SINGAPORE (Dec 4): Ivan Ng, one of the residents at Braddell View, the former HUDC development that has been put up for collective sale, reckons that he will get at least $2 million for his unit, given the price tag of at least $2 billion for the expansive 1.124 million sq ft plot. That is significantly more than the $1.3 million that units like his are currently fetching in the secondary market.
If the sale of Braddell View goes through, literally hundreds of homeowners like Ng could suddenly see a surge in their net worth and find themselves sitting on a pile of cash. There are 918 units at the estate. In fact, thousands of homeowners have been made richer and more liquid this year as a result of collective sale deals. As property developers rush to replenish their landbanks in anticipation of higher prices in the years ahead, a total of 21 such deals worth nearly $6.8 billion have been transacted so far.
That should further boost the growing ranks of high-net-worth individuals (HNWI) in Singapore. According to Credit Suisse, there are already about 152,000 Singapore residents worth US$1 million ($1.35 million) or more, which is 2.7% more than last year. Their total combined wealth stands at US$580 billion, about 8% more than last year. Credit Suisse sees the number of US dollar millionaires in Singapore growing 2.3% annually to reach 170,000 by 2022.
To put that in perspective, total household wealth in Singapore stood at US$1.2 trillion in mid-2017, according to Credit Suisse. Average personal wealth per adult in Singapore was US$268,800, which is the ninth-highest among developed economies. Median wealth stood at US$108,900 as at mid-2017, also the ninth-highest in developed economies. Credit Suisse sees Singapore’s total household wealth increasing 2.3% annually to reach US$1.3 trillion in 2022.
Interestingly, Credit Suisse notes that financial assets make up a relatively high 56% of gross household wealth in Singapore, which is similar to Switzerland. Credit Suisse defines household wealth as the value of financial assets plus real assets (principally housing) minus debts. In Singapore, financial assets include bank deposits, stocks, insurance policies, CPF and private pension plans. Clearly, the manner in which Singapore residents position their financial assets could have significant implications for their wealth prospects. In particular, a large exposure to global stocks would be very positive if global markets remain buoyant.
Brian Halim is one individual who sees financial investments as a means to accumulating wealth. According to his blog, he has about half a million dollars worth of holdings in his portfolio, and another $115,000 in cash. He tells The Edge Singapore that he started investing in the local stock market about seven years ago and has been adding capital to his portfolio as well as reinvesting any dividends. His top three largest holdings currently are ComfortDelGro Corp, M1 and Frasers Logistics & Industrial Trust. Halim does not include the value of his home and other assets in the estimation of his net worth.
For many Singaporeans, wealth accumulation through stock and property investment is all about attaining financial freedom or having a comfortable retirement. A big bull market in stocks or a fortuitous en bloc deal can accelerate the achievement of these goals and open interesting life choices.
For instance, Halim the stock investor says he is working towards having stocks and cash worth at least $1 million. He also says he is aiming to achieve financial freedom by the time he is 35 years old; he is 32 now. However, he says he is not planning on quitting his job as a financial controller at a logistics company anytime soon.
Ng the resident at Braddell View, who is a retired currency trader with three children between the ages of 17 and 26, figures he will use some of the proceeds of the en bloc deal to buy a five-room HDB flat in Ang Mo Kio and place the rest in “conservative” investments. But he says some of his neighbours have much more exciting plans — for example, emigrating to other countries in the region where the cost of living is much lower.
Rentier economy?
Now, with an economy built on entrepôt trade and major companies that are part of global supply chains, a synchronised pickup in growth in developed economies could well lift asset prices further in Singapore, boosting household wealth even more. Estimates for Singapore’s GDP growth this year have been revised upwards again, to as high as 3.5%. Meanwhile, the benchmark Straits Times Index is up more than 17% this year, driven by stellar gains in some of the largest corporates in Singapore.
What will the growing numbers of HNWI mean for the local economy? Are we becoming a rentier society?
Chua Hak Bin, an economist at Maybank Kim Eng, says stronger growth is indeed set to lift asset prices in Singapore and boost household wealth. He adds that household cash balances have been rising faster than household debt levels, which suggests that consumer spending over the past year has not been driven by consumer leverage. “This is encouraging, and suggests that the recovery can be sustained into 2018,” Chua says. On the whole, higher household wealth “has significantly raised the resilience of households and reduced the vulnerability to interest rate increases and shocks”, he adds.
A wealthier population could now spur higher levels of spending and drive more economic activity — from restaurants and retail to financial services. “Any fast-growing economy will have a growing fraction of the rich that helps spending in certain areas: private banking, luxury goods, the property market,” says Chua. “There will also be new services generated to cater to these HNWI.”
Yet, it seems unlikely that Singapore as a whole can sustain itself with a rentier mindset. Asset values are sustained by some form of productive activity, and the growth of Singapore’s economy has largely been fuelled by its ability to adapt to shifting global winds. Moreover, in this era of technological disruption, all manner of industries are being routed by new players. Even directly within the commercial property sector, e-commerce is putting pressure on shopping malls while co-working spaces are upending demand for traditional offices.
“One can argue that the ones who have been sitting pretty in monopolies [and collecting rents] have been totally disrupted. Rents have been soft and incumbents have faced significant upheaval,” Chua says. “To me, it looks less rentier.”
New era of entrepreneurship?
Singapore also faces the pressure of having to support an ageing population. The Edge Singapore reported in this column earlier this year (Issue 777, May 1) that the government is budgeting to spend $37.75 billion in the current fiscal year on social development, which encompasses healthcare, education and national development. This is 219% more than what it spent in 2005.
The biggest driver of this rise is healthcare spending, which is set to come in at $10.74 billion — almost six times more than what was spent in 2005. The budgets for education and national development are $12.9 billion and $4.8 billion, respectively, which are 111% and 253% more than what was spent 12 years ago. These three items account for about three quarters of total social spending in the current fiscal year. Total social spending, in turn, will amount to half of Singapore’s total expenditure in the current fiscal year.
Prime Minister Lee Hsien Loong said a fortnight ago at the People’s Action Party convention that Singapore will be raising taxes soon to fund growing expenditure on healthcare as well as infrastructure. Some commentators expect the government to hike the Goods and Services Tax, while others say that taxes on the wealthy could be increased, perhaps by creating new tax brackets for high income earners. Already, taxes on luxury cars were raised back in 2013, and the property cooling measures introduced since 2009 include higher stamp duties for owners of multiple properties.
This suggests that the growing ranks of Singapore’s HNWI might not be able to afford to sit back and take life easy. In fact, the Royal Bank of Canada found in a recent study that the rich here now appear to be keen on having their progeny embark on their own ventures. “Singapore HNW families who may be leaning towards more wealth preservation themselves are now seen as more supportive in having their second generation pursue entrepreneurial endeavours,” says Tho Gea Hong, head of wealth management, Southeast Asia, at RBC Wealth Management.
If that is true, the rising wealth of Singapore’s richest households might be about to spawn an exciting new dimension to the local economy.
See also ‘Policymakers should harness the stock market’s potential as a wealth equaliser’
See also: Policymakers should harness the stock market’s potential as a wealth equaliser
