[Dongeul Dongeul] How Wealthy Chinese Spend Money in Singapore

Chinese Wealthy Establish 700 Family Corporations
Asset Management Scale Increases by 1,000 Trillion Won
Luxury Goods and Real Estate Prices Surge
Low Market Trust Leads to Reluctance in Financial Investment

During the past two years plagued by COVID-19, a trend began to spread mainly among the wealthy Chinese: investment immigration to Singapore. Wealthy Chinese headed to Singapore in search of freedom as cities were locked down due to COVID-19 and the Chinese government intensified tax investigations. Of course, the assets they had accumulated were also transferred together through family offices. It is estimated that the number of people who emigrated to Singapore through investment immigration reached 2,800 as of last year.

However, the Singapore government is not entirely welcoming of their migration. This is because the Chinese tend to focus on real estate transactions and luxury goods purchases rather than investing their assets in financial products to circulate money in the market. Since this does not contribute to the national economy, the Singapore government inevitably views them with a critical eye.

◆ Wealthy Chinese Establish Numerous Family Offices... Evading Chinese Government Regulations

How much asset have wealthy Chinese moved to Singapore? According to Hong Kong's South China Morning Post (SCMP), over 700 family offices were established in Singapore in 2021. Family offices are entities set up by high-net-worth individuals to manage asset succession or family investment funds.

The number of family offices, which was only 50 in 2018, increased fourteenfold in just three years. The scale of assets managed in Singapore also surged significantly from 4.7 trillion Singapore dollars (approximately 453.3 trillion KRW) in 2021 to 5.7 trillion Singapore dollars (about 520.9 trillion KRW).

The reason wealthy Chinese transferred assets en masse is that Chinese President Xi Jinping recently emphasized common prosperity as a core policy, tightening regulations on large corporations and the wealthy.

For wealthy Chinese seeking a place to move their assets, Singapore was the ultimate refuge. Even when Hong Kong implemented strict COVID-19 control measures in line with China, Singapore enjoyed relatively more freedom of movement. Moreover, Singapore’s geographical proximity to China and the use of Chinese as an official language were major attractive factors for Chinese nationals.

◆ Wealthy Chinese Spend Heavily on Entertainment... Golf Membership Prices Soar

So, where are the wealthy Chinese who migrated to Singapore spending their money? On alcohol, poker, and cigars.

Recently, Bloomberg reported that luxury wine bars and whiskey bars converted from 'bungalows'?detached houses similar to high-end apartments?have become very popular among wealthy Chinese. In these bungalows decorated with antique Chinese artifacts and sculptures, Chinese billionaires enjoy premium Cuban cigars and Bordeaux wines while playing poker.

A wine bar in Singapore called 'Circle 33,' converted from a luxury bungalow [Image source=Bloomberg]

Here, Chinese patrons not only eat and drink but also discuss how to manage billions of dollars. In particular, the wine bar called 'Circle 33' on Scotts Road in Singapore has become a rite of passage for those who migrate to Singapore.

After their arrival, golf membership prices also surged significantly. The foreigner-only membership fee at Sentosa Golf Club in Singapore reached 840,000 Singapore dollars (approximately 842.8 million KRW) last year, a 30% increase from the previous year.

◆ 'Big-Spender' Chinese Sweep Up Real Estate... Financial Market Faces Chill

However, the only investment sector where they are actively involved is real estate. Last year, foreigners purchased 6.9% of Singapore’s private apartment supply. Although exact figures are unavailable, the majority are known to be Chinese. Due to Chinese speculative buying, housing prices rose 0.4% in the fourth quarter of last year and jumped 3.2% in the first quarter of this year.

They are also driving up rents for luxury residences. In the fourth quarter of last year, rents for luxury mansions in Singapore surged 28% year-on-year, surpassing New York, which is notorious for high rents.

Singapore Dollar [Image source=Bloomberg]

As Chinese real estate speculation intensified, the Singapore government finally took regulatory measures. Citing concerns that their speculation was causing residential polarization and social instability, the government revised the law to impose an acquisition tax of up to 60% of the property price on foreigners purchasing homes. Previously, the tax rate was 30%.

On the other hand, wealthy Chinese are extremely cautious about investing in the financial market. Bloomberg reported that hedge funds, banks, and private equity firms in Singapore are struggling as they fail to secure deals beyond minor contracts with Chinese conglomerates. The Singapore government had hoped that offering tax exemptions for family office establishments would channel Chinese assets into the financial market, but the reality has been different.

◆ Singapore Turned into a Treasury... Low Recognition Deters Investment

Why, then, are they reluctant to invest in Singapore?

French investment bank Natixis cites two reasons. First, Singapore’s stock market is still small in market capitalization and low in recognition compared to the Hong Kong stock exchange, making Chinese investors hesitant. The market capitalization of the Hong Kong Stock Exchange is $3.36 trillion, whereas Singapore Exchange is only $650 billion.

Singapore Housing Overview

Secondly, wealthy Chinese tend to be slow to trust others. Natixis explains that Asian clients, including Chinese, take longer to trust financial institution staff managing their funds compared to American investors. From the perspective of wealthy Chinese, it is difficult to easily trust the unfamiliar Singapore market, so they avoid investments other than real estate, which involves tangible assets.

For these reasons, Singapore currently serves as a temporary place to store money earned in Hong Kong. Recently, there have been reports of Chinese investors actively purchasing real estate in Korea as well. Considering the Singapore case, it will be interesting to see how Korea is perceived by wealthy Chinese investors as a market.