| Singapore
Real Estate |
| By John Zhang |
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| If You
Want to Make Money-- Get There Before the “Gang” Arrives
Hot investment
money is pouring into mainland China’s biggest and most well-known cities.
Shanghai has been a haven for foreigners buying commercial properties.
Buoyed by rising property values, they are now also purchasing luxury residential
real estate, mostly for rental purposes. Today the money is coming quickly
from U.S., European, and Indian investors.
But reality
is that Chinese speculation in the Shanghai, Hangzhou and Beijing real
estate markets is over. Oddly enough, while hot Western money is flowing
into the People’s Republic of China (PRC), Chinese money for real estate
purchases is flowing out. For anyone who wants to make money in the
Asian real estate market, it’s important now to watch closely where the
mainland Chinese themselves buy and where trends likely will lead them. |
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For the last
three years mainland Chinese who have returned to the PRC from the U.S.
are brokering property purchases in America. Despite the distance
and the hassle to get there, wealthy Chinese still see property in the
U.S. as a solid investment that will return dividends over the long run.
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Still, the
U.S. market is a no-brainer for the Chinese investor. It’s safe,
it’s transparent, it’s mature, and it has endless choices based on your
preferences. |
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| But, with
the Hong Kong investment boom in Vancouver long over, no spot in North
America, outside of the traditional California markets, has proved a highly
concentrated “settling” point for Chinese investors’ cash.
Chinese speculators,
who currently are peaking their run in Southwest China’s Sichuan Province,
however, are another story.
Who are
You Calling a Speculator?
Anyone who
knows anything about real estate in the PRC has heard of the “Wenzhou
Bang.”
In this case
“bang”(pronounced in Mandarin Chinese with a short vowel ‘a’) benefits
as much in meaning from its sound as the English word “BANG!” as from its
Chinese meaning of “gang.” Indeed, the “Wenzhou Gang” causes
all kinds of smoke and noise when it arrives in and leaves a city. |
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Offshore
Resources Gallery
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| This amorphous
group is from one of the historically wealthiest cities in all of mainland
China – wealth that never really disappeared when the Communist government
took over in 1949.
Wenzhou, a
port city located in Zhejiang Province and isolated by high mountains
from the rest of the PRC, has a long history of wealth-generation and contact
with Western and Eastern trading communities. By the time the real
estate market for private properties first really opened in China around
1996, people from Wenzhou already has amassed enormous amounts of cash,
much of which was being held at home or in local so-called “banks.”
Private property became the newest target in which to deposit the money
by snapping up brand new residential properties in one-time payment deals.
A pattern soon
emerged. The “Wenzhou Gang” suddenly would descend upon a city and
begin buying up multiple available properties, driving real estate prices
through the roof. Some would take their profits and leave quickly;
others would hold properties long enough to profit from downstream speculation
generated by those following the Gang’s “nose for money.” |
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| The “Gang”
has blasted its way already through the PRC’s most obvious and attractive
Hangzhou, Shanghai, and Beijing markets.
However, the
mainland Chinese government has been busy trying to fight this domestic
speculation phenomenon in China’s property markets. In addition, the PRC
government is doing what it can to stop the hot foreign money flowing into
Chinese real estate.Banks have been ordered to raise interest rates
and
require larger down payments for loans on luxury properties. Social pressure
is forcing the government seriously to move quickly toward new property
tax laws that will take the profit out of speculative ventures such as
flipping properties in periods of less than five years.
In China, unrest
among the middle class as well as the poor continues to grow as they see
that property, which wasn’t even allowed to be in private hands 15 about
years ago, is now already unaffordable to those of modest means. |
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Offshore
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| Important
equity questions are being raised by farmers who have forfeited land at
rock bottom prices in what some claim were unfair transactions slipped
through by developers, which local governments turned a blind eye.
In the last week, these “class struggle” issues have led the Chinese government
to switch its policy directions for property development in urban areas.
Previously, a city’s property development target mix was 70% luxury properties
(i.e., apartment units of 90 square meters or above) and 30% regular
properties (apartment units below 90 square meters) affordable for
most urban Chinese middle class families using 20% down payments coupled
with bank mortgages. In the last few days, the Chinese government
has ordered metropolitan areas to change its development mix. Now,
all new property development projects must conform to the ratio of 70%
regular properties and only 30% luxury properties. With luxury apartments
about to dry up for investment, Chinese speculators are further forced
out as they must move their money somewhere else rather than compete for
a shrinking supply of purchase opportunities.
It’s obvious
that Chinese money will have to flow elsewhere since the early glory days
of real estate speculation/investment in China are coming to an end for
all. Not only is the profit potential drying up, but social pressures within
China are bringing back to the forefront a historical reality of China’s
“class” structure. Rich people in China have never felt safe or completely
at ease, knowing that obvious displays of wealth such as the ownership
of multiple properties make them prime targets for a community undercurrent
which remembers the historical abuses of the “landed gentry.” With
a vast agricultural population, the threat of civil disorder in modern
China arising from lack of equity between the landed and the poor, a gap
which is growing larger daily, has always been an impetus for the extremely
wealthy Chinese investor to keep at least one home abroad as a safe haven.
So where
will the “Wenzhou Gang” go?
