Singapore property bounce a belated, low-yield catch-up

'Soaring property prices in Singapore could erode its competitive edge, including against arch-rival Hong Kong, the city's founding father said yesterday ...

'We must check this [rise] in rents for office and residential space or we will lose our competitiveness,' Lee Kuan Yew was quoted as saying in the Sunday Times.

He said: '[Singapore] must not allow rents to shoot up as in Hong Kong.'

News agencies, SCMP, July 9

Right, let's get some minor points of confusion straightened out first. The Sunday Times referred to here is not the prestigious London newspaper of that name but the Sunday editions of Pravda (Party Rendition and Authorised Version of Daily Announcements), which is Singapore's closest equivalent to a newspaper.

Secondly, any discussions of the Singapore residential property market must take into account that there isn't really one.

There is the Singapore government, which has provided and keeps its finger in the pie of about 90 per cent of Singapore's housing stock and then there is some dealing in what's left.

Singapore, you must remember, is the country that has come closest in the world to achieving communism in the classic Marxist sense of the word.

And about that 'arch-rival Hong Kong' business, we obviously have the Singapore view of the world here. Singapore has always been much more conscious of Hong Kong than Hong Kong is of Singapore. The bigger fish looms bigger to the small one than the small fish does to the bigger one.

But the two are not actually arch-rivals in any way except in Singapore's schoolboy-style obsession with rating itself against its neighbours on a hypothetical scorecard of 'I got a B plus. What did you get?'

The fact is that Singapore lives by exploiting anomalies in the financial and trading sectors of Malaysia and Indonesia. Hong Kong lives by exploiting the same anomalies in the mainland. The two don't really intersect much.

And now to some facts on the relative standings of the Singapore and Hong Kong property markets. The first chart shows you the overall residential property rental indices of the two economies. I have rebased both to a value of 100 for the highest level achieved before the tumble of the 1997-98 Asian financial crisis.

The figures show that residential rents in Singapore have indeed been rising faster than in Hong Kong over the past year. They also fell much further and faster than in Hong Kong in the aftermath of the financial crisis.

Let's just call it catch-up. Most of the rest of Asia has seen residential rents and prices rise since 2003. Singapore was behind the trend.

Note that this chart does not let you compare actual rent levels in money terms. My data is not comprehensive enough to allow me to do this accurately for residential property.

I can attempt it, however, in average prices for office space.

The red line in the second chart shows you the record for Hong Kong since 2000. The blue line gives you the rough equivalent for Singapore. Mr Lee has accurately noted that Singapore costs are up but I think there is a crucial flaw in his reasoning.

Hong Kong's much higher office costs indicate not that it is vulnerable to competition from its neighbours but that it is significantly more competitive than they are. Office prices and rents would not otherwise be what they are.

Costs of office accommodation can only be low or high relative to the revenue that the occupants can generate from working in these offices.

For Hong Kong, there is a great deal of revenue these days. Our service industries are minting money. Hong Kong's office costs on this crucial measure are therefore quite low.

If Mr Lee wishes to tell us that Singapore's are high on this measure, well, perhaps we should all console with him on the low profitability of the use of office space in Singapore.

I cannot understand, however, why he should want to keep things that way.