The growing high-wealth Chinese population living in Singapore will likely create more business and investment links between the two countries.
Singapore’s property market is showing far greater resilience than others around the world despite concerns about slowing economic growth both regionally and globally. One reason for this is an influx of Chinese nationals, who account for the largest number of non-resident homebuyers in Singapore.
The island nation is deemed politically stable, and free from natural disasters and its real estate is perceived as a sound investment by many worldwide. The comparative stability of Singapore versus its regional peers, along with its attractive income tax rates, seemingly makes the hefty tax on foreigners owning property worth paying.
According to Singapore-based real estate agency platform OrangeTee & Tie, mainland Chinese bought 391 condominiums in the city-state in the second quarter of 2022, up from 281 in the first quarter.
The figures are lower than those recorded last year – 467 in Q2 and more than 400 in Q3 and Q4. The fall in sales to Chinese citizens in the first quarter of 2022 was attributed to the rise of the Omicron variant and its impact on regional travel.
Why are China’s wealthy investing in Singapore’s property market?
Christine Sun, OrangeTee & Tie’s senior vice-president of research and analytics told the South China Morning Post that Chinese citizens buying in Singapore were predominantly focused on the luxury property market. More high-net-worth Chinese are shopping for property, often newer luxury flats, Sun told the paper.
According to the Financial Times, Chinese tycoons are leaving in their droves after enduring political crackdowns, severe Covid lockdowns, and unease about Beijing’s global reputation. With little end to Covid-19 lockdowns in sight – as of September 6, about 12 percent of China’s total GDP was affected by Covid controls on a weighted basis – many wealthy individuals are searching for new places to live and do business.
Anecdotal reports suggest that China’s wealthy have been arriving in droves at Singapore’s hotels and seaside estates. The city-state is reportedly becoming the premier destination for Asia’s rich, overtaking Hong Kong after Beijing asserted its authority on the former British colony.
Singapore, which was a British colony for 144 years until 1959, emerged as a low-tax business center in the late 20th century. It had become a destination for many Chinese tycoons to shield their money there in offshore funds, but as China boomed, few had sought to emigrate to the island state.
Furthermore, Singapore has long been a preeminent destination for setting up a regional headquarter to pursue business opportunities across ASEAN and Asia. This has been attributed to the country’s favorable tax and legal regimes, enabling the city-state to develop into a prominent global financial hub and attracting more than 37,000 international companies and 7,000 multinational companies.
Singapore’s property market
Despite global economic concerns and rising interest rates, Singapore home sales rebounded in July to the second-highest level this year. Purchases of new private apartments grew to 834 in July, up from the 488 units sold in June. As Bloomberg highlighted, the city-state’s property sector has been bolstered by an influx of wealthy buyers, notably those from China.
The influx of buyers from China comes despite overseas purchasers being subjected to a 30 percent additional stamp duty on purchases since January. Stamp duty for citizens is tiered, starting at one percent of the first S$180,000 of the property value and a further two percent on the next S$180,000. The top tier is just four percent.
Nationals of the USA, Switzerland, Liechtenstein, Iceland, and Norway are exempt from the 30 percent ‘additional buyers stamp duty’. Singapore permanent residents are charged an additional five percent while citizens only pay the basic rate of stamp duty of their first homes.
Chinese buyers have had their pick of an abundance of newly built luxury private homes, with flat prices as high as S$3 million (US$2.17 million) per unit. According to Sun of OrangeTee & Tie’s, around half the Chinese buyers live in their flats, while the others use the property for investment or rental purposes.
Evidence suggests that Singapore’s property prices are continuing to grow despite a cooling off in other parts of the world. Private property values climbed 3.2 percent in the three months ending June 30, while hundreds of public housing apartments are now being sold for over one million Singapore dollars (US$716,000), Reuters reported in August. However, the surging public housing market has been largely attributed to Covid-19 building disruption and general shortages.
The public housing system – which sells state-built apartments directly to citizens on a 99-year lease – has led to over 80 percent of Singaporeans owning their homes. While leases are transferable between citizens and permanent residents after five years, a resale market has emerged. Although it is worth noting that private housing, with facilities including swimming pools and gyms as well as security protection, is much more likely to appeal to high-wealth Chinese migrants.
Singapore’s rental market has also been heating up. Prices skyrocketed more than any other surveyed city, surging by 8.5 percent in the first half of 2022, according to a Savills research piece into 30 global cities.
What does this mean for Singaporeans?
For one, if Chinese citizens continue purchasing homes in the city-state –
which only has 1.2 million flats – it will add to the upward pressure on house prices. But whether this additional wealth will trickle down and benefit Singaporean nationals is another matter.
Trickle-down economics has been criticized as a flawed principle by economists and concerning countries around the world. While some of these high-wealth Chinese migrants may set up businesses or family offices – in Singapore, setting up a family office typically requires at least S$5 million in assets – there’s no guarantee that this will impact Singaporean citizens.
One thing that we can be reasonably certain of is that the increasing size of the high-wealth Chinese population living in Singapore will likely serve to create more links between the two nations.