Although they
haven’t yet figured it out, the hottest prospect for fast growth in Asian
real estate available to mainland Chinese money is Singapore. And,
if the “Gang” is reading the papers, the tip-off came for them in a Saturday,
May 27th, announcement by the Singapore government that was carried in
papers all over the world, including on the front page of the Wall Street
Journal’s internet edition (http://online.wsj.com/home/us). The Singapore
government proudly announced that the Las Vegas Sands Corporation won the
hotly contested contract to build a casino in a new “integrated resort”
project on Marina Bay. From there, the “Gang” doesn’t have to look
far to see that all the international fundamentals are in place for a quick
profit in a Singapore residential property boom.
Laws and
Projects in Place – Ready for Take Off
The 1997 Asian
financial crisis affected Singapore’s real estate market dramatically.
Residents saw a 50% drop in private property values and rental prices.
One Singaporean, who had bought at the height of the market explained,
“I now pay SNG $2,300 a month on a mortgage for an apartment I can only
rent out for SNG $700 today. My financial advisor is suggesting my friends
and I all declare bankruptcy.” Fortunately, in 2003 things
began to look up as the Singapore government made some hard choices.
Two new laws
passed in 2005 and 2006 in Singapore and the PRC along with new Singaporean
development initiatives form a solid base to under gird growth potential
and job creation that will boost Singapore real estate in its own Central
Business District (CBD).
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FUNDAMENTAL
ONE: On May 27, 2006, high profile competitive bidding by MGM,
Las Vegas Sands, and the Genting International Corporation finally resulted
in the Las Vegas Sands Corporation (www.lasvegassands.com) winning
the CBD tender. Its Singapore dollar $5 billion investment in the
“integrated resort” project is expected, according to Singapore’s Prime
Minister Lee Hsien-loong, to bring 35,000 new jobs to Singapore within
the next few years. Completion of the casino-resort in the CBD is
expected for 2009. The SNG $1.9 billion land purchase by the Sands
will take place in the next 90 days.
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FUNDAMENTAL
TWO: In July 2005 Singapore’s government opened up real estate
ownership on 99-year lease properties to foreigners, who previously could
invest only in freehold properties (owning property free and clear in perpetuity).
However, with the passage of this new law anyone can invest in Singapore’s
private residential/rental properties. In less than a year,
mainland Chinese already have become the third largest group of foreigners
shopping for investment property in Singapore.
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FUNDAMENTAL
THREE: In May 2006, the PRC government created laws to allow
each and every Chinese citizen to exchange annually the equivalent of $20,000
U.S. dollars and take this capital out of China for any legitimate purpose
(e.g., tourism, commodity purchase, business investment, real estate investment).
The amount of U.S. $20,000 is an ideal number for a “gaming” type vacation.
For individual Chinese investors, it could easily cover the cost of an
annual mortgage on a private property in the new CBD buildings, the prices
of which hover between SNG $500,000 (for approximately 800 square feet
of space) to SNG $2 million (for approximately 1200 square feet of space).
For “Gang” speculators moving one-time payments of SNG $2 million or more
for property purchases into Singapore will pose no problem as long as the
money moves via bank transfers for legitimate purposes.
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FUNDAMENTAL
FOUR: The International Herald Tribune (Wednesday, May 17, 2006)
reported on its front page that 2005 saw more than 31 million Chinese traveling
abroad, compared with only 4.5 million in 1995. The projection by
2010 is for 50 million and by 2020 is for 100 million PRC citizens annually
to travel outside their nation’s borders for tourism. What attracts
them? Singapore is gambling that it knows the answer.
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FUNDAMENTAL
FIVE: Along with the development of the “integrated resort,”
Singapore will develop value-added services in the area of “medical tourism,”
in which medical services for a variety of conditions or for plastic surgery
will be available to foreigners. Singapore General Hospital and Singapore’s
private hospitals (Gleneagles, Mt. Elizabeth, and Mount Alvernia) already
are impressive, high technology centers where Western medical care delivered
by many Western trained physicians and nurses is available. Singapore
General has several research units, a full service hospital, and specialty
clinics (an Eye Center, Heart Center, Cancer Center, Cardiac Rehabilitation
Center), and Office of International Medical Services as well as a Medical
University.
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FUNDAMENTAL
SIX: Singapore’s population is more than 70% ethnic-Chinese.
Mandarin not only is used popularly in signage, but is a widely spoken
language in Singapore, making the nation far friendlier to mainland Chinese
investors and tourists than other countries to which mainland Chinese could
travel. The lack of extreme weather or natural disasters (e.g., typhoons,
earthquakes, tsunamis) and Singapore’s clean air and water provide enticing
reasons for mainland Chinese to keep a second home there or to invest in
safe investment rental properties. In general, the island’s cleanliness,
orderliness, and Western environment coupled with the upcoming addition
of attractively incorporated local gaming facilities housed in an perpetual
summer climate makes it a perfect nearby investor and tourist destination.
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FUNDAMENTAL
SEVEN: Singapore’s Urban Redevelopment Authority (URA) has made
it clear that the CBD is the focus of its development plan for the next
10-15 years. A visit to the URA headquarters (www.ura.gov.sg)
on Singapore’s Maxwell Road yielded up a development museum and two comprehensive
development models for the city. The city’s development maps,
on public display, demonstrated the city-state’s commitment to the CBD
development in full color. A local Singaporean developer noted that
once the Singaporean government makes entries into those development maps,
it takes years of consultation and argument to change them. Usually
the consultations are fruitless and original plans remain in place.
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