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Increase in Chinese Investment in Singaporean Real Estate

By John Paul Egan

20111228-02-225enChinese investors are continuing to boost their share of real estate in Singapore, long regarded as one of the safest places in Asia to invest capital due to its renowned conservative government and stable legal framework, according to a recent report by DTZ global research. The report found that investors from outside of Singapore purchased 18.6 percent of all private homes that were sold in the third quarter, bringing the figure to a new high. Non-Singaporeans accounted for 16 percent of all private home sales in the first quarter and second quarter. Mainland Chinese purchasers were the biggest group of non-Singaporean buyers, responsible for 30.6 percent of all private home dealings in the third quarter, up from 26 percent in the first quarter and second quarter.

In an interview with Invest In, Nelson Wong, CEO of Shanghai based, real estate investment advisory firm ACN Worldwide, said Singapore is one of the best options for Chinese buyers looking abroad. “It has close proximity to China with the same time zone, is an internationalised free market and Mandarin is spoken,” Wong said, “Part of the incentive for Chinese to buying property there is to seek further immigration possibility and to have their children educated there.”

One of the reasons why investors are venturing outside of China is domestic real estate investment restrictions in place to mitigate property price growth. The current Chinese government regulation on Chinese real estate “basically prohibits speculation on the real estate market, as credit cannot be obtained for second and third properties” according to Wong. However, he said it is difficult for the Chinese government to actually push down the price of real estate for many reasons. The foremost of these being land sales, which contribute to a significant proportion of the annual GDP growth. When enacting legislation changes, the central government meets resistance from local governments, whose revenue depends largely on such land sales. On the other hand for people who already own property, too much austerity leading to lowering of property prices could potentially lead to social unrest.

However, the Singaporean government has taken measures to calm its real estate market through raising the minimum investment threshold and increased immigration restrictions over the past two years. According to Property Wire, the Singaporean government has recently announced a new ten percent stamp duty on first time foreign property investors buying a residential property in Singapore. In the same article, Wendy Koh, an analyst at Citigroup said, “this is severe and likely to have a significant and negative impact on the residential property market, especially in prime districts.”

In an article by The Straits Times, Standard Chartered analyst Regina Lim remarked, “with volumes and prices staying buoyant despite the weakening economic environment and repeated initiatives by the government to dampen the market this year, we will not be surprised if new measures directed at foreigners are introduced by the government, which in turn could negatively affect home prices.”

According to Singaporean government figures released on October 28, prices of private residential properties increased by 1.3 percent in third quarter of 2011, lower than the two percent increase in the previous quarter. This was the eighth successive quarter where the rate of increase in overall private housing prices had slowed. As signs of property price cooling appear in Singapore, Chinese investors may look to other parts of Asia and the rest of the world to devote their wealth, according to Wong “In the coming twelve months, we will see more and more properties from all over the world being marketed in China and the appeal of Singapore will be distracted by other opportunities.” He noted this is not necessarily negative from a Singaporean point of view, as too much focus on this country by Chinese investors could fuel a property bubble.

Other areas of potential interest to Chinese investors, according to Wong include “mainly English speaking countries of: North America, Canada, Australia and the UK.” He added, “I see more opportunities and attentions beginning to be paid to non-English speaking countries particularly in Eastern Europe,” due to many of these being part of the European Union and very inexpensive relative to other alternatives.

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