Category Archives: Economics

Mercer’s cost of living Survey 2017

Mercer’s annual Cost of Living Survey finds African, Asian, and European cities dominate the list of most expensive locations for working abroad

According to Mercer’s 2017 Global Talent Trends Study, fair and competitive pay as well as opportunities for promotion are top priorities for employees this year – not surprising given the current climate of uncertainty and change.

Mercer’s 23rd annual Cost of Living Survey finds that factors like instability of housing markets and inflation for goods and services contribute to the overall cost of doing business in today’s global environment.

Mercer’s 2017 Cost of Living Survey finds Asian and European cities – particularly Hong Kong (2), Tokyo (3), Zurich (4), and Singapore (5) – top the list of most expensive cities for expatriates. The costliest city, driven by cost of goods and security, is Luanda (1), the capital of Angola. Other cities appearing in the top 10 of Mercer’s costliest cities for expatriates are Seoul (6), Geneva (7), Shanghai (8), New York City (9), and Bern (10). The world’s least expensive cities for expatriates, according to Mercer’s survey, are Tunis (209), Bishkek (208), and Skopje (206).

Asia Pacific

Five of the top 10 cities in this year’s ranking are in Asia. Hong Kong (2) is the most expensive city as a result of its currency pegged to the US dollar, which drove up the cost of accommodations locally. This global financial center is followed by Tokyo (3), Singapore (5), Seoul (6), and Shanghai (8).

https://www.mercer.com/newsroom/cost-of-living-2017.html

Government support for business costs

THE government will continue to keep a close eye on business costs, even as it took the stance of letting market forces set the price of rentals. But where there are possible market failures, such as when it is not commercially-viable to provide space for startups, the government will step in – and has indeed done so.

In the retail and the F&B (food and beverage) sectors, rental costs as a share of business costs is around 30 per cent. Rental costs make up between 0.7 and 4.8 per cent of total business costs in the manufacturing sector, and constitute about 5 per cent of business costs in most services sector.

Rentals across all sectors – industrial, commercial, retail and office spaces – have been declining for the past 3 years– thus the rental problem has not been so severe.

JTC has set up LaunchPad@one-north 2 years ago and future plans include building a network of LaunchPads around Singapore — the next one to be completed in the Jurong Innovation District in 2017.

The government has ways to support businesses, such as the Capability Development Grant (CDG), the SME Working Capital Loan and Automation Support Package (ASP). CPG defrays up to 70 per cent of qualifying project costs and thus encourages businesses to build business capabilities. SME Working Capital Loan has catalysed over S$700 million and 4,800 loans as of Dec 31, 2016, to the benefit of about 4,300 SMEs. Under the initiative, SMEs can access unsecured working capital of up to S$300,000 to help them address cash flow concerns and growth financing needs. The CDG and ASP schemes, which help companies achieve productivity improvements through automation, collectively supported 226 automation projects in 2016.

The government also introduced Bridging Loan for Marine & Offshore Engineering (M&OE) companies in November 2016 and enhanced the Internationalisation Finance Scheme for M&OE.

Both schemes aim to facilitate the access of these M&OE companies to working capital and financing to stabilise the sector as it copes with prolonged weaknesses in oil prices. Applications for loans amounting to over S$90 million have been approved as of February 2017. These support measures are expected to catalyse about S$1.6 billion in loans over one year.

The government continues to monitor the sector closely by tracking indicators such as order books and output levels, and evaluating feedback from industry players.

P&G investing US$100m into innovation centre in Singapore

Global consumer goods giant Procter & Gamble (P&G) is to invest US$100 million (S$140 million) over the next five years to set up its first digital innovation centre in Singapore. Up to 50 new staff could be hired.

Called an E-Centre, the project was officially launched yesterday in partnership with the Economic Development Board. As it does not have a single, fixed location, staff involved in its activities will work either in P&G’s Singapore Innovation Centre in Biopolis Street or its offices at The Metropolis.

