Tuesday, January 22, 2008

Is Singapore becoming price uncompetitive for foreign business? Rocketing office and housing rental prices over the last 12 months

Is Singapore becoming price uncompetitive for foreign business? Rocketing office and housing rental prices over the last 12 months are raising this question.
With property costs now among the highest in East Asia after Tokyo and Hong Kong, there is more and more talk as to what impact they must now make on decisions by a foreign company to maintain or establish in the island city state. Various surveys of the foreign corporate sector and expatriate professionals by consulting companies underline the extent of Singapores rising property and living costs. International human resource consultant, Mercer, found in its annual cost-of-living survey for expatriates earlier this year that Singapore had risen to become the 14th most expensive city of 50 cities around the world, from 17th place the year before, and the most expensive in Asia after Seoul, Tokyo and Hong Kong.

New York, Sydney, Beijing and Shanghai were all below Singapore. And since the Mercer survey, announced in March, living costs have continued to rise in Singapore. Yet these cost-of-living headlines can still skew a true assessment of Singapore´s international economic competitiveness.

Income taxes are very low - 20 per cent in the top bracket - and there was a further cut in this year´s February budget in the corporate rate to 18 per cent. Singapore continues to be advantaged by efficient and low-cost infrastructure services, a well-educated workforce, English as the common language in business and government, and legal and regulatory certainty and transparency for commerce.

Setting up a foreign-invested company, including a fully-foreign-owned company, even if the sponsors are only small-scale businesses, is a very straightforward and rapid process, unlike almost anywhere else in Asia. These factors will continue to offset cost-ofliving rises for top-end foreign business - that is, those in the international banking, legal and business services, and high value R&D heavy manufacturing, such as biotechnology and pharmaceuticals, precision engineering and the sophisticated end of electronics and information technology.

And there is no question that Singapore is succeeding here, with growth of 7.9 per cent in 2006 and an anticipated 7.0 per cent in 2007, driven significantly by these industries, as well as (more recently) construction in response to property demand. Activity in construction is the highest for a decade, according to the Ministry of Trade and Industry. One effect of the higher living costs, though, may be to limit expatriate staff to the top executive level with more reliance on local professional and technical staff for mid-level positions as they will not want the higher salaries their equivalent foreign number would need to live on a temporary basis in Singapore.

The property market is the major driver of these rising living costs. While this is due to an obvious imbalance in supply and demand, the boom is also a result of the Singapore Government´s efforts to develop high-end economic sectors and industries, and the impact, then, on rental and office markets of new foreign companies establishing and expanding. To cool the market, the Government is now releasing more land and putting in place other measures, such as slowing the rate at which developers can pull down older midlevel- priced apartments to build high-end ones.

High property prices are also being felt by local Singaporeans and not simply in terms of owners and developers gaining from the boom Price increases in the private-condominium segment filter down to the public housing segment where the vast majority of Singaporeans live some 80 per cent and this impacts adversely on those lower- and middle-income households that rent, or are in the market to purchase an apartment. Combined with the overall economic restructuring taking place, this leaves significant numbers of Singaporeans vulnerable and hurting, especially the old and those lacking skills and education.

The problem of a widening income gap is something that the ruling Peoples Action Party does not deny, and how the Government intends to combat it through education and training measures, income support and housing estate renewal was a focus of Prime Minister Lee Hsien Loong´s National Day speech in August. But the question of social inequalities will continue to be a major issue for the Government in the years ahead, especially in the context of what seems a strategy of making the island city a base in the region for the worlds wealthy.

Inevitably there is the risk of social jealousies and resentment. Nowhere is this clearer than in the finance and banking sector. Singapore´s drive to become a larger international financial centre has led to increasing emphasis on private banking. And, with this has come upward pressure on the property market through an associated interest by wealthy foreign individuals and families with investments managed by Singaporebased private banks to purchase real estate and spend time living on the island state. One example is Charoen Sirivadhanabhakdi, one of Thailand´s richest men, who listed his whisky and beer firm Thai Beverage on the Singpopore exchange in 2006.

According to the local Business Times newspaper, in April this year be bought 47 of 48 flats in a new development for US$140 million, and four entire floors in another project for US$90 million.

Singapore aspires to be a Switzerland of Asia. There are now nearly 40 private banks with regional operations in Singapore. Both US Citigroup and UKs Standard Chartered maintain their headquarters for all private banking outside of their home countries in Singapore. Target clients range from the European and American wealthy to those in East Asia and India, the new millionaires of China, and the oil rich of the Middle East, who are turning more to East Asia as a place to invest since 9/11 and the Iraq war.

Singapore´s own rich should also not be forgotten, with the small State having more millionaire households as a percentage of total households than any other Asian economy, according to the Boston Consulting Group. Singapore, as has long been the case, argues its ability to act as a platform to manage investment throughout the region and beyond. More particularly, to encourage private banking, the Government has strengthened bank secrecy laws and tax incentives. For example, there is no taxation on an individual´s foreign income, including capital gains and interest income in Singapore.

Income tax is levied only on income earned from Singapore, and this tax is very low. Another factor helping growth of private banking is attractive trust laws. Other finance industry segments that are being encouraged along with the more traditional banking and stock market services are hedge funds, private equity firms and insurers. Overall, the finance sector is one of the strongest areas of the economy, growing by 17 per cent in the second quarter of 2007 on top of 14 per cent in the first quarter. And, as the Ministry of Trade and Industry notes in the release of these results, the wealth advisory cluster remained buoyant, riding on growing affluence in the region and continued demand domestically for professional fund management services.

