City&Country: Promoting local real estate further in Singapore

Singapore is the leading market for Malaysian real estate. This is not surprising, given the proximity and close business, trade and investment ties as bilateral relations improve and more investments are made to boost the connectivity between the two countries. Familiarity with the Malaysian culture, language and terrain makes it easier for Singaporeans to invest here. Time has proved this and Singapore remained Malaysia’s single largest investor over the past three years.

Limitations on land reclamation and the expansion of real estate on the island on top of rising population density as a result of successful immigration policies have prompted Singaporeans to invest in Malaysian real estate. There are several types of investors from Singapore — those who buy to stay; the Malaysian diaspora which may have become permanent residents of Singapore; and foreigners investing in Singapore real estate. Malaysia has also become the choice for further expansion of Singaporean industrial activities that are land-intensive.

Often labelled as the Switzerland of Asia, Singapore has the highest concentration of wealthy people in the world. A sanctuary for the globe’s wealthy and their money, the city-state attracts foreigners who value banking secrecy.

According to a Merrill Lynch/Capgemini study, the number of high net worth individuals (HNWIs) in China and India is expected to nearly triple in a decade by 2018, and Singapore, with its central location, financial infrastructure and stable government, will continue to attract them. Besides, a quarter of Singapore’s population are expatriates who earn the world’s highest wages and many of them own properties in Singapore, given the island’s relatively liberal policy on foreign ownership.

Singapore has always been the first choice for foreign investors in the region because it is a super-efficient financial centre that combines stable value for holding investment assets with ease of transfer of money at competitive costs and exit of such funds with little hassle or red tape.

Singapore real estate toppish
Still, there are times when the Singapore property market is volatile (see Chart 1) — more volatile than the Malaysian market. In 1Q2009, the Malaysian House Price Index fell 2% from 4Q2008. By comparison, the Singapore Residential Property Price Index fell 15% in the aftermath of the 2008/09 global financial crisis. Currently, property analysts say Singapore’s property market is at the top of its cycle and the chances are that a bear cycle could begin this year. Malaysia, however, can be considered a relatively safe haven for risk-averse investors and a safe harbour during turbulent times.

Chart 2 shows a stable and rising trend in the Malaysian housing index as opposed to a relatively volatile one in Singapore. In addition, Singapore has reversed some of its past liberal policies on rich foreigners. Now, the latter no longer qualify to become permanent residents just by putting money in the island. As a result, some of the rich investors of the world are looking for second homes, and they are starting to look at other countries.

Singapore also recently attempted to rein in runaway property prices by introducing short-term measures, such as imposing additional stamp duty on the purchase of second and third properties and lower loan-to-value ratios for financing offered to foreigners. This has cooled the island’s property market somewhat and investor attention has shifted from Singapore to, among others, Iskandar in Johor, Kuala Lumpur and Penang. By default, a 10% additional buyer’s stamp duty and the increase in its real property gains tax have made Malaysia a considerably cheaper entry into real estate.

China and Indonesia investors look elsewhere
Private property transactions by foreigners and permanent residents in Singapore make up 30% of the city-state’s home sales. Apart from Malaysians, mainland Chinese accounted for 20.3% of these purchases, followed by Indonesians at 18.4%, in 1H2012. So, when the Singapore property market softens, Malaysia could become a credible second choice to this pool of investors.

Malaysia has abundant land, a lower cost of living, and health and medical facilities that rival Singapore’s. As the cost of living in Singapore is high, those who retire may find it difficult to make ends meet should they live long and use up their Central Provident Fund savings or Medisave.

Singaporeans live longer than most and with a life expectancy of 82 years — just behind the Japanese — they represent one of the fastest ageing societies in the world. A report published by Manulife Asset Management says 9% of the Singapore population is above 65, but by 2050 this will rise to 32%. The country’s rapidly ageing population could raise demand for homes in Malaysia, especially in retirement villages. This means Malaysian developers need to brand themselves early in Singapore if they are serious long-term players.

Profile of Singapore investors
With the third highest per capita income in Asia, Singaporeans have strong purchasing power. According to a survey by Ascendant Assets Pte Ltd, the typical profile of a Singapore property investor is fairly cash-rich. Almost 42% have between S$100,000 and S$400,000 of cash in hand. Their average age is 46 while 82% of them are married. They are generally risk-averse and unwilling to accept large declines in value even if it means the potential for high returns. Generally speaking, these property investors are not the speculative type and are prepared to hold on to their investments for more than 10 years. However, they are not familiar with the different locations in Malaysia.

Singapore preferences
“Generally, our Singapore neighbours are in favour of high-end developments, especially projects with a strong security system and lush green environment, and are lifestyle-driven,” says UEM Land Holdings Bhd managing director and CEO Datuk Wan Abdullah Wan Ibrahim. The majority of foreign buyers in its projects in Nusajaya, Johor, are Singaporeans. 

Singaporeans are also fond of Penang, which they can relate to, as well as Melaka, which offers authentic nyonya cuisine and health facilities.

Familiarity with a country is a strong basis for investing in property. According to UEM Land, about 75% of its sales in Melbourne and more than half its sales in Singapore were to Malaysians.This is not surprising as nearly half the Malaysian diaspora live in Singapore. The higher salary and stronger exchange rate that Malaysians enjoy in Singapore enable many of them to buy Malaysian property assets for investment or for their relations to live in.

Window of opportunity
Malaysian developers should look at promoting their projects in Singapore further to take advantage of the gap in investments due to the new regulations. Singaporeans have long memories and remember the years during the financial crisis when many developers abandoned their projects. Although that is now a thing of the past, there are hurdles to overcome in terms of perception. Companies like Gamuda Bhd and S P Setia Bhd have penetrated the market by addressing these concerns and providing solutions such as gated and guarded community living and extraordinary green features.

Malaysia Property Inc (MPI) has been in Singapore for the last two years. Tasked with sending the right message to foreign investors about Malaysian property, it has been successful in erasing that perception of negativity. Developers can raise their profile in Singapore via the MPI showroom at the Singapore Exchange building in Shenton Way. This showroom serves to provide a continuous presence for Malaysian developers to market themselves in Singapore. In summary, the MPI gallery serves to present Malaysian developers with the platform to:

•     Target two million high net worth Singaporeans and expatriates from 7,000 multinational corporations with investment and business opportunities in Malaysia;
•    Target Malaysian diaspora residing in Singapore;
•    Remind global investors who may opt to invest in Malaysia when the Singapore property market is toppish; and
•    Tap the Malaysian diaspora for property in mature overseas markets.

Recently, Joland Group recently launched its new condominium in Johor — Paragon Residences — at the Malaysian Property Gallery in Singapore and sold 100 units. We believe it is a good time to promote high-value Malaysian real estate in Singapore.

Veena Loh is the general manager of Malayisa Property Inc

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 921, July 30-Aug 5, 2012