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Hedging Money in Singapore Property

Hedging Money in Singapore Property


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Foreigners buying Singapore properties are a common sight and the most commonly mention attributes are security, stable government, good schools and medical facilities. Another major attraction is also strong Singapore currency, which keeps their exchange losses to the minimum. So how does such hedging of money in property work to their advantage? These are the advantage to foreigners hedging their money in Singapore properties:

  • Currency exchange rate is averaged out over the loan tenure period
  • Opportunity to pay more principle amount when currency exchange rates are in favour
  • Low volatility in prices; security & stability in asset value
  • Good rental potential due to robust city planning
  • Lower agent fees as compared to various countries
  • Lower interest rate compared to various countries

AVERAGING OF FOREX

Assuming an Indonesian buy a 3-bedroom deluxe at Corals at Keppel Bay for $3,500,000 and takes a 80% loan for 20 years at 3% interest rate. This will work out to a monthly repayment of $15,529. So when exchange rate is SGD$1 to Rp10,000, the monthly repayment is Rp155,290,000. When exchange rate is SGD$1 to Rp8,000, monthly repayment is Rp124,232,000, equivalent to a saving of $3,105 per month. This is vice versa should exchange rate falls the other direction. That would mean in fluctuating exchange rates, buyers can choose to pay more instalments when exchange rates are in their favour and minimise to single instalment per month should exchange rate goes otherwise. This has a downward averaging effect on the overall cost of the property. We thank Singapore government for adopting the same decades-old strategy to combat inflation; currency strengthening. This makes Singapore property a good place to deposit your non-SGD savings.

LOW VOLATILITY, LOW INTEREST, LOW FEES

Singapore property has low volatility because government is quick to step in when economic bubble starts to form. In recent years, the curbs to such situations are in the form of stamp duties and gearing restrictions like TDSR or lower Loan-To-Value. While this dampens the mood to investors looking to make short-term gains, it is a great advantage to people who wants to park their money in safer haven.

Due to measures to control LTV and manage TDSR, banks are still able to keep interest rates attractive when compared to countries like China, Indonesia or Malaysia. Agent fees for rental transactions are also lower, 4.16% as compared to 6%-8% overseas. This leads to lower operating expenses for Singapore property investments.

GOOD RENTAL POTENTIAL

While other countries with higher interest rates may have higher rental yield, this may not be the only dimension when rental return is considered. Other factors to consider are vacancy period and upkeep of property. The amount of Government Land Sales each year is correlated to the increase in amount of employment passes, new citizens, Permanent Residents with some buffer for foreign buyers. Hence, severe oversupply with long vacancy period is less likely to occur unless expectations of landlords are misaligned. The rationale behind this is to ensure that owners who buy property for investment can still afford the monthly repayment, leading to a more robust banking system. Strict building standards imposed by government authorities like URA and BCA ensures certain minimum standards in the produces. It is also observed the upkeep of older properties tends to be better when it comes to Singapore. Hence, long term maintenance cost are kept lower.