Feb 03, 2014

    No pickup seen in sluggish Sing dollar

    THE one-way bet on the Singapore dollar that had a pretty good run the past five years is gone, and with foreign investors staying away, expect private-property prices to fall 10 per cent in the next 12 months, said Mr Mark Matthews, Bank Julius Baer's head of research Asia.

    Singapore, the most expensive city in Asia, is fast losing its lustre among many expats, noted Mr Matthews.

    It is also the seventh-most expensive city to live in the world, while traditional rival Hong Kong is cheaper at 12th place, and Tokyo is a relative bargain at 19th, according to the website Expatistan.

    But the strong currency was a good reason for many foreign investors to park their funds here by buying property.

    Following the Great Financial Crisis (GFC), the local unit appreciated 23 per cent versus the United States dollar from March 2009 to July 2011.

    Since then, it has slowly weakened and is now down 6 per cent, said Mr Matthews.

    After the GFC, the Singapore dollar was seen as a currency in a region that had strong economic growth independent of the developed economies, where financial markets and property prices were also rising quickly.

    "As the region became wealthier, it gravitated to Singapore as its financial home base - this benefited the Singapore dollar."

    The Singapore dollar also served the role of a "mini reserve currency", alongside the Australian dollar, the Norwegian krone and some others, he said.

    "These currencies were seen as being strong economies and would hold their value, while the US Fed and (European Central Bank) were in crisis and recession, and their currencies should fall," he said.

    But the situation has been reversed somewhat with the Singapore dollar now around $1.27, down more than 6 per cent from the 2011 high against the US dollar.

    For international investors, Singapore assets look less attractive without the currency appreciation.

    "With fewer new expatriates coming into town, and the Government intent on containing rising prices, it is not a surprise that both public and private residential prices have been falling over the past few months," said Mr Matthews.

    "It is also noteworthy that the Singapore dollar is weakening in a material way against the US dollar, for the first time since 2008.

    "This could also act as a deterrent for foreigners who had seen assets in Singapore as a 'one-way bet'," he said.

    Given the huge supply of about 45,000 new residential units per year coming into the market during the next few years, compared with the average of 16,000 for the past 10 years, he expects a "10 per cent correction in residential property prices, over the next 12 months".

    The Singapore dollar will remain weak this year as international investors have little reason to hold it, given the stronger economies in the developed markets.

    "This year, Japan is firing on all cylinders. The US economy should grow at 3-4 per cent. Europe's growth is much lower, but it is recovering, so there is less reason to own 'mini reserve currencies'," he said.

    "Meanwhile, (for) Singapore, neighbouring currencies have fallen. With property and car prices now starting to roll over, and energy prices on the downtrend, inflation in Singapore should be tame.

    "Putting the three together, there is little reason to expect currency appreciation this year."