TFN Editorial Team. 29 June 2016

While many property consultants and experts expect Singapore residential property prices to maintain their downward trajectory for the rest of 2016, the recent BREXIT and a multitude of upcoming events could impact this outlook.


Impact of BREXIT

Post BREXIT, London’s status as a global financial hub may be in jeopardy. Various reports suggest international businesses could move up to 100,000 jobs out of the U.K. This will result in increased capital allocation into countries that offer stability and transparency, and mature markets such as Singapore will look attractive. While BREXIT may contribute to further weakness in global equity markets and drag down global economic growth, both of which will be negative for Singapore’s residential property market, this negative impact will be offset by the fact that interest rates globally will stay lower for longer, which will help to support property prices.

However, there are a few risks lurking ahead which may complicate the outlook.

One should be mindful of potential breakup of the U.K. as Scotland and Northern Ireland which have voted to remain part of EU are likely to seek independence. BREXIT also opens up the floodgates for other anti-European forces within the EU which could see a disorderly disintegration of the union. All these will mean further weakness on global growth, further USD strength and capital outflows from Asia. There will be upward pressure on short term interest rates of Asian countries as well as downward pressure on Asian currencies.   


US Presidential Elections and Indonesian Tax Amnesty

Another risk is the upcoming US Presidential election in November. The referendum campaign -- just like the U.S. election – has been boiled with populist anger, fear-mongering by politicians, hostility towards distant political elites and resurgent nationalism, and exposed a visceral feeling in the electorate that ordinary voters have lost control of the politics that shape their own lives. What happened in the UK raises the question of whether those forces will exert a similar influence in the U.S. Presidential election. If so, Donald Trump could become the next US President and this will spell trouble for global trade. This is because one of his economic policies is to heavily tax all foreign imports. In a world economy defined by global integration, Trump’s economic nationalism is highly dangerous. Exports have been a major driver of the American economy in recent years. What would happen to trade if the US were to build a wall along its southern border and abrogate all its trade treaties? Withdrawal from trade agreements does not currently require congressional approval. If Trump did even half of what he has promised, he would surely set off the worst trade war ever since the Great Depression.

Closer to our shore, there is the impact from the recent Indonesian tax amnesty. Indonesia parliament had just passed the tax amnesty bill and tax payers who come forward with their untaxed wealth will get an amnesty tax rate of between 2-10%, depending on how fast they declare their assets and whether they repatriate their money back into Indonesia. The potential selling pressure from Indonesians if they choose to sell their Singapore properties and repatriate money back into Indonesia can be significant. Various estimates suggest up to US$200bn of Indonesian wealth is parked in Singapore and the Indonesian government is targeting US$74bn of foreign funds to be repatriated.  This could put further downward pressure on the Singapore property market.

 


So What Has All These Got To Do With Me?

Regardless of the property market outlook, it always makes sense to save on the interest on your home loan. BREXIT might have presented the Federal Reserve with one less reason to resume their interest rate hike, and this should imply lower interest for Singapore. For property owners who are out of their lock-in period, this could be a good time to look into refinancing and saving on your interest payment, unless you take pride in contributing more towards the banks’ profits.

 

For details on which bank has the most competitive loan package at this point of time, e-mail us at enquiries@thefinancialnetwork.com.sg