Encouragement of private banking meshes with the Government´s new urban and tourist development thrusts, as well as promotion of Singapore as a world-class education centre. Thus, Singapore is not just a place in which to invest, live and play Singapore also can offer the best of education for their children. Evidence of this can be seen at the end of Sentosa Island, on Singapore´s inner west coast, not far from the CBD. Sentosa, better known to tourists as a theme park and once a British military base, is now being transformed into an exclusive residential estate.

Sites at what is called Sentosa Cove are reported to be selling from as much as US$9.9 million.

Sentosa Cove has a 400-berth marina with 10 spots for very large yachts, and two golf courses.

About 60 per cent of buyers at Sentosa Cove are foreigners. Sentosa will also feature one of Singapore´s two new casinos called integrated resorts being developed by the Government after a four decade ban and despite considerable community concern over their possible adverse social effects. Sentosas will be built and operated by Malaysia´s Genting group, while the other will be build by Las Vegas Sands of the US at the emerging Marina Bay office, hotel, exhibition and convention centre on reclaimed land opposite the core CBD. As one property agent told Reuters: “Its Monaco in the tropics.”
Source : Asia Today International - 18 Jan 2008

Citigroup has come out to clarify that Singapore will not be significantly affected by the group’s global layoffs

Citigroup has come out to clarify that Singapore will not be significantly affected by the group’s global layoffs.

At a news briefing on Friday, it said that as far as Singapore is concerned, it expects the attrition rate to stay normal.

No bonus cuts are expected and staff will still be paid salary increments.

Citigroup said that overall, Asia including Singapore is positioned for good growth.

Like most big financial names in the US, Citigroup has been hit by the sub-prime mortgage crisis - taking billions of dollars in write-downs.

Citigroup said earlier this week that it was going to cut 4,200 jobs. That sparked speculation that it would reduce headcount in Singapore, but the group stressed that those fears are unfounded.

Piyush Gupta, Country Officer of Citi Singapore, said: “The truth is the large part of this reduction is likely to be in the Western world because growth in Asia has been spectacular and growth in Singapore particularly has been very strong.”

Citi employs close to 375,000 staff worldwide - which means the cuts will affect only about one per cent of its global headcount.

It saw a 33 per cent jump in revenue from the Asia-Pacific in 2007, with profits climbing 46 per cent to US$4.6 billion.

For Singapore alone, revenue rose 35 per cent, while headcount increased by five per cent to 9,000 people. Citi said it is expecting to see growth rates of 20 per cent in Singapore in 2008. - CNA/vm

Source : Channel NewsAsia - 18 Jan 2008

Asian economies face a challenging year in 2008 but as a group they are still expected to show growth of 10 to 12 percent.

Asian economies face a challenging year in 2008 but as a group they are still expected to show growth of 10 to 12 percent.

This is the forecast from HSBC in its latest report on the region.

However, a recession in the US could knock off a few percentage points off Singapore’s economic growth.

With a US recession on the horizon and the US sub-prime mortgage crisis still taking its toll, HSBC is predicting a difficult year for Asia in 2008.

Economies such as Japan and Taiwan are expected to be most cyclically sensitive to the US slowdown. But emerging ones - led by China and India - are forecast to continue booming along.

Garry Evans, Pan-Asian Equity Strategist, HSBC, said: “Well, it’s going to be a difficult year, there is no doubt about that. We’ve got the US slowing - credit crunch out there, everyone is focused on the bad news.

“I don’t think it’s going to be quite as bad as that though because governments are going to react to this bad news. The Fed is going to cut rates in the US - we’ve going to have a fiscal stimulus package there and I think Asian countries are going to grow reasonably stronger this year.

“You’re not going to see that much of a slowdown, particularly in China and India - and if you do see a slowdown, governments here have also got room to cut rates and increase spending.

“So I actually see the Asian markets going up this year - ultimately 10 to 12 percent or something like that. I don’t’ see a bear market but I think it’s going to be a year of ups and downs - your probably going to have to be a little patient to get a return.”

Mr Evans added that inflationary pressure will settle.

He said: “Well, ultimately if we’re seeing global growth slowing, then I think you’re going to see inflation becoming less of a worry during the year. In general, in most places, inflation is still a food phenomenon, and it’s not really showing much signs of coming though to any other areas in the economy.

“We’re all a bit worried about inflation at the minute. Certainly the most worrying scenario is when you have high inflation and slowing growth - in a so called stagflation - and if we have that then we could be in for a very tough ride. But I think generally as growth slows, inflation will come off the radar scene as being a problem.”

Here in Singapore, HSBC says the financial and property sectors will remain positive, but exports will remain susceptible to a US slowdown.

Peter Morgan, Chief Economist, Global Research Asia Pacific, HSBC, said: “Well we are fairly optimistic on Singapore - we think that the strength in loan growth and the strength in the property sector is having a positive impact.

“Growth in Singapore is likely to slow, and Singapore is still a fairly export sensitive country and if the US looses a couple percentage points of growth than that could knock off maybe 3 percentage points on Singapore’s growth.”

HSBC is forecasting the Singapore economy will grow 7.3 percent in 2008. - CNA/ch

Source : Channel NewsAsia - 18 Jan 2008