This E-Centre will develop digital solutions for Asia-Pacific operations, synchronising the supply chain to increase revenues and lower inventory while serving emerging retail channels more efficiently.

Some projects in the pipeline include machine learning, where algorithms allow machines to predict parameters within the supply chain for better accuracy, as well as process automation, which uses robotics to eliminate repetitive tasks.

The centre will also use data analytics to optimise product distribution and marketing strategies across the region. For example, by analysing an area’s demographics data, P&G will be able to determine the potential sales growth and prioritise store distribution accordingly.

MOF press release on measures with residential property

Ministry of Finance (MOF) has issued a joint press release with MND and MAS with regard to property measures.

1. Additional Buyer’s Stamp Duties (ABSD) and Loan to Value (LTV) Limits

The Government is therefore retaining the current ABSD rates and LTV limits.

2. Seller’s Stamp Duties (SSD)
The SSD is currently payable by those who sell a residential property within 4 years of purchase, at rates of between 4% and 16% of the property’s value

The Government will therefore revise the SSD as follows:

a) Impose SSD on holding periods of up to 3 years, down from the current 4 years; and
b) Lower the SSD rate by four percentage points for each tier. The new SSD rates will range from 4% (for properties sold in the third year) to 12% (for those sold within the first year).

The new SSD rates will apply to all residential property purchased on and after 11 March 2017. Details of the revised SSD rates are in the Annex.
Existing and new Seller’s Stamp Duty (SSD) rates for residential properties

SSD Rates on the actual price or market value based on date of purchase or date of change of zoning/use
14 Jan 2011 to 10 March 2017 (both dates inclusive) On and after 11 March 2017
Holding Period Up to 1 year 16% 12%
More than 1 year and up to 2 years 12% 8%
More than 2 years and up to 3 years 8% 4%
More than 3 years and up to 4 years 4% No SSD payable
More than 4 years No SSD payable

3. Total Debt Servicing Ratio (TDSR)

MAS will no longer apply the TDSR framework to mortgage equity withdrawal loans with LTV ratios of 50% and below.

4. Stamp Duties on Transfer of Equity Interest in Entities whose Primary Tangible Assets Are Residential Properties in Singapore

The 2nd Minister for Finance will be introducing legislative changes in Parliament today aimed at treating transactions in residential properties on the same basis irrespective of whether the properties are transacted directly or through a transfer of equity interest in an entity holding residential properties. Significant owners of residential property-holding entities or PHEs will be subject to the usual stamp duties when they transfer equity interest in such entities, similar to what would happen if they were to buy or sell the properties directly.

 

CFE calls for government to review land use and planning guidelines

The Committee on the Future Economy (CFE) calls for greater land-use flexibility by allowing complementary activities to be located near each other–  value chains and industries can be integrated and synergies enabled among developments in a precinct.

Given the blurring line between services and manufacturing, the CFE also proposed that flexibility of land use be allowed in industrial areas as this will open the way for businesses of different sectors and functions to co-locate, find synergies and catalyse innovation.

The Urban Redevelopment Authority (URA) is working with state industrial landlord JTC and the Economic Development Board (EDB) under Ministry of Trade and Industry.

Industry players say Singapore may need to create more zoning categories or expand existing definitions of use for industrial space.

Another planning guideline – that of the “60-40 rule”, which requires at least 60 per cent of gross space in a building or strata unit to be used for industrial activities, with at most 40 per cent left for ancillary purposes – is another restrictive policy that needs review.

The government has, in the past, rolled out “white” sites and business park white zones in the Master Plan to offer developers some autonomy in deciding the most appropriate mix of uses for each site. However, it has remained prescriptive in listing permissible uses and planning specifications for these sites.

The US practises what is called “performance zoning”, under which land development and use are circumscribed by performance standards; for example, these standards can limit the intensity of development by stipulating the maximum level of noise or strain on the transportation system.

