New Methods for Expanding Property Ownership in Singapore
Singapore's impressive skyline of skyscrapers
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Google established its inaugural office in Southeast Asia at Collyer Quay in Singapore, with a team of 24 employees, in 2007. Fast forward to August 2022, during an event commemorating its 15th anniversary in the country, the tech behemoth declared that its Asia-Pacific headquarters located in Singapore accommodated a workforce of 3,000 people, serving the surrounding region.
In 2011, Google declared the opening of its first data center in Singapore, and by 2022, its third data center in Jurong had been completed and was in operation. The trio of data centers reflects a considerable and enduring investment of US$850 million in the country. In early 2023, Google initiated a worldwide workforce reduction, which led to around 190 employees in Singapore losing their jobs. The company will also relinquish a portion of the area it leases from Alexandra Technopark from February 20, 2024.
In 1998, Google was founded, and today, its parent company, Alphabet, is one of the world's most valuable corporations by market capitalization. The decision of companies like Google to expand their operations in Singapore has significant implications for the country's real estate sector.
The high-paying jobs created by Google generates demand for residential properties and boosts retail and lifestyle activities, leading to benefits for mall owners. Additionally, office landlords profit from Google leasing sizable amounts of office space. Other property asset classes such as warehouses, data centers, and hotels also benefit when global giants like Google establish their regional or Asian operations in Singapore.
The Singaporean government plays a crucial role in attracting companies like Google to invest in the country's real estate sector, as some Singaporean property groups can construct high-quality buildings with strong sustainability features and effectively manage properties.
The government of Singapore endeavors to attract businesses and skilled professionals to the country while ensuring that Singapore, despite being an expensive city, remains competitive for companies to accommodate their workforce. The government benefits from a thriving property market in Singapore.
In FY2021 to FY2022, the amount of property tax collected surged by 49% year-on-year to S$4.7 billion, representing approximately 8% of the total tax revenue. Collection from stamp duty, a significant portion of which arises from property transactions, amounted to $6.8 billion, contributing roughly 11% of the total tax revenue. Property groups and their staff also pay corporate and individual income taxes. As property values, stamp duty rates, and property tax rates increase, the tax contribution from property transactions and ownership is expected to grow.
With a high home ownership rate of nearly 90% among Singapore residents, the country's people are anchored in their local communities and have a personal investment in the country's growth. However, there may be more opportunities to distribute the benefits of Singapore's thriving real estate market, resulting from its attractiveness as a destination for living, working, and leisure. One potential strategy could be to expand the ownership of physical properties.
The growth of real estate investment trusts (REITs) has facilitated the democratization of non-residential property ownership. Since the inception of the first REIT in 2002, the sector has expanded to enable retail investors to own portions of properties like office towers, malls, warehouses, business parks, factories, hotels, and serviced residences.
REITs have institutional and retail unit holders, both domestic and foreign, and manage major assets like VivoCity, Paragon, Plaza Singapore, Raffles City Singapore, and Mapletree Business City. As more individuals become acquainted with the benefits of REITs, there may be opportunities to introduce additional properties not currently held by REITs into this investment vehicle.
There are opportunities for new ideas to increase the ownership of non-residential properties. One proposal is for Temasek to launch a fund in collaboration with retail investors to undertake large-scale development projects in Singapore.
En bloc sales of strata-owned commercial properties such as Golden Mile Complex and Tanglin Shopping Centre have been successful and these properties will be redeveloped. By successfully selling these ageing properties, new properties can be built to meet the needs of today's users. Ideally, such properties should be owned by a larger number of locals instead of a small group of tycoons.
By utilizing regulated blockchain technology, it is now possible to invest in buildings or development projects that previously required high capital requirements and were relatively illiquid. This can make such investments more accessible to individuals.
With the tokenization of real estate, individuals can now invest small sums of money in exchange for owning fractions of specific buildings or development projects. For instance, investors can participate in an en bloc residential redevelopment project with as little as $20,000.
Fraxtor, a local digital platform, serves as a bridge between real estate investment opportunities offered by private equity managers and small to mid-sized property developers and investors, including individuals. Investors who participate in property projects through the platform receive digital tokens for buying units in a scheme. However, to access tokenisation opportunities, one may need to be an accredited investor, which typically requires an annual income of at least S$300,000 or net financial assets exceeding S$1 million. The question is whether there is potential for more tokenisation opportunities and greater participation by individual investors.
At present, funds that are owned by Singaporeans are subject to Additional Buyer's Stamp Duty (ABSD) when buying private homes. However, given the rental demand for homes from foreigners studying or working in Singapore, as well as locals who rent due to reasons such as proximity to a particular school or awaiting their new home, it may be worthwhile to consider allowing such funds to purchase private homes without incurring ABSD. This could benefit both the funds and the rental market in Singapore.
It is time to ensure that a significant portion of residential rental income benefits a wider group of locals, rather than just those who can afford to buy multiple properties or foreigners. To achieve this, citizens' funds that own rental homes could limit the size of holdings per person, ensuring that such funds are broadly held.
Investing in Singapore assets could be more attractive to locals, as they are already familiar with residential property here, and investing locally can help to avoid foreign currency risks. Therefore, Singapore-focused residential property funds may be appealing to locals.
The Urban Redevelopment Authority (URA), in its Long-Term Plan Review aimed at Singapore's development for the next 50 years and beyond, received input from over 15,000 individuals. As Singapore's urban environment evolves to meet changing demands, it is important to ensure that property ownership in the country is accessible and inclusive to all.