Are Foreigners The Cause Of Soaring Singapore Property Prices?

Sunday, January 22nd, 2012 at 3:45 am

With the increase of PRs and non-residents far exceeding that of supporters over the past 5 years, there has been a growing sentiment among Singaporeans that foreigners are crowding out the market and pushing up property prices.

From 2004 to 2009, the quantity of PRs and non-residents grew at a compounded annual growth rate of 8.4% and 10.7% respectively, vs 0.9% for citizens (and 3.7% for the total population). Over this period have a grand total of 677,000 foreigners (PRs and non-residents) were added to the population vs 172,000 citizens. To paraphrase, foreigners accounted for about 80% of the increase in Singapore’s population over the last five years. Near the end of June 2010, Singapore’s total population hit 5.08 million with foreigners accounting for 36% “there is now more than one foreigner for each 2 Singaporeans.

A growing population certainly adds to housing demand, and in this example the growth has often been from the augmenting number of foreigners. This augmented housing demand comes in the shape of renters and buyers. More customers would push up property prices without delay, while more renters would do so indirectly as higher hires would rental yields and lure investors to go into the market.

An alternative way to have a look at this issue is by the rising proportion of foreigners buying personal homes here. Foreigners (including PRs) accounted for 15.5% of entirely private home purchases in the first quarter of 2009, and that has increased to 23.7% in quarter two of 2010, so foreigners are taking a larger role in the non-public property market.

It’s not simply the foreigners

But foreigners aren’t the only factor sustaining property prices. The existing environment of low interest (and mortgage) rates makes it easier for consumers to leverage up and pay higher prices. As an example, a household earning S$8,000 each month can afford to have a loan of $811,312 when mortgage rates are at 1.5% versus $586,491 when they’re at 4% (assuming a 30 year loan and 35% of income spent servicing the mortgage).

Also, incomes are increasing and Singapore residents are becoming wealthier. The IRAS recently revealed that the quantity of private revenue taxes received from individual tax payers rose from S$5.4 bill to S$6.1 bln in financial year 2009/2010, a 13% increase. With GDP growth expected to be 15% in 2010, incomes and wealth are probably going to increase as well.

So it’s not simply the rising population (generally from foreigners), but also inexpensive money (IRs are the price of cash) and rising incomes which are supporting property prices. A further factor might be the growing interest from foreign investors who are drawn to Singapore’s cosmopolitan buzz and strong currency.

These contributors have given to a buoyant property market “costs rose 11% in the first half of 2010, and price levels have surpassed the historic peak reached in quarter 2 of 1996.

In reply, the government expounded new events on Aug 30 trying to reduce the amount of speculative and investment demand in the home market. In particular, the measures emphasize the role of HDB lofts as a mechanism to satisfy resident end user demand and not investor demand. Also, the intended increase in supply of HDB flats (22,000 Built to Order, 8,000 Executive Condominium and 7,000 Design, Build and Sell Scheme lofts) are designed to moderate the speedy price rises experienced during the past one or two years.

Going further, despite tighter control over population growth and foreign employee inflow, Singapore’s overall population is still projected to hit 6 million by 2020. For 2010, due to the booming economy, around 80,000 new foreign workers will be required. This growing population (generally from “importing” foreigners) and rising revenues may keep on to support end user demand in the long run.

Hope that you enjoyed reading this Singapore property market article!

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