What’s the Outlook for the Singapore Real Estate Boom?

What’s the Outlook for the Singapore Real Estate Boom?

The marked first quarter improvement in the Singapore property market raises a number of important questions; such as where is the growth, where does it come from and is it sustainable?

Private residential property values rose 4.8% in Q1 in Singapore compared to a 10% improvement for the whole of 2006. High end developments such as Marina Bay Residences and One Shenton have led the way but there are also reports that both mid-level residential properties and commercial developments are rising in value, too.

Analyses of where the impetus for growth is coming from vary. The mainstream interpretation (and certainly the one supported by the Singapore authorities) is that Singapore is in the process of launching itself into the first of division of world cities with enhancements to its status as a business and tourist centre. This will see Singapore strengthen its credentials as an international financial centre. Eric Ellis, SE Asia correspondent of Fortune magazine has a dissident, minority view that sees Singapore as the beneficiary of an enormous amount of personal investment on the part of wealthy Indonesians and that country’s Chinese community. Holdings in Singapore by Indonesians are now over $100 bn

Although SE Asia is a backwater in terms of industrial development relative to India and China and is not matching the high growth rates of those two countries, Singapore’s economy is expected to grow by between 4.5 and 6.5 % in 2007 and the country is seen as orderly and well-regulated. This would suggest that the ‘hub for finance and services’ is fairly realistic.

However, exact statistics on the numbers of wealthy foreigners settling in Singapore or buying property there don’t seem to be available. Possibly, the ability to invest discreetly is one of the prime attractions for Indonesian investors. Singapore’s status as an offshore financial haven for Indonesians could be damaged by Indonesian government action to clamp down on corruption. A lot is riding on ‘the rich will always be with you’ view of the future as far as the property market is concerned.

The hard evidence for the boom is seen the rising number of deals and their increasing value between 2006 and the previous year, 60 deals worth over S$7.5 bn compared to 41 deals worth a total of just under S$2.5 bn for 2005. New developments in the prime Orchard Road area of Singapore are expected to fetch upwards of S$3,000 per square foot in 2007. Keppel Land, part of Keppel Group, which is behind the huge Reflections development at Harbourfront, saw a 143% increase in turnover in the first quarter to S$295.4 m, compared to the same period a year ago.

Writing in the Straits Times in March Dr Png of the National University of Singapore argued that the country’s property boom was sustainable (unlike the boom in the 1990s) because prices were not rising faster than Singapore’s average earnings. An article by Kwek Leng Beng, Chairman of Hong leong Group in the Business Times on 8th May also paints a rosy forecast that the boom could well last to 2012 and beyond. He contradicts the view that demand for Singapore office space will all have been satisfied by 2010. Hong Leong is the parent of City Developments, the developer of One Shenton.

Perhaps important guarantee of the scope for property prices to rise in Singapore is the characteristic lack of space that the city shares with competitors such as London or Hong Kong.

Further insights into the direction the property is likely to take, whether anecdotal or economic would be greatly appreciated.