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Singapore's real estate is a hot property in China

lipeng.cheok@bizedge.com

Over the span of a year, a team of senior executives at Chinese developer Logan Property Holdings Co. made frequent trips to Singapore as the company sought to make a big splash for its entrance into the city-state's market.

In May, their efforts paid off: A joint venture between Shenzhen-based Logan and Chinese conglomerate Nanshan Group won a government-run auction for a residential site, paying $1 billion -- setting a local record for such a property deal.

Chinese developers looking to diversify beyond the heated real-estate markets of the mainland and Hong Kong have Singapore in their sights, as residential-property prices in the Southeast Asian country appear to be poised for a near-term rebound after years of declines, analysts said.

Since 2013, when Singapore's government took additional steps to cool the formerly highflying housing market, prices have fallen 12%. However, the declines have slowed over the past year, with prices falling only 0.1% between the first and second quarters of 2017. "This is a strong indication that the overall market is heading closer to the bottom," said Tay Huey Ying, head of research at real-estate firm Jones Lang LaSalle Singapore.

In addition, compared with China, Singapore's simple and transparent tax and policy structures and operating environment are major draws, said Derek Lee, investor-relations head at Logan.

Also, diversification makes sense as it helps cover the developer's foreign-debt exposure, he said. As much as 20% of Logan's total borrowings are made up of overseas debt, so expanding into markets such as Singapore helps hedge leverage-related risks while building the company's brand, Lee added.

Cross-border residential-land investment has more than doubled in the Asia-Pacific region over the past decade, said real-estate advisory firm Knight Frank. In 2016, investment topped US$42 billion ($57.1 billion), 80% of which came from developers based in mainland China and Hong Kong.

In Singapore, a quarter of luxury-residence purchases by foreigners in the core central region in the first half of this year were snapped up by Chinese individuals who weren't permanent residents of the city-state, said real-estate services firm Cushman & Wakefield, citing data from the Urban Redevelopment Authority. In the full years 2016 and 2015, such Chinese buyers accounted for 18% and 20% of those type of high-end purchases, respectively.

Against this backdrop, Ravi Menon, the head of Singapore's central bank, said in a recent speech that it wasn't yet the right time to ease market-cooling measures, in part because of firm underlying demand as global real-estate investors continue to seek yield and safety.

Singapore's steps to cool its housing market, whose prices rose 60% from 2009 to 2013, are a rare example of successful government action to tame prices, standing in contrast to those in mainland China and Hong Kong. The city-state imposed restrictions on borrowing by home buyers and levied an added tax on any purchases by foreigners to weed out speculators, who tend to be highly leveraged and look for high capital appreciation over the short term.

According to a report by Julius Baer, a 4,000-square-foot residential property in a prime location in Singapore costs on average US$8.9 million, compared with US$41.2 million in Hong Kong and US$16.6 million in Shanghai.

"The risk of a renewed unsustainable surge in property prices is not trivial," the central bank's Mr. Menon said, however. Singapore needs to remain vigilant about overseas investors looking to escape tighter regulations at home, he added.

In China, strict controls on capital flowing out of the country aren't likely to stop property buyers wary of a possible domestic real-estate bubble from making "opportunistic investment in Singapore," said Christine Li, Cushman & Wakefield's Singapore research chief. "There is probably no better time to bottom fish."

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