With all the talk of booming economies in Asia, the place that stands out from the rest is Singapore, whose economy expanded 14.7 percent last year – far and away the largest expansion in Asia.
On January 18 Singapore imposed new regulations aimed at curbing property speculation. In a statement issued by the finance and national development ministries and the central bank:
Low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals. Therefore the government has decided to introduce additional targeted measures to cool the property market and encourage greater financial prudence among property purchasers.
Just how high is the tax increase going to be for owners who sell houses and apartments that they have owned less than four years? How does a 500 percent increase in the stamp duties tax sound? That might be drastic, but I seriously wonder to what extent it will curb the influx of money coming directly from China.
Bank loan tightening will not work even though companies purchasing residential properties can now borrow only 50 percent rather than the 70 percent mortgages they used to get. Individuals already owning one or more properties can still get a 60 percent mortgage compared with the 70 percent they used to get.
Chinese are taking money out to invest elsewhere. There are four basic ways to take money out of China:
- Every individual is permitted to take out US $50,000 per year. Let’s say someone in Shanghai needs to take out US $1 million. That person need only (assuming he has the financial wherewithal) give money to 19 other friends and relatives and have them wire money out of the country. It’s nice and easy and very legal to do it this way.
-Want to travel outside China? You are allowed to carry out CNY 20,000 each trip – plus US $5,000 (or an equivalent amount in any other currency). And while out of the country, that person can use an ATM to take out US $1,290 per day.
- Ever hear of a parallel account? If you work in China and have a business associate, customer, friend, or what have you in Hong Kong, set up a yuan renminbi account for that person who has a need for the yuan renminbi in China. You simply provide that person with the yuan renminbi while he gives you the equivalent amount in either Hong Kong dollars or other currency.
- The “mule train,” the people who, at the Zhuhai or Shenzhen border, are handed money and then cross the border, handing over those funds to someone on the other side, in Macao or Hong Kong. It happens all the time. It is a well-organized underground banking network. The People’s Bank of China estimates that as much as US $150 billion crosses the border each year.
With that amount of money, it is little wonder that cash purchases are being made in abundance, driving up property prices in Singapore, Hong Kong, New York, and London.
It’s not just property that has become scarce in Hong Kong – the mule train travelers, making their daily trips to Macao or Hong Kong, are stopping at stores before returning home to China to purchase baby formula produced from outside China. The Chinese government has been unable to regulate Chinese manufacturers in this field and Chinese parents are hesitant to purchase their locally made baby formula because of the ongoing melamine scare. Thus, non- Chinese baby formula is in demand in China and so scarce in Hong Kong that angry Hong Kong parents have called for a departure tax to be imposed on people taking supplies of infant formula out of Hong Kong.
Regarding Singapore’s goods and services tax, which became effective January 1, timing matters. Businesses on an accrual basis are now responsible for GST liability at the time of invoice issuance, regardless of whether they have shipped the goods. Since pre invoicing is routine, as is not paying for the goods until received, businesses will now have to rethink how they operate because of their new tax liabilities.
