Chinese Investors Choose Singapore Over Hong Kong For 'Diversification' — But Things Could Change

Investors inquiring from China on Singapore real estate have been hitting record highs from the second quarter of 2019, and China’s most frequently visited internet marketplace for overseas real estate purchases thinks that this trend will “sustain itself” till at minimum the first half of 2020.

However, a valuation expert comments that the rise in Chinese buyers picking up property in Singapore will have only a minor impact on the Singapore housing market.

“Singapore is the region’s safe harbour and the recent unsettled economic and political environment makes safety seem worthy to pay a premium for,” noted executive chairman of Juwai.com, Georg Chmiel.

Juwai.com is China’s biggest online international real estate marketplace. The boost in Singapore comes from “mainland Chinese money which might have been otherwise directed to Hong Kong, or Hong Kong money seeking offshore diversification.”, Chmiel mentioned.

Hannah Jeong, head of advisory and valuation at Colliers, commented that Singapore is just a temporary substitute to Hong Kong, and it is due to “Singapore’s Mandarin speaking environment, and its good proximity to mainland China.”

“In spite of the capital restrictions on money outflow from China, a family trust or mutual fund format will enable capital to be brought out of China continuously,” Jeong informed CNBC.

Chinese investors have on many occasions been blamed for pushing up housing rates in Hong Kong. Some have used those lofty property prices as fuel behind the current political and social unrest in the city.

However, Mr Joseph Tsang, chairman of JLL Hong Kong, informed CNBC in October that the figures of mainland purchasers in the territory has dropped significantly in the last decade, partially because of the high cost of investment, but more due to Beijing’s tightening currency control in the previous two years.

Preventing a housing bubble

Singapore has regularly been compared to Hong Kong, as both financial centers are attractions for international talent. However, 1 major difference between the 2 Asian cities is regards to home ownership.

With reference to the Department of Statistics of Singapore, the country’s home ownership rate was 91% in 2018. In contrast, Hong Kong’s home ownership rate was only 49.2% in 2018, according to the Census and Statistics Department of Hong Kong.

A key reason for that difference is that the Singaporean government has vigorous housing policies and many measures stopping foreign investors and wealthy individuals from pushing prices sky high. That’s why the One North Eden Price is affordable for the locals.

One significant policy, named the additional buyer’s stamp duty (ABSD), requires Singaporean citizens buying more than 1 home to fork out an extra tax from 12% to 15%, depending on the number of properties owned. In the mean time, the city-state needs foreign purchasers to pay a shocking 20% on any form of residential real estate purchase.

Despite those steep taxes, Chinese buyers are still putting money into what they see as safe investments.

“Why are mainland Chinese purchasing more Singapore housing units in recent years, in the face of 20% foreign buyer taxes?” Chmiel asked, “It is because of safety, pure and simple.”

Temporarily attractive

Chmiel mentioned that many wealthy mainland Chinese are seeking safe diversification of their wealth and to guard a part of it in offshore assets. The aim was that the offshore assets could be less affected to economic cycles within China. That’s why investors have also bought units at LIV @ MB.

He said that more apartments have transacted for around $7.3 million or more in Singapore this year, than in any complete year since 2008, and the firm expects “this trend to sustain itself into the early half of 2020 at the minimum.”

Hannah Jeong noted that the price index of bigger units in Hong Kong went up by 21.9% in the last 5 years, and 83.5% from in the decade of 2009 to 2019, according to Hong Kong’s Rating and Valuation Department. That’s the biggest appreciation recorded in Asia, she commented.

But Singapore’s housing price index only increase 2.5% in the last five years, and 55.4% between 2009 and 2019, said Hannah.

She do not think that a rise in Chinese purchasers in Singapore will impact the local property market drastically in the long term, due to the reliance of Singapore’s majority on public housing, whereas the Hong Kong populace rely heavily on private housing.

“In spite of the Chinese home purchasers boost of the private home market in Singapore to a certain degree, its effect will be marginal compared to the overall housing market,” she mentioned.

“China residential property buyers still believe that the Hong Kong market will provide better capital appreciation in comparison to other Asia cities, as such as soon as the social unrest issue resolves, the Chinese property buyers will return to the Hong Kong housing market,” Jeong commented.

Source: https://www.cnbc.com/amp/2019/11/25/chinese-investors-picking-singapore-property-over-hong-kong-for-now.html

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