Singapore and Dubai: boosting the bond

Singapore and Dubai: boosting the bond
BY LUCIA DORE (Assistant Editor, Business)

26 May 2007



DUBAI — The similarities between Dubai and Singapore are clear. Both are city-states, strategically located geographically and outward-looking philosophically.


Of the comparison, Teo Swee Lian, deputy managing director, prudential supervision of the Monetary Authority of Singapore (MAS) says: "I think maybe it is that we are geographically small looking to do things beyond our borders. In the case of Singapore, because it is so small and has no natural resources except for its people and location, we have to run that much faster, and have to be that much more innovative to stay ahead of the curve, and that really has been the impetus to our growth."

There are other similarities besides. Both have low, or zero, tax structures, are staunch supporters of free trade, and are progressively restructuring and diversifying their economies. Both are strengthening their services sectors, focusing on key areas such as tourism, healthcare, education and financial services, and both are positioning themselves as financial services hubs.

Singapore is also a hub for innovative equity products, including real estate investment trusts (REITS), business trusts, derivatives and exchange traded funds (ETFs). Singapore has 16 listed REITs and five listed business trusts with a total market capitalisation of about $20 billion. Singapore is also positioning itself to be a hub to raise capital for Asian real estate and infrastructure companies — a position Dubai may well be considering for the Middle East.

Singapore has also experienced a boom in property prices, and dealt with the subsequent slowdown — a scenario that Dubai may face some day soon. MAS dealt with the situation this way. "In the mid-to late 90s we did notice a high amount of credit growth in the financial sector going towards housing and there was rapid growth in house prices. We took some measures to take a little bit of air out of it and, because of that, when the property markets did crash in the midst of the Asian crisis, Singapore corrected about 40 per cent from peak to trough," says Lian. In contrast, the correction in Hong Kong was about 70 per cent. "The reason we were able to have a little less of that correction is that we had let some of the air out," she says. Over the last two years, the real estate market in Singapore has bounced back, "though it is a slightly different phenomenon this time,” says Lian. “There are more foreign buyers coming in."

Why? "I do think that globally there is a much greater awareness of real estate amongst international investors,” she says. “People now look for a portfolio of investments. It used to be considered an alternative asset class but now it is more mainstream." The result is that house prices have increased more steeply at the high end. "It's not uniform across all real estate sectors in Singapore. It is really only at the high end. It tends to be either rich individuals or funds that are buying properties as a portfolio investment," says Lian.

Economically, Dubai and Singapore are growing strongly and steadily. According to MAS, average growth for Southeast Asia was 5.7 per cent in 2006, with Singapore and Malaysia leading the way with 6.6 and 6 per cent, respectively. Asia's stock markets have grown steadily and are setting record highs. Corporate profitability and balance sheets are much stronger than a decade ago and the region’s banking system has become more robust.

With both economies going from strength to strength, both strongly supporting free trade, and both experiencing booming real estate and construction sectors, interaction between the two economies, and their wider regions, is likely to accelerate. Singapore and the UAE signed a framework agreement in March 2005, which should lead to a full free trade agreement between the two countries. In August that year, Singapore signed the Comprehensive Economic Co-operation Agreement (CECA) with India and since then trade and investments between the two countries have grown robustly. India was Singapore's 12th largest trading partner in 2006 with bilateral trade of almost $13.3 billion. More of such alliances, designed to benefit both economies, and regions, are likely.