[Asia Report] "A Hotel with a Pool Once Cost 400,000 Won, Now 1 Million"... The 'Hotel Mecca' Singapore Is a Thing of the Past

Singapore Becomes Even More Expensive... The Nation Itself Is a Safe Asset
Chinese Talent and Capital Flock In Amid G2 Power Struggles
Real Estate Prices Soar Despite High Taxes... Emerging as an Alternative to Hong Kong in Financial Markets

"Airfares have become cheaper than before, but hotel prices are truly murderous."

[Asia Economy] These days, if you ask any Korean who has entered Singapore, the first thing they unanimously mention is the skyrocketing hotel prices. Singapore, a central country in Southeast Asia and an international port, was famous for its diverse accommodation infrastructure to the extent that it was called the "City of Hotels." However, since early this year when the COVID-19 entry restrictions that lasted over two years began to lift, prices have been creeping up, and since the second half of the year, they have recorded a historic "high kick" beyond just soaring.

A refreshing stream of water is falling from the 40-meter-high artificial waterfall at Jewel Changi, a complex shopping mall within Singapore Changi International Airport.

Four-star hotel prices, which were around 200 SGD (Singapore dollars) per day just before COVID-19, suddenly surged to over 400 SGD. Business travelers from Korea have increasingly lowered their hotel star ratings by one or two levels or skipped breakfast to reduce accommodation costs. It has become difficult to find hotels under 100 SGD, so practical solo travelers prefer capsule-type hotels (around 50 SGD per day) where 5 to 7 people share a room in small sections.

It’s not just nominal prices that have risen. The reason why Singapore’s cost of living feels much more burdensome to us is largely due to the exchange rate effect. During the 2018 Singapore North Korea?U.S. summit, 1 SGD was around 800 KRW, but recently the exchange rate has approached 1,000 KRW per SGD. In just four years, the Korean won has depreciated by 25%. So, a hotel that cost 200 SGD (about 160,000 KRW) in the past now costs over 400 SGD, which is more than 400,000 KRW.

The prices of five-star resort hotels are even more burdensome. The "Marina Bay Sands" hotel, which Korean visitors to Singapore want to visit at least once, is a representative example. Before COVID-19, you could stay overnight for about 450,000 KRW and take a cool selfie at the rooftop pool, but now you have to pay over 900,000 KRW, close to 1,000,000 KRW, to even dream of the "Singapore romance."

◇ Why is Singapore experiencing high inflation?

Hotel rates in big cities are closely related to the average real estate prices in the city. In other words, Singapore’s real estate prices are still rising. According to long-term residents, despite the global supply chain disruptions caused by the Russia-Ukraine war and the U.S. interest rate hikes, prices are hitting new highs every day. This means that all assets related to this country are becoming safe assets.

Singapore has a long-standing policy of imposing heavy taxes on foreigners who want to buy real estate. If real estate prices become excessively high, workers lose motivation, which undermines the city’s competitiveness. Therefore, a punitive tax of 30% of the real estate transaction price has been imposed on foreigners, yet recently, the number of foreigners bringing money and coming to buy has increased. Even condos in the outskirts far from the city center have no listings under 2 billion KRW, and prices have already surged to around 3 billion KRW.

"Still, since it’s an international city, isn’t foreigner-owned condos at that level still undervalued?" you might ask. But once you understand the situation, it’s hard to dare. Singapore firmly adheres to the principle of state ownership of land, so individuals only have 40 to 50 years of building usage rights. It is impossible to gain profits from reconstruction. Moreover, various taxes (acquisition tax, capital gains tax, property tax), monthly bank interest, and management fees are surprisingly high by Korean standards. On top of that, foreigners pay an additional 30% tax on the transaction price. Because of this, the government has assured that real estate prices cannot skyrocket like in Hong Kong, but recently it has failed to curb market overheating.

The rental market is no different. In Bukit Timah, where many Koreans live, a house that used to rent for 4,000 SGD per month quickly rose to 6,000 SGD. Combined with the exchange rate effect, the rising cost of living has led to a significant decrease in the number of Korean students coming to Singapore for study.

◇ Talent and Capital from China

There are several reasons why Singapore’s real estate is bucking the global trend. The elderly who had moved to nearby Johor Bahru, Indonesia, and Australia during COVID-19 have been forced to return to Singapore, increasing housing demand. A more decisive factor is the influx of elites from around the world, especially the increased preference of Chinese talent and capital for Singapore.

Visiting the National University of Singapore (NUS), the entire campus is bustling with lively energy after a long time. Like in Korea, daily life has become possible again after two years, and students have flocked back to school. Many of those roaming the campus are elites who recently came from China and Hong Kong. Each university is struggling with a shortage of dormitories. Although Singapore is famous for its English-first policy, Chinese is now felt much more naturally.

This phenomenon is also interpreted as a repercussion of the competition between the U.S. and China, the two major powers (G2). English-speaking major universities, including the U.S., have become openly sensitive about not accepting Chinese mainland talents, especially in engineering and biotechnology fields. Professor A, a Korean faculty member at NUS Engineering, said, "Elite students who graduated from engineering in China, unable to obtain student visas in the U.S. and the U.K. as before, have turned to Singapore, where education is offered in English. As long as U.S.-China tensions continue, Singapore is likely to remain the best alternative for Chinese students for the time being."

◇ Capital in a Similar Situation

Singapore has recently emerged as Asia’s representative financial and MICE (Meetings, Incentives, Conferences, and Exhibitions) city in various indicators. While Hong Kong has faltered due to China’s zero-COVID policy, global capital and logistics have rapidly concentrated in Singapore. In early October, the city was bustling with 300,000 tourists attending the world’s largest car race, the F1 (Formula One) Grand Prix. By implementing flexible and smart COVID-19 policies, Singapore has hosted over 600 international events this year alone.

While the world hesitates, Singapore continues to move forward. Especially, the analysis that Singapore will become an alternative to Hong Kong is gaining strength. Hong Kong’s strength was in foreign exchange and financial markets, while Singapore was known for futures and spot markets, but now Singapore is absorbing Hong Kong’s advantages as well. Singapore ranked first in Asia, surpassing Hong Kong, in the Global Financial Centres Index (GFCI) announced on the 22nd. It is third in the world after New York and London. According to recruitment firm Robert Walters, over 700 financial professionals moved from Hong Kong to Singapore last year.

Companies and wealthy individuals from ASEAN (Association of Southeast Asian Nations) and China are also increasingly dependent on Singapore. There is a growing demand for a safe haven that is firmly connected to the Western world and provides solid asset protection. Singapore has low taxes on financial assets, and real estate is expected to appreciate in value. Of course, asset protection is overwhelmingly reliable, and it is easy to withdraw money later. Naturally, almost all wealthy individuals, whether from Hong Kong or China, prioritize Singapore when considering overseas investments or hedging risks. After COVID-19, Singapore seems to have firmly established itself as the "Switzerland of Asia."

Jung Ho-jae, Writer · Researcher at Korea University ASEAN Center