Amid Ringgit volatility, does it make sense to buy Singapore properties?
By Tan Chee Yuen
/ NAPIC, Bloomberg, The Edge Property |
In August, Malaysian ringgit fell to its weakest level in 17 years against the Singapore dollar, reaching RM3 to SGD1. The ringgit slump is indicative of ebbing confidence in Malaysian economy on the back of expected US interest rate hike, rising political uncertainties, depleting current account surplus and falling commodity prices. As the Ringgit remains volatile, property investors in Malaysia are beginning to ask — is it wise to diversify into Singapore properties?
Singapore has enjoyed enormous growth in economy since its independence five decade ago. The country’s GDP has grown 40 times in 50 years. GDP per capita for its citizens is one of the highest even among developed nations. The recent landslide election victory by People’s Action Party (PAP) further reinforces political stability in the city-state. Theoretically, Singapore should appeal as a safe harbour to Malaysian investors in difficult times.
However, if you are a Malaysian investor who have bought a property in Singapore within the last 2 years, chances are your returns will be negative. The reason for this is the introduction of additional taxes and duties for foreigners buying homes in Singapore, which serves as a double-whammy as these measures cool property prices.
For illustration (Chart 1), suppose you purchased a property worth S$500,000 in Singapore in January 2013. It would cost you a total of S$590,000 after taking into account 3% in buyer’s stamp duty and 15% in additional buyer’s stamp duty (ABSD) for foreigners or RM1.45M at the prevailing SGD/MYR exchange rate then. Property prices in Singapore have fallen approximately 6% since. Today, this property would only be worth S$470,000 or RM1.40M at today’s exchange rate, for a returns of -3% even though SGD has appreciated by 21% against the MYR for the same period. You would have been better off investing in a property in Malaysia, as prices have appreciated by about 14% since January 2013.
Chart 1: Returns on property investment in Singapore vs. Malaysia with ABSD
Source: URA, NAPIC, Bloomberg, The Edge Property
What if you had bought a property before ABSD was introduced on Jan 12, 2013 (Chart 2)? Today, your S$500,000 property investment in Singapore would have generated a returns of 11% after converting into Ringgit. This is still lower than the 14% price appreciation for properties in Malaysia.
Chart 2: Returns on property investment in Singapore vs. Malaysia without the impact of ABSD
Source: URA, NAPIC, Bloomberg, The Edge Property
It is worth to note than in these analyses, we are assuming that the investor does not acquire any mortgage loan. We also ignore all the other transaction fees such as legal fees and agent fees. All of the returns depicted are unrealised gains or losses.
Conclusion
There are many other reasons for purchasing a property beyond just historical returns. One could be buying a property for a much longer investment period. Parents could be buying properties for their kids who are working or studying in Singapore. Asset and geographical diversification is also a reasonable justification. Regardless of rationale or asset classes, Malaysian investors should do their math well before dabbling into any of them.
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