A Real Estate Market That Has Doubled in the Last Year
By Graham Summers
August 22, 2007
They're literally raising land out of the ocean.
In its efforts to convert from a business-friendly financial center to a cosmopolitan metropolis, Singapore's government is increasing the country's land via a process called reclamation. In its simplest form, sand and earth are dumped into the ocean, then barricaded with cement. Once finished, the land is allowed to settle for several years.
It sounds crazy, but it's worked wonders for Singapore in the past. The country has used reclaimed land to increase its landmass by 20% in the last 40 years. Several times over the last week, I would be admiring a particularly green patch of earth near the city only to have my cab driver comment, "You know, all of this used to be the ocean," with a sweep of his hand.
Despite these efforts, Singapore is still only 270 square miles: roughly one-fifth the size of Rhode Island. As one executive I met joked, "It takes five minutes to drive Singapore from end to end... and that's if traffic is bad."
As I explained in Monday's issue, nearly 90% of the population lives in government-subsidized housing. The price of these sorts of properties is very stable. However, the smaller, more exclusive, high-end residential market has been booming.
The average price for a condo in Singapore has nearly doubled from $806,000 in 2003 to $1.4 million today. Similarly, the number of units sold has soared. In 2003, 8,530 units were sold. In 2006, it was 20,567. And 2007 is on track to clear 24,000.
Singapore has established itself as one of the financial epicenters of Asia. The skyline view from my hotel certainly bore some resemblance to New York. And considering how little land is available, it's no surprise that condo prices are rapidly approaching New York-levels. At the beginning of 2005, a good condo in Singapore went for an average price of $554 per foot. Today, it's up to $806.
And this is just the average price. Premium condos in Singapore currently go for as much as $28 million a pop. Prices for premium spots are as high as $3,250 per square foot!
If you think this sounds like it's approaching bubble proportions, you may be right. But remember, we're talking about a small, developed country with easy access to mainland China, Hong Kong, Thailand, and India.
Singapore is in a truly perfect locale for someone interested in doing business in Asia. And with so little land available, property values were bound to soar. Add to this limited supply and increasing demand from foreign owners – Singapore's government wants to grow the population by 44% over the next 10 years – and the likelihood of the real estate markets cooling seems slim.
Currently, non-citizen (foreigners who've relocated) buyers account for more than half of the high-end sales. And more ex-pats are showing up every day to get into the market. Tourist levels are hitting records in 2007. Hotel occupancy rates are currently at 86%. And the average room rate broke above $130 for the first time in the country's history.
My hotel was packed. Despite there being six elevators, I often found myself waiting for as long as five minutes to get to a lift. The lobby was abuzz with activity. Sidewalks were crowded. And as the crowd grows – drawn by the arrival of two new casinos in 2009, Formula 1 in 2008, and other attractions – prices are unlikely to cool in the foreseeable future. Color me bullish on real estate in Singapore.
Good trading,
Graham
