Singapore is a melting pot of cultures. People from all over Asia and other neighbouring countries head to Singapore for its economic success and steadfast government regulations. The country is fast becoming Asia’s top destination for investors. It has one of the world’s most efficient and extensive public transport systems, with new metro lines opening every two years. The tiny island of Singapore keeps getting better every year. For this reason, foreigners should look at property investments in Singapore.
Despite being a small country, the former concrete jungle is now dominated by green skyscrapers that resemble living ecosystems than economic hubs. With the country’s thrust towards becoming a sustainable country, it is no surprise if Singapore will achieve its dream of becoming a City in a Garden.
In addition to creating green spaces, Singapore is also updating its legal policies to make it attractive for foreign investors to capitalise in the country. Foreign investors do not have to enter into joint ventures or give out the majority of management control to local partners. Foreign investors shall follow the same basic laws as domestic investors.
Singapore Economic Status
Singapore has made itself one of the most advanced economies. In 2017, the Heritage Foundation’s Index of Economic Freedom ranked Singapore as the world’s second most open economy. Its overall score increased by 0.6, mainly due to an increase in government integrity and trade freedom. Most of its success is due to having a highly developed free-market economy, prudent fiscal policies, and transparent governance. The country’s economic diversification and well-secured property rights attract foreign entrepreneurship and productivity growth.
In the World Bank’s Doing Business 2018 report, the country ranked as the world’s second most pro-business regime. Additionally, Transparency International ranked the country as the 3rd least corrupt nation out of 180 countries – another reason why many foreign investors choose to do business in the country.
However, the Ministry of Trade and Industry announced that the country’s economic performance for the second quarter of 2019 grew marginally by only 0.1% on a year-on-year basis, slowing from the 1.1% growth during the first quarter. This notable deceleration in economic growth is mainly due to weakened global growth and the ongoing trade war between the US and China. Due to this, the construction industry should assist fixed investment, as the robust labour market will most likely bolster household spending.
The country’s economic growth weakened further as the IMF downgraded its global growth forecast during its July 2019 review. Based on the quarter-on-quarter seasonally-adjusted basis, Singapore’s economy had only 3.3% growth compared with a 3.8% growth in the first quarter.
Liveability in Singapore
Singapore is still a highly liveable country to live in despite slipping three places down to the 40th spot based on the Economist Intelligence Unit (EIU) 2019 Global Liveability Index. In the APAC region, Singapore is the 11th most liveable city, one place behind Hong Kong. Take note, though, that the ranking happened before the political unrest in Hong Kong.
In the ranking, Singapore boasted the highest possible score for its notable improvement in the public health category. Singapore also has a low crime rate. One of the main reasons for this low crime rate in Singapore is the severe penalties for even petty crimes.
Singapore bested 157 countries to come on top of the World Bank Human Capital Index (HCI). This ranking means that children born in the country will become productive individuals by the time they reach 18 years old. Singapore children will reach 88% of their full productivity potential, have good health and comprehensive education.
Property Investments in Singapore
Singapore is a safe haven for foreign investors. Foreigners can buy any apartment even without securing approval from the government based on the Residential Property Act of 2005. Still, non-Singapore residents cannot purchase vacant land and landed properties without permission from the Singapore Land Authority. However, these ownership restrictions do not apply to non-residential properties.
Since Singapore is a liquid market, many investors from Asia and other neighbouring nations trust its institutions. In the past years, low interest rates helped push the property prices up. Property investments in Singapore often charge a premium but have low rental returns.
Additionally, Singapore has a high rental income tax. Non-residents have to pay a net property lease tax of 22%. The country also has a property tax of 10% for rental properties. A foreigner must pay an additional 10% surcharge. While rental income tax is high, foreign and local investors do not have to pay capital gains tax.
Property Market Trends in Singapore
According to the Urban Redevelopment Authority (URA), Singapore experienced a sharp improvement in the private residential property index, with an appreciation of 7.86%. House price increases were noted in all regions with the Core Central Region (CCR) rising by 6.7% for non-landed private residential properties. The Rest of Central Region (RCR) and Outside Central Region (OCR) posting property price increases by 7.4% and 9.4% during the same period, respectively.
The property investments in Singapore notably dropped by 11.5% in 2018. Still, it was somewhat expected as it came from a record high. Demand dropped as a result of high property prices and uncertainty from the US-China trade war.
CHG Recommendation: Stay Away from Rental Properties in Singapore
CHG advises property investors to limit their investments in rental properties, particularly for condominium projects. Condominiums in Singapore are not cheap. One must be willing to shell out at least US$14,000 to US$18,000 per square metre because of the global city premium. Imagine capitalising that much money on a property that will give you, at most, 3% in rental yields. It’s not worth it.
What foreign investors can take advantage is the private property market. While there is a notable increase in prices, it would likely fall in the next coming months. This drop in prices can occur as economic projections show slow down in the market due to the trade war. Prices will likely remain steady. The great thing, however, with the Singapore market is the absence of capital gains tax. Foreign investors can make a wise investment decision by buying a private residential property and selling it at the right time. Take into consideration that residential construction is robust, and will support fixed assets in the country.