Island sits in an ocean of economic turbulence

Island sits in an ocean of economic turbulence

April 30, 2007

Eric Ellis looks for explanations for Singapore's booming property market

SINGAPORE'S property market is roaring. And why I know that is because the lease on our apartment will soon expire and our landlady wants 70 per cent more rent than she did in 2004.

No matter that the place leaks like a Canberra cabinet and that its 1970s-wired electricity trips at least once a week: these are details too far for our poco-curante proprietrix. But she has noticed that a private banker from Tokyo has signed, sight unseen, for a same-sized unimproved flat downstairs at 150 per cent more than the vacating lessee paid, and she reckons we are getting a bargain for $6000 a month.

It's all very puzzling as there's no textbook rationale to the sudden real estate boom here. The economy's growing at an unremarkable-for-Asia 6 per cent, much the same as it has for years, save the difficult "Asian Contagion" period of the late 1990s. There's no more government pump-priming than usual, none of the official withholding of land to get prices artificially moving that's much loved in Singapore's rival for city-state hothouse, Hong Kong. And though wealthy enough, with just 4.5 million people Singapore is still 2.4 billion consumers short of being "Chindia", Asia's neologism du jour.

From Sotheby's to shares, Singapore has no shortage of places to park cash. But new luxury apartment blocks are sprouting among the frangipani, touting all manner of metropolitan arcadia - infinity pools, gyms, private clubs. They sport funky names such as Trillium and Botanika, fashioned on hoardings in designer fonts usually seen in Wallpaper magazine. My favourite promises that the elysian towers rising behind it will be "Home to 46 of the Most Luminous Families" - which will presumably take care of electricity bills, also on the rise.

The reasons why it's suddenly salad days for Singapore developers seem to reside in neighbouring Indonesia, a country rated by the graft watchdog Transparency International at 130th of the 163 nations it tracks in its annual corruption survey. TI's first place, ie, the world's least corrupt place, is occupied by Finland, Iceland and New Zealand. Australia ranks joint ninth with The Netherlands.

Jakarta's dubious tycoons and officials have long regarded Singapore as the region's Switzerland - a handy place to stash cash, few questions asked. Mostly Chinese Singapore has also been a friendly place for Indonesia's own ethnic Chinese community to park cash and assets, lest they be seized in the periodic pogroms visited on them in the all-too-frequent times of turmoil in Indonesia. A Merrill Lynch study last year noted that a third of Singapore's 55,000 millionaires were Indonesian nationals. They control $US87 billion ($105 billion) in assets, making Singapore an affluent northern suburb of Jakarta. Which helps explain why I've got a private banker for a neighbour.

Some analysts here who know Indonesia well (read: had their fingers burnt there) point to the coincidence that Singapore's boom follows the Boxing Day tsunami of 2004. The worst of that calamity was experienced just an island away from Singapore in Aceh. After the waters came another tsunami, of aid and donations, your money. But the aid effort has been plagued by massive corruption.

Indonesia's President Susilo Bambang Yudhoyono landslid to office in 2004 on a ticket to clean up graft in his sprawling archipelago. He suspects that too much of Indonesia's wealth is secreted away in Singapore and wants to winkle miscreants - and their money - back to justice in Jakarta. Brussels too wants Singapore to co-operate with its efforts to crack down on tax shelters. But the boom in private banking has been a nice little earner for Singapore and it's all very tricky for a regional financial centre ranked an impressive 5th on the TI index and which trades off a global reputation for transparency, good governance and intolerance of corruption.

Andy Xie attended last year's World Bank summit in the city-state as Morgan Stanley's oft-quoted chief Asia economist. In a bank email, he wrote that he found it an odd location for such an important meeting. "Singapore was so far from any action or the hot topic of China and India," Xie wrote. "Mumbai or Shanghai would have been a lot more appropriate. ASEAN has been a failure. Its GDP in nominal dollar terms has not changed for 10 years. Singapore's per capita income has not changed either at $25,000. China's GDP in dollar terms has tripled during the same period."

Singapore's success, Xie claimed, "came mainly from being the money laundering centre for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn't doing well. To sustain its economy, Singapore is building casinos to attract corrupt money from China." Singapore authorities were not pleased. Xie left Morgan Stanley soon after his email was leaked to the press.

Jakarta has been at Singapore for years to sign an extradition treaty. Indonesia, a poor country but by dint of its size and population the regional superpower, has gently reminded Singapore who is boss in South-East Asia by banning sand exports from neighbouring Indonesian islands to Singapore, depriving it of an essential building material for all those new towers to be developed and populated by Indonesian tycoons. This week Singapore acquiesced.

The junta in Burma helpfully offered to step into Jakarta's shoes and supply Singapore's sand. But with such fractious and - the truth that dare not speak its name in Singaporean diplomacy - mostly Muslim neighbours like Malaysia and Indonesia, sometimes Singapore's leaders seem to want nothing more than to attach tugboats to their mostly Chinese-inhabited dot and tow it northwards, anchoring somewhere off the coast of China equidistant from Japan, Taiwan and South Korea, where Asia's economic action really is.

Take tetchy Thailand. Last year Singapore Inc, in the form of the government investment agency Temasek, bought the then Thai Prime Minister Thaksin Shinawatra out of his family's telecom-to-TV conglomerate Shin Corp. The $US4 billion deal, the biggest in Thai history, was also the biggest done while Madame Ho Ching has run Temasek. She happens to be the wife of Singapore's Prime Minister Lee Hsien Loong, himself the first son of Singapore's elder statesman Lee Kuan Yew, the man who undiplomatically dubbed Australians Asia's "white trash".

The Shin transaction was anything but transparent. Thaksin and his family didn't pay any tax and there were mysterious nominee companies entangled in the deal. Outraged Thais hit the streets in protest. Temasek's deal-making suddenly plunged Singapore's ASEAN neighbour into turmoil and, by last September, Thaskin was toppled in a bloodless military coup.

Shin has been a major misjudgment for Temasek, a $US80 billion enterprise that frequently compliments itself on its investment perspicacity. It ultimately controls major assets around the region, such as Optus in Australia. A year later, Shin is worth about half what Temasek paid and many Singaporeans, the ultimate owners of Temasek, are outraged. Last month things got worse when the Thai junta seized a Shin-owned TV station in lieu of an unpaid $3 billion fine.

Yet more instability. What an area to do business.

Eric Ellis is South-East Asia correspondent of Fortune magazine.