Singapore's sizzling economy threatens competitiveness
POSTED: 0354 GMT (1154 HKT), June 18, 2007'
SINGAPORE (Reuters) -- Singapore's sizzling economy, set to expand
as much as 7 percent this year, could prove a headache for the
government as the city-state risks becoming less competitive than
rival business centers such as Hong Kong.
The labor market is tight, with demand for top bankers far
outstripping supply, while property prices, a topic that dominates
headlines and dinner parties, have gone crazy.
A penthouse at the luxurious St Regis Residences -- butler optional
-- was recently resold for S$28 million ($18 million), up a
whopping 84 percent from its initial price in August, the Straits
Times reported. Prospective buyers queue up overnight for new
property projects, while rents are up 30-70 percent.
"Demand is high not only for private bankers, but for all
private-banking-related jobs," said Michel Longhini, regional head
of BNP Paribas Private Bank in Asia.
"Costs in Singapore are definitely going up. With such high
inflation -- particularly in real estate -- the cost of relocating
staff is going up."
Economists such as ING's Tim Condon credit Singapore's
micro-managing government for the strong economic performance,
citing recent corporate tax cuts and a shift away from churning out
gadgets to services such as private banking and tourism.
"The government has put in place policies to restructure the
economy, and it's working. Singapore wants to be the Switzerland of
Asia," said Condon.
"Cutting the corporate tax rate encourages new businesses to start
up, and opening up the services economy, with casinos and financial
services, is what you need when the electronics sector is hit by
the kind of shock it's had."
Electronics exports in May fell 16.1 percent from a year ago,
according to data published on Monday, dropping for the fourth
month in a row due to weak demand from the United States.
Rich professionals
It's not just residential property that's perking up. The
long-ailing construction industry has had a much-needed fillip
thanks to several big projects -- two casinos likely to cost some
$7 billion, a public sports center, and a new financial district --
giving a lift to gross domestic product.
With its focus on financial services, Singapore now serves as the
Asian headquarters for private banks including UBS, Citigroup and
Credit Suisse, as well as a center for hedge funds such as Tudor
Capital and Man Investments.
Given a jobless rate of just 2.9 percent, according to data
released on Friday, the city-state is particularly keen to attract
rich professionals, such as private bankers, hedge fund managers
and others in the financial services sector to alleviate a shortage
of qualified workers.
But the government is clearly worried that rising property prices
could make Singapore far less competitive in terms of business and
living costs than its long-time rival Hong Kong.
"It is very important for us to make sure that the prices do not
overshoot or race ahead of the real growth in the economy," Mah Bow
Tan, the minister for national development, told the Straits Times
at the weekend.
"I think it is not sustainable in the long run and, of course, it
is also not good for our competitiveness if prices and rentals go
up too fast," he said.
Unhappy Americans
An American Chamber of Commerce survey found that 61 percent of the
95 senior U.S. executives polled were dissatisfied with housing
prices, up significantly from 42 per cent last year.
On Thursday, the government's land department announced its
biggest-ever land sale in a bid to increase supply, particularly in
the residential sector, and douse the price rise.
"The focus on the residential sector is a preemptive measure to
head off any run-up in mass private housing prices," said Chua Yang
Liang of Jones Lang LaSalle. "Office rentals are a small percentage
of total operating cost for businesses so the concern is more for
housing costs for expatriate employees."
Some analysts said the authorities may consider further measures,
such as curbs on speculators, as happened back in 1996 in the last
property frenzy.
At the very top end, residential property is now more expensive
than in Hong Kong. Developers such as CapitaLand and City
Developments have bought up and demolished many old blocks in prime
districts, taking hundreds of flats out of the market, including
some of historic interest.
But as many of the new developments won't be ready for occupation
for another three or four years, the shortage is likely to persist
and could become even more acute given the government's plan to
increase Singapore's population by another 2 million people, to 6.5
million.
Foreigners, many lured by Singapore's affordable, spacious housing
and abundant greenery have seen rents squeezed up.
"There are so few places to rent now where you are close to nature"
said Renate von Roda, adding that her landlord wanted to raise the
rent by 40 percent earlier this year.
"Everybody is on a greed trip."
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