Property

The $100m increase in high net worth individuals: Why Singapore’s luxury real estate market still has room for growth, Money News

At this stage of the cooling measures, there are growing fears that even Singapore’s stable climate could set back foreign property investment.

The Additional Buyers Stamp Duty (ABSD) rate for foreigners is now 30%; this against a background of rising interest rates and restrictions on land ownership (for example, foreigners cannot own freehold land without special permission). A recent report on centi-millionaires by Henley & Partners, however, suggests that even these may not be relevant in deterring the super-rich from Singapore’s shores.

One of the main reasons is due to the migration of the super-rich. Given that approximately 40% of the world’s centimillionaires are based in the United States, it is reasonable to assume that much of their wealth will be pegged to the US dollar.

This comes with risks such as political problems and the US national debt approaching $31 trillion (S$43 trillion). For those who think the USD could never crash, a recent example of the British pound is a bad reading.

Thus, these centimillionaires see the need to move, whether to diversify their risks, for better education options, safer environments, etc.

Clearly, Singapore is taking steps to attract these super-rich. One of these is the Global Investor Program (GIP) which grants Singapore Permanent Resident (PR) status to eligible global investors. Here is the qualification profile below:

And according to an article by Hubbis on how Singapore is a regional and global hub for UHNW wealth, it’s clear to see exactly what makes Singapore such an attractive place for the wealthy right now.

“They might say, yes, if I stay in my home country, I’m going to pay high tax rates on my worldwide income, my worldwide capital gains, I’m going to pay inheritance tax when I die, I’m am going to pay gift tax when I donate.

But in Singapore, these are not applicable, and the family office and other structures also offer additional incentives. Nowadays, transparency is the norm and secrecy is gone. Apart from incentives, Singapore also has many double tax treaties to help families invest in other countries as well. This is another huge advantage that Singapore offers.

We break down the Henly & Partners report for you with 4 key points to note.

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Singapore’s call for centimillionaires:

Some of the key factors to note include:

  • Singapore’s Centimillionaires
  • Not all foreigners pay ABSD
  • Growth of family offices in the APAC region
  • Singapore remains the most stable state in our region

1. The Singapore Centimillionaires

Singapore’s ultra-rich are not only attached to the local real estate market; that’s how most of them got to where they are. They established the widespread – and perhaps self-fulfilling – belief that property is the path to wealth.

From 2022, the number of centimillionaires in Singapore climbs on the scale of the top 15 cities. We currently have around 336 centimillionaires and rank ninth on the list of 15 cities.

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As we saw in March last year, foreigners are rapidly taking over luxury homes in Singapore; but it is still local money that constitutes the majority of buyers. And from 2022, the proportion of foreign buyers has actually decreased, even as demand and prices for private homes have increased.

So far, the signs seem clear that Singapore’s wealthiest sons and daughters are still turning to home properties; and as Singaporeans get richer, our luxury developers still have a growing domestic market.

2. Not all foreigners pay ABSD

You’ll notice that US cities make up the bulk of hotspots for centimillionaires: this includes New York, San Francisco, Los Angeles, Chicago, and Houston.

Given the heightened volatility in US markets and high taxation concerns, America’s centimillionaires are likely to look beyond their own shores. At this point, it’s important to remember something about ABSD:

US citizens pay the same ABSD rate as Singaporeans. This means, for example, paying no ABSD on the first property they buy. Other exceptions include nationals and permanent residents of Iceland, Liechtenstein, Norway and Switzerland.

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Although Americans do not make up a large number of property buyers here, that could change as Singapore becomes more visible via economic ties and the United States looks to Asia.

It certainly doesn’t help that Americans can avoid ABSD, and that American citizens are less likely to choose China and India due to rising political tensions.

3. Growth of family offices in the APAC region

A 2021 Citibank report estimated that 10,000 family offices have been created worldwide in the past two decades, a 10-fold increase from the early 2000s.

North America still has the largest share of family offices; but Asia-Pacific has seen the fastest growth of these entities, growing 44% over the past two decades.

It is believed that 229 family offices have been registered in Singapore since 2020.

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Along with the rise of family offices come permanent residences and portfolios seeking exposure to Singapore’s prime real estate sector. It has been noted, for example, that new family offices tend to favor real estate and fixed income instruments over growth assets.

A private wealth manager we spoke to, on condition of anonymity, said real estate in Singapore remains the easier choice, even with ABSD. She said this:

“If you want to invest in China, you have to deal with the government’s strict capital controls, and now there has been a scare with the Evergrande situation. If you want to invest in places like Indonesia and Australia, there are strict controls on resale and earnings; and in New Zealand, many foreigners are banned outright from buying residential property.

She also pointed out that Hong Kong, once Singapore’s closest real estate investment rival, is increasingly out of favor as political dissent mounts.

As such, these situations may see family offices channeling their clients’ wealth into Singapore property, especially in the volatile years ahead.

4. Singapore remains the most stable state in our region

Love it or hate it, Singapore has proven to be one of the most stable countries in Southeast Asia. From the Asian financial crisis to the global financial crisis and Covid-19, Singapore has come through without revolts, street protests or impulsive economic decisions.

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A side benefit to this, mentioned in the report, is the stability of the Singapore dollar – like the Swiss franc, it is a well-managed currency that represents a safe store of wealth; in some ways an analogy to Singapore’s real estate sector.

As long as Singapore continues to show stability, its real estate segment – ​​especially the luxury half – is likely to continue to attract foreign investment; ABSD or not.

This article first appeared in Stackedhomes.