China Solutions

Double-Edged Sword: Overseas Properties and The Singapore Dollar

September 27, 2023

The Singapore dollar is going strong. Over the past two years, it has appreciated against a slew of other currencies such as the Australian dollar, Japanese yen and Malaysian ringgit.

Many Singaporeans, unsurprisingly, are looking to invest in overseas property, seeing it as a way to diversify their portfolios and capitalise on the pricing advantage.

But currency can be a “double-edged sword”, warned Alfred Chia, Chief Executive Officer of financial advisory firm SingCapital, at a recent talk.

This is due to the foreign exchange risk.

“You not only have to look at the country and its economy, you also have to factor in (its)currency,” said Chia, who was speaking at PropertyGuru’s Invest Asia Property Show at the Sands Expo & Convention Centre on July 29.

Power of Exchange Rates

Currency exchange rates will affect the returns on an overseas property investment, added Chia, who proceeded to illustrate this point with several examples.

The Malaysian ringgit and Indonesian rupiah have depreciated against the Singapore dollar over the decades, he observed.

While this is probably good news for Indonesians who had invested in Singapore property, the reverse would be true for Singaporeans who had bought property in those countries.

“A lot of foreigners love Singapore property. If you could take on leverage, especially when the interest rate was about 1 to 2 per cent, it’s very attractive. They can hedge against their currency,” Chia said.

“But vice versa. Singaporeans – if you bought property in Indonesia, even if Indonesian property(prices) went up, the currency declined.”

Chia also cited past exchange rates between the Singapore and Australian dollars.

In 2001, the Singapore dollar was stronger than the Australian dollar. Singaporeans who invested in Australian property that year would have made good returns if they sold it in 2011, when the Australian dollar was stronger.

“The property appreciation gets you about 200 to 300 per cent returns because of the leverage effect. But if you factor in the exchange rate, it could have been more than 400 per cent,” he added.

Response to Global Inflation

While the Singapore dollar has appreciated relative to many currencies in the last two years, Chia does not think this momentum will last.

Singapore, which is heavily reliant on imports for consumer goods and ingredients for exports, has a monetary policy centred around the exchange rate, which it uses as a tool for keeping prices stable. The appreciation of the Singapore dollar was a response to global inflation, he noted.

“But our inflation has come down from 5.5 to 4.2 per cent. By the end of this year, MAS (the Monetary Authority of Singapore) estimates that our inflation will be 2.5 to 3 per cent…(So) MAS will guard against any undue appreciation of Singapore dollar that could impact the export-driven sectors,” he said.

When Interest Rates Fall

Inflation and interest rates tend to be linked, and often move in the same direction.  

Chia thinks interest rates “may be plateauing”, and might fall in one to two years’ time. Singaporeans might therefore also want to consider investing in equity markets, he said.

“There is a type of investment called fixed income instruments – government bonds or investment-grade bonds. If you buy those bonds, when the interest rate goes up, the price goes down. But when interest rates go down, the price goes up.”

Asked if people should refinance their properties to take advantage of a potential fall in interest rates, Chia suggested opting for a fixed loan rate.

“Choose a two-year fixed (rate),” he said. “In 2025, there’s a very high chance that interest rates will taper downwards if the global inflation can be controlled. In 2025, you can possibly refinance to a lower interest package.”

Even so, he does not believe interest rates will fall significantly.

He added: “The phase of ultra-low interest rate is behind us, as we transition towards the normalisation of interest rates.”

Seize the opportunity presented by the upcoming dual city event, the Asia Pacific Property Conference 2023. This event offers a golden opportunity for Southeast Asia developers to directly engage with this emerging market and navigate its potential.  

Interested to broadcast your projects directly to property agents in China? Be part of our Asia Pacific Property Conference, get in touch to find out more.

Get started with PropertyGuru For Business

Valid number

By submitting this form, you agree to PropertyGuru's Terms & Privacy Policy. We may use the data you provide to contact you with information about PropertyGuru products. We do not share your personal data with advertisers. To learn more, see our Terms of Services, Privacy Policy, and Acceptable Use Policy

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Download the report
with our compliments

Valid number

By submitting this form, you agree to PropertyGuru's Terms & Privacy Policy. We may use the data you provide to contact you with information about PropertyGuru products. We do not share your personal data with advertisers. To learn more, see our Terms of Services, Privacy Policy, and Acceptable Use Policy

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Get started with PropertyGuru For Business

Valid number

By submitting this form, you agree to PropertyGuru's Terms & Privacy Policy. We may use the data you provide to contact you with information about PropertyGuru products. We do not share your personal data with advertisers. To learn more, see our Terms of Services, Privacy Policy, and Acceptable Use Policy

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Get started with PropertyGuru For Business

Valid number

By submitting this form, you agree to PropertyGuru's Terms & Privacy Policy. We may use the data you provide to contact you with information about PropertyGuru products. We do not share your personal data with advertisers. To learn more, see our Terms of Services, Privacy Policy, and Acceptable Use Policy

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.