Singapore’s sizzling economy, set to expand as much as 7 per cent this year, could prove a headache for the government as the city-state risks

Singapore’s sizzling economy, set to expand as much as 7 per cent this year, could prove a headache for the government as the city-state risks becoming less competitive than rival business centres such as Hong Kong. The labour market is tight, with demand for top bankers far outstripping supply, while property prices, a topic that dominates headlines and dinner parties, have gone crazy.

A penthouse at the luxurious St Regis Residences - butler optional - was recently resold for $28 million, up a whopping 84 per cent from its initial price in August, The Straits Times reported. Prospective buyers queue up overnight for new property projects, while rents are up 30-70 percent.

‘Demand is high not only for private bankers, but for all private-banking-related jobs,’ said Michel Longhini, regional head of BNP Paribas Private Bank in Asia. ‘Costs in Singapore are definitely going up. With such high inflation, particularly in real estate, the cost of relocating staff is going up.’

Economists such as ING’s Tim Condon credit Singapore’s micro-managing government for the strong economic performance, citing recent corporate tax cuts and a shift away from churning out gadgets to services such as private banking and tourism. ‘The government has put in place policies to restructure the economy, and it’s working. Singapore wants to be the Switzerland of Asia,’ he said. ‘Cutting the corporate tax rate encourages new businesses to start up, and opening up the services economy, with casinos and financial services, is what you need when the electronics sector is hit by the kind of shock it’s had.’

Electronics exports down

Electronics exports in May fell 16.1 per cent from a year ago, according to data published on Monday, dropping for the fourth month in a row due to weak demand from the United States.

It’s not just residential property that’s perking up. The long-ailing construction industry has had a much-needed fillip, thanks to several big projects - two casinos likely to cost some US$7 billion, a public sports centre, and a new financial district - giving a lift to gross domestic product.

With its focus on financial services, Singapore now serves as the Asian headquarters for private banks including UBS, Citigroup and Credit Suisse, as well as a centre for hedge funds such as Tudor Capital and Man Investments. Given a jobless rate of just 2.9 per cent, according to data released last Friday, the city-state is particularly keen to attract rich professionals, such as private bankers, hedge fund managers and others in the financial services sector to alleviate a shortage of qualified workers.

But the government is clearly worried that rising property prices could make Singapore far less competitive in terms of business and living costs than its long-time rival Hong Kong. ‘It is very important for us to make sure that the prices do not overshoot or race ahead of the real growth in the economy,’ Mah Bow Tan, the minister for national development, told The Straits Times at the weekend. ‘I think it is not sustainable in the long run and, of course, it is also not good for our competitiveness if prices and rentals go up too fast.’

An American Chamber of Commerce survey found that 61 per cent of the 95 senior US executives polled were dissatisfied with housing prices, up significantly from 42 per cent last year.

On Thursday, the government’s land department announced its biggest-ever land sale in a bid to increase supply, particularly in the residential sector, and douse the price rise.

‘The focus on the residential sector is a preemptive measure to head off any run-up in mass private housing prices,’ said Chua Yang Liang of Jones Lang LaSalle. ‘Office rentals are a small percentage of total operating cost for businesses so the concern is more for housing costs for expatriate employees.’

Curbs on speculators?

Some analysts said that the authorities may consider further measures, such as curbs on speculators, as happened back in 1996 in the last property frenzy. At the very top end, residential property is now more expensive than in Hong Kong. Developers such as CapitaLand and City Developments have bought up and demolished many old blocks in prime districts, taking hundreds of flats out of the market, including some of historic interest.

But as many of the new developments won’t be ready for occupation for another three or four years, the shortage is likely to persist and could become even more acute given the government’s plan to increase Singapore’s population by another two million people, to 6.5 million. Foreigners, many lured by Singapore’s affordable, spacious housing and abundant greenery have seen rents squeezed up. ‘There are so few places to rent now where you are close to nature,’ said Renate von Roda, adding that her landlord wanted to raise the rent by 40 per cent earlier this year. ‘Everybody is on a greed trip.’

Source: The Business Times, 20 June 2007