Singapore Holding Its Own

Source : Asia Today International, Jan 18, 2008

Is Singapore becoming price uncompetitive for foreign business? Rocketing office and housing rental prices over the last 12 months are raising this question.

With property costs now among the highest in East Asia after Tokyo and Hong Kong, there is more and more talk as to what impact they must now make on decisions by a foreign company to maintain or establish in the island city state. Various surveys of the foreign corporate sector and expatriate professionals by consulting companies underline the extent of Singapores rising property and living costs. International human resource consultant, Mercer, found in its annual cost-of-living survey for expatriates earlier this year that Singapore had risen to become the 14th most expensive city of 50 cities around the world, from 17th place the year before, and the most expensive in Asia after Seoul, Tokyo and Hong Kong.

New York, Sydney, Beijing and Shanghai were all below Singapore. And since the Mercer survey, announced in March, living costs have continued to rise in Singapore. Yet these cost-of-living headlines can still skew a true assessment of Singapore´s international economic competitiveness.

Income taxes are very low - 20 per cent in the top bracket - and there was a further cut in this year´s February budget in the corporate rate to 18 per cent. Singapore continues to be advantaged by efficient and low-cost infrastructure services, a well-educated workforce, English as the common language in business and government, and legal and regulatory certainty and transparency for commerce.

Setting up a foreign-invested company, including a fully-foreign-owned company, even if the sponsors are only small-scale businesses, is a very straightforward and rapid process, unlike almost anywhere else in Asia. These factors will continue to offset cost-ofliving rises for top-end foreign business - that is, those in the international banking, legal and business services, and high value R&D heavy manufacturing, such as biotechnology and pharmaceuticals, precision engineering and the sophisticated end of electronics and information technology.

And there is no question that Singapore is succeeding here, with growth of 7.9 per cent in 2006 and an anticipated 7.0 per cent in 2007, driven significantly by these industries, as well as (more recently) construction in response to property demand. Activity in construction is the highest for a decade, according to the Ministry of Trade and Industry. One effect of the higher living costs, though, may be to limit expatriate staff to the top executive level with more reliance on local professional and technical staff for mid-level positions as they will not want the higher salaries their equivalent foreign number would need to live on a temporary basis in Singapore.

The property market is the major driver of these rising living costs. While this is due to an obvious imbalance in supply and demand, the boom is also a result of the Singapore Government´s efforts to develop high-end economic sectors and industries, and the impact, then, on rental and office markets of new foreign companies establishing and expanding. To cool the market, the Government is now releasing more land and putting in place other measures, such as slowing the rate at which developers can pull down older midlevel- priced apartments to build high-end ones.

High property prices are also being felt by local Singaporeans and not simply in terms of owners and developers gaining from the boom Price increases in the private-condominium segment filter down to the public housing segment where the vast majority of Singaporeans live some 80 per cent and this impacts adversely on those lower- and middle-income households that rent, or are in the market to purchase an apartment. Combined with the overall economic restructuring taking place, this leaves significant numbers of Singaporeans vulnerable and hurting, especially the old and those lacking skills and education.

The problem of a widening income gap is something that the ruling Peoples Action Party does not deny, and how the Government intends to combat it through education and training measures, income support and housing estate renewal was a focus of Prime Minister Lee Hsien Loong´s National Day speech in August. But the question of social inequalities will continue to be a major issue for the Government in the years ahead, especially in the context of what seems a strategy of making the island city a base in the region for the worlds wealthy.

Inevitably there is the risk of social jealousies and resentment. Nowhere is this clearer than in the finance and banking sector. Singapore´s drive to become a larger international financial centre has led to increasing emphasis on private banking. And, with this has come upward pressure on the property market through an associated interest by wealthy foreign individuals and families with investments managed by Singaporebased private banks to purchase real estate and spend time living on the island state. One example is Charoen Sirivadhanabhakdi, one of Thailand´s richest men, who listed his whisky and beer firm Thai Beverage on the Singpopore exchange in 2006.

According to the local Business Times newspaper, in April this year be bought 47 of 48 flats in a new development for US$140 million, and four entire floors in another project for US$90 million.

Singapore aspires to be a Switzerland of Asia. There are now nearly 40 private banks with regional operations in Singapore. Both US Citigroup and UKs Standard Chartered maintain their headquarters for all private banking outside of their home countries in Singapore. Target clients range from the European and American wealthy to those in East Asia and India, the new millionaires of China, and the oil rich of the Middle East, who are turning more to East Asia as a place to invest since 9/11 and the Iraq war.

Singapore´s own rich should also not be forgotten, with the small State having more millionaire households as a percentage of total households than any other Asian economy, according to the Boston Consulting Group. Singapore, as has long been the case, argues its ability to act as a platform to manage investment throughout the region and beyond. More particularly, to encourage private banking, the Government has strengthened bank secrecy laws and tax incentives. For example, there is no taxation on an individual´s foreign income, including capital gains and interest income in Singapore.

Income tax is levied only on income earned from Singapore, and this tax is very low. Another factor helping growth of private banking is attractive trust laws. Other finance industry segments that are being encouraged along with the more traditional banking and stock market services are hedge funds, private equity firms and insurers. Overall, the finance sector is one of the strongest areas of the economy, growing by 17 per cent in the second quarter of 2007 on top of 14 per cent in the first quarter. And, as the Ministry of Trade and Industry notes in the release of these results, the wealth advisory cluster remained buoyant, riding on growing affluence in the region and continued demand domestically for professional fund management services.

Encouragement of private banking meshes with the Government´s new urban and tourist development thrusts, as well as promotion of Singapore as a world-class education centre. Thus, Singapore is not just a place in which to invest, live and play Singapore also can offer the best of education for their children. Evidence of this can be seen at the end of Sentosa Island, on Singapore´s inner west coast, not far from the CBD. Sentosa, better known to tourists as a theme park and once a British military base, is now being transformed into an exclusive residential estate.

Sites at what is called Sentosa Cove are reported to be selling from as much as US$9.9 million.

Sentosa Cove has a 400-berth marina with 10 spots for very large yachts, and two golf courses.

About 60 per cent of buyers at Sentosa Cove are foreigners. Sentosa will also feature one of Singapore´s two new casinos called integrated resorts being developed by the Government after a four decade ban and despite considerable community concern over their possible adverse social effects. Sentosas will be built and operated by Malaysia´s Genting group, while the other will be build by Las Vegas Sands of the US at the emerging Marina Bay office, hotel, exhibition and convention centre on reclaimed land opposite the core CBD. As one property agent told Reuters: "Its Monaco in the tropics."