Singapore Real Estate to get a Boost after Brexit

How Brexit Affect Singapore Property Market is a question that is in the mind of most people in this region after the British public voted in a referendum to leave the EU. This news spread like wildfire in the global financial world as analysts and researchers tried to envision how the world will react to this adverse news.

This is something that has never happened before. Britain is regarded as one of the integral nations within the European Union. It was unthinkable that the people in this great country will decide to say goodbye to the EU. There is tremendous uncertainty in the entire world regarding the consequences of this unprecedented act. How the financial markets will react to this the brexit phenomenon is anybody’s guess. One thins, however, is sure: political uncertainty is always bad for the market.

The pound sterling was already losing its value against the dollar when the referendum was announced. This meant that it was also losing value against most of the currencies in the world.  When the British people voted in favor of leaving the EU, the political uncertainty reached unprecedented heights and paved the way for further decline in the value of the pound.

 

What will be the wider consequences of the brexit vote? The best guess right now is that anything can happen. It has been said that it can be safely assumed that the brexit vote can affect Singapore in three ways. Suitable responses can also be prepared in order to counter the adverse effect.

Let us first discuss trade. Singapore has recently concluded talks with the EU for Free Trade Agreement. This is the first such trade agreement between an AESAN country and the EU.

The terms of the agreement stipulate that the imports and exports between Singapore and the EU will not be subjected to vigorous restrictions. They will also be relatively cheaper. This was very good for Singapore because it had imported machinery, chemical and transport related equipment from the EU that was worth nearly 30 billion dollars.

However, the point is that most of the EU trade of Singapore was with Great Britain. Obviously, the agreement between Singapore and the EU will remain intact, but the deals with Britain will need to be renegotiated. The new terms of any deal with Britain will depend on the bargaining power of the two countries after the Brexit has actually become effective.

Watch video for Brexit Analysis by Straits Times

Why it cannot be predicted right now?

This is so because it is still not clear whether Great Britain will economy become weaker after Brexit. If this happens, business in Singapore will not be interested in working with her. They would rather prefer other countries still within the EU. Britain will automatically lose most of its bargaining power in this scenario.

On the flip side, Britain may end up having more influence over Singapore owing to it being a major business partner of the country.

No matter what happens. It is a fact that a lower pound will make importing foods from Britain much more desirable. There is another point to consider: it will take at least two years for Britain to leave the EU as per the terms of the EU rules.

Watch video for Brexit Analysis by CNA Insider

The net important point for discussion in this regard is investments. Presently, around 25 % of the entire foreign direct investment portfolio in Singapore comes from the European Union. Similarly, Singapore has also heavily invested in the EU.

Again, most of the investment from and inside the EU is through Great Britain. The situation clearly indicates that Britain’s exit from the EU will also affect the flow of investments from the European Union into Singapore. If Britain become economically weaker after Brexit, it would mean that the flow of investments coming from Europe will slow down consequently, it will become more costly for the British firms to expand their business in Singapore.

There are several British companies that have increased their investments in Singapore over the past few years. These include Shell, HSBC, and Rolls Royce etc. If the value of the pound decreases, it may compel investors in Singapore to invest more money in Britain.

How Brexit Affect Singapore Property Market?

Let us finally discuss the most important aspect of Brexit phenomenon: its effects on the Singapore property market.

It is being speculated that the residential and commercial property market in Singapore and Australia will be a major winner of the Brexit episode. This is because a big chunk of international capital will flow towards these two destinations and find its way into the property sector. Financial pundits are already saying that the asset managers will seek to transfer the bulk of their funds out of Britain and park it somewhere else. In this regard, Singapore and Australia are the two most likely destinations for shifting these funds.

Citi Group analysts have released a forecast stating that the office rents in London will go down by 16 to 20 percent because thousands of layoffs will be carried out in the city. Property stock prices of shopping malls and office buildings have also slid down by 4 to 8 percent. This is in anticipation of the reduction in operations of many European firms.

Office yields in Singapore have been tightened already since the Brexit. Citi Group states that the rent will further enhance as businesses seek to move out of the volatile European markets.

Singapore is considered a low-risk area and it is being estimated that apartment prices could also rise here as investment shift from Europe starts to occur. How Brexit Affect Singapore Property Market will, in the end, depend on the circumstances as they unfold in the financial markets worldwide.

Conclusion

 

At the end of the day, Brexit was the decision for the people of Britain. How their decision would affect the rest of the world was the least of their concern when British citizens cast their vote in favor of leaving Europe.

Of course, there will be some adverse effects of the phenomenon on the economics of the entire world, however, it seems that the property market in Singapore will get a great boost when the Brexit begins to happen within the next two years.

References:

  1. https://en.wikipedia.org/wiki/Brexit
  2. Business Insider. 01 July, 2016: http://uk.businessinsider.com/eu-referendum-brexit-fallout-singapore-lender-stops-offering-london-mortgages-2016-7
  3. Strait Times 04 July , 2016: http://www.straitstimes.com/business/banking/too-early-to-say-if-singapore-will-benefit-from-brexit-analysts
  4. The Australian 11 July, 2016: http://www.theaustralian.com.au/business/property/property-australia-singapore-to-benefit-from-brexit/news-story/e64097e03c62b2f5969ac99b5c0d37f0