Saturday, July 12, 2014

Sell Singapore, Buy Sri Lanka

Seeking Alpha has just published an article titled "Sell Singapore, Buy Sri Lanka". The excerpts are as below. These days, due to the mismanagement by PAP under the leadership of Lee Hsien Loong, Singapore is getting increasing and unprecedented amount of bad press, not seen in the earlier days of PAP.

Singapore - Short term weakness or Long-term decline?

In 2015, Singapore will celebrate its 50th birthday unsure whether it is about to endure a major political upheaval. The general election of 2016 has the potential to rock the People's Action Party ('PAP'), the party of Lee Kwan Yew that has dominated Singaporean politics since 1965. The last general election in 2011 saw the party lose a General Representation Constituency ('GRC') for the first time (to the Workers Party). A GRC is a larger constituency that elects a slate of MPs from the same party. Moreover, the PAP overall share of the vote fell to just over 60%.

This was generally viewed as a wake up warning for the PAP, but since then, there are many signs that discontent in the country has increased and economic factors are contributing to build further discontent. Questions are being whispered as to whether a bigger political avalanche could be coming at the next general election in 2016.

1. Singapore is now the most expensive city in the world. According to the Economist Intelligence Unit, the cost of living in Singapore has soared. This is felt on a daily basis by locals and expats alike who are paying more for every day expenses from food to travel.

2. Singapore is increasingly crowded. The population has increased from 3 million in 1990 to its current level of nearly 5.5 million. During that time, the number of foreign permanent residents has increased from 112,000 to 531,000 and the number of foreign employees on a temporary work visa from 311,000 to over 1.5 million.

3. Car ownership in Singapore is now exclusively a luxury. The complex system of ownership now means that if you can afford a car, you may as well buy a luxury car. In 1990, there were 5 times as many small (under 1,600 cc) cars available for sale as larger ones. Today, bigger cars dominate. Thelargest selling car brand in Singapore in the first quarter this year was Mercedes Benz with BMW at #3.

These factors are contributing to a sense of resentment that ordinary Singaporeans are no longer being placed first by the Government. This is undoubtedly the most common coffee shop conversation in the city at the moment. However, it is not just locals that are suffering.

4. Foreign businesses and business people are leaving Singapore. Despite official statistics, expats in Singapore will assure you that people are leaving Singapore at a much higher rate than ever before. The evidence comes from their professional lives but more importantly from their children's schools and social activities that are experiencing unparalleled turnover. One relocation agency reports a 3-fold increase in business supporting departing families in June 2014 compared to June 2013. There is also plenty of anecdotal evidence that foreign companies are struggling to attract senior foreign talent to locate in Singapore.

The real estate market, a key barometer of sentiment across Asia, is also showing concerning signs.

5. Housing rental yields are collapsing. Whilst official figures point to a 'softening', the specific evidence is of rentals being offered 30-50% lower than 2 years ago.

6. House prices are falling. Official figures show 3 consecutive quarters of decline. So far in 014, prices have fallen 1.1% in Q2, and 1.3% in Q1. Whilst not dramatic, once again, specific evidence is that sellers that need to sell are having to accept much more dramatic reductions and even new condos are being offered at discounts in excess of 10%.

7. The 'Chinese factor' of buying properties for investment but leaving them empty is resulting in a large stock of housing that lies empty. This is all potential supply that still has to be launched into a declining rental or sale market.

This last point about the 'Chinese Factor' is a key issue. In the past, expat talent was largely productive, attracted by jobs or the opportunity to build businesses in a key economic hub. This lay at the heart of Singapore Government Policy. Such expats are being replaced by mainland Chinese investors whose primary focus is moving portfolio investment offshore and hence is less accretive to the economy.

8. Volume on the Singapore Stock Exchange has collapsed to around $1 billion, over 40% down year on year and Moody's continues to warn of pressure on the credit ratings of Singapore banks.

So the big question is whether Singapore has reached the peak of its potential, at least for the time being? Has being declared the most expensive city in the world heralded a 'top' for Singapore that is now about to be followed by a period of consolidation or even decline. It is this correspondent's belief that the growth story of Singapore has ended and investors need to look for its successor. The answer seems to lie across the Indian Ocean in a country that showed such promise 50 years ago.

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