By Petra Blazkova on July 21st, 2016
Qatar Investment Authority’s purchase of Asia Square Tower 1 from BlackRock for $2.5 billion has grabbed the headlines in recent weeks. This Singapore deal is exceptional, and it’s important to realize that the inflow of foreign capital into Singaporean real estate – $22.5 billion so far this cycle –is marginal in comparison to Singapore’s overseas investment.
Since the end of the GFC in 2008, Singapore-based investors have exported $114.6 billion and as a result are one of the most active sources of outbound capital globally. Although activity has slowed recently, Singapore still ranks as the fourth most active cross-border property investor globally over this period. This is remarkably strong activity for the island nation given the size of its economy and population.
Historically, the destination of choice has been the Chinese real estate market, which has attracted 24% of all cross-border investments from Singapore since 2009. Other popular targets include the U.S., Australia, U.K. and Japan – all markets with sound fundamentals and ample investment opportunities. As for city targets, London has been and remains the most sought-after destination for Singaporean investors, with 17% of all cross-border investments placed there so far this year.
Looking ahead, the pattern of strong capital exports from Singapore should continue. The long-term driver pushing Singapore capital abroad – a surplus of savings both in the private and public sectors – should remain for years to come. Singapore’s investors will continue to be drawn to offshore real estate opportunities that offer stable fundamentals, regulatory support, and market transparency.
Ultimately, the scale of activity will cool if interest rates in the U.S. rise, since this will affect both relative pricing and lending costs at home. Moreover, an ageing population and the consequent need for domestic investment will reduce the capital available for outbound investment, but not in the next few years.