 

Japan’s real estate revival depends on BOJ

Offices, apartments and hotels are popping up in major cities across Japan as the BOJ’s quantitative easing and negative interest rates push bank lending to real estate developers to an all-time high.

Many developers and analysts expect the construction boom, and its economic benefits, to continue ahead of 2020 Tokyo Olympics – a welcome and very visible sign of success for the BOJ.

Real estate lending began its revival after the BOJ started quantitative easing in early 2013. It gathered pace after the central bank’s shock introduction of negative interest rates in January, which has crushed earnings and sent banks hunting for higher returns.

Domestic bank lending to the real estate sector rose 6.5 percent to 67.7 trillion yen (509 billion pounds) in the first quarter, the highest on record, according to BOJ data. The sector accounted for 14.5 percent of all domestic bank lending, the highest in five-and-a-half years.

Activity in the real estate sector is one bright spot in an otherwise disappointing assessment of Abe’s economic policies, known as “Abenomics.” Tourism-related spending is driving much of the recent activity.

Nationwide, construction of hotels and restaurants, measured by square metres, surged 93.6 percent in June from a year ago, the biggest increase in more than two years, land ministry data show.

The number of tourists visiting Japan is already at a record high after an easing of visa requirements. With Tokyo preparing to welcome visitors for the Olympics and rural areas also attracting more visitors, Japan could face a national shortage of around 41,000 hotel rooms by 2020.

Public works investment, including hotels and infrastructure for tourists, is the centrepiece of the government’s next stimulus package. Other property types are also seeing growth.

Office space in central Tokyo rose 1.7 percent in June from a year ago, the fastest gain since April 2013, data from office broker and research firm Miki Shoji Co show. In another welcome sign, growth has not been restricted to Tokyo alone. In central Nagoya, office space in June rose at the fastest annual pace in almost seven years, even if the market has been more subdued in Osaka.

And although residential housing starts fell in June for the first time in six months, the number of units is still at the highest level in a year, according to land ministry figures.

The economic benefits are considerable. The real estate and construction industries combined accounted for almost 18 percent of gross domestic product in 2014, the most recent year Cabinet Office data are available. The two sectors employ 10 percent of the workforce and have been advertising to hire more workers since late last year. More jobs means more consumption, not to mention the extra spending associated with moving into a new office or apartment.

The rise in activity has also begun feeding into wages. Wages for workers in property and leasing rose 7.3 percent in May from the same period a year ago, the fastest gain in two years, according to labour ministry data.

While wages in the construction sector fell an annual 1.4 percent in the same month, economists say a chronic shortage of construction workers should boost wages soon.

One concern was that Japan’s declining workforce means the replacement of older office buildings with shiny new ones has already exceeded demand.  Yet, last year nationwide land prices rose a mere 0.2 percent, according to the National Tax Agency, while commercial land prices rose 0.9 percent, land ministry data show. Both were the first gains in eight years – hardly the stuff of bubbles.

 

 

Japan to solve the low birth dilemma with immigration

In a recent news article, the current government under Japanese Prime Minister Shinzo Abe seems to be considering policies to increase the intake of foreign workforce into Japan. As Japan is undergoing a long term concern over its demographics and population due to low birth rate. To prevent the country from falling to below 100 million from the current 127 million, immigration is often touted to be the solution in the ageing society. However the relatively closed society of Japan has been well known to be apprehensive towards bringing in more foreigners. However with the current expansion of foreign tourism, some attitudes towards other nationalities may have changed. The lawmakers in the cabinet  said in an interview that the foreign workforce may double. The government may introduce a new visa category for sectors affecting from labour shortages, and expand a foreign trainee policy where workers are allowed entry for a limited period (from 3 years to 5 years). Foreigners currently working in Japan under this scheme ranges within a figure not exceeding 200K. Tech workers from India and Vietnam are among some of the target groups.

Together with the upcoming enthusiasm for the Olympics in 2020, this may be good news for property owners in the country as demand for rental properties may increase.