economy, both nationally and globally. If what you say about Indian mentality is wide-spread, I see it as a great advantage for Indian economical sustainable growth chances.

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