The Singapore real estate market is among the world’s most expensive. Home prices in the city-state rank second highest in Asia, just behind Hong Kong.
You’d have to pay in the range of US$2 million just to buy a small, two-bedroom apartment in a central area. Most locals don’t even own private property because of these high costs. Over 80% of Singaporeans live in public flats built by the city’s Housing and Development Board (HBD).
To be clear, public housing in Singapore is much nicer than practically anywhere else. We’re talking about a wealthy country where one out of every five families are millionaire households.
A vast majority of people living in HBD flats is testament to the nation’s wealth inequality though. Private property ownership in Singapore is only for the rich. Everyone else is stuck with rentals.
Despite these issues, I’m positive about the long-term prospects of Singapore real estate. Investors don’t simply look at a price tag – we’re interested in overall value.
Singapore suffered more than two straight years of falling home values before reaching this point. But there’s now plenty of value compared to its peers.
Singapore Real Estate is Undervalued
Yes, you read that correctly. I think Singapore is undervalued even though it’s among the most expensive property markets on the planet.
Here’s the thing: analysts often compare Singapore real estate prices to those in less developed, regional peers like Bangkok and Kuala Lumpur. That’s a mistake since other small, wealthy financial centers like Hong Kong and Switzerland are much better comparisons.
Singapore is Southeast Asia’s unofficial financial hub, but there’s a limited amount of space on the island. Population density is 8,000 people per square kilometer on average.
This makes Singapore the world’s third densest country. It’s cramped even compared to Hong Kong’s 6,500 people per square kilometer – and especially Switzerland’s 200.
Furthermore, Singapore is the third richest nation in the world. Their GDP per capita is more than US$90,000. That’s substantially higher than Hong Kong’s US$58,000 and Switzerland’s US$59,000.
A richer country with less available land (and arguably a better future) should by all means have higher property values than their peers. But Singapore real estate is less than half of the price of Hong Kong’s and noticeably lower than Switzerland’s.
Once you also consider that Singapore’s recent economic growth is higher than its competitors, there’s a strong argument that the city’s property market is undervalued.
Rich Foreign Investors Choose Singapore
Real estate is ultimately worth what someone is willing to pay for it. The good news for Singapore is that wealthy foreign investors, many of them Chinese, should sustain the property market over the long-term.
Governments have a history of making it hard for their tax base to leave once times get rough. This happened everywhere from the United States’ Gold Confiscation in 1933, to Nazi Germany, to the Chinese Cultural Revolution.
Singapore has a sound banking system, strong rule of law, and business-friendly policies. They’re a safe-haven for those in less stable parts of the world (and their money!) because of this.
Meanwhile, China is now cracking down on foreign remittances to keep capital inside the country. New laws make it increasingly difficult for wealthy mainlanders to invest abroad. Some people see the writing on the wall and want out of the Chinese market more than ever.
And they’ll still be able to get out. Despite strict reporting requirements in China, history shows that capital controls are a fool’s errand. Cryptocurrencies, overseas credit card transactions, along with fine art and other collectibles are ways the Chinese are secretly moving wealth across borders.
Funny enough, Hong Kong used to be a place where rich Chinese loved parking their wealth. It was convenient, democratic, and politically separate from the Communist Party on the mainland.
Beijing’s recent crackdowns have made many reconsider whether their assets in Hong Kong are safe and anonymous over the long term though. This is a positive development for Singapore’s real estate market and overall economy.
Singapore still has a high entry point and weaker growth than elsewhere in Asia. I’m bullish on Singapore real estate, yet at the same time, I think places like the Philippines, Malaysia, and Cambodia have superior long-term prospects.
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