Singapore Millionaires In Trouble, Real Estate and The Mass Market Wealth Effect
As I watched Non Stop, starring Liam Neeson, a funny thought crossed my mind. With QE1, 2 and 3, even ransoms are getting higher. In the film, the ransom demanded was US 150 mio, a leap and mile away from the usual 5 – 10 mio ransom the older movies commanded and upon googling the Mel Gibson movie, Ransom, the ransom was only US 2 mio back in 1996.
Times change and times are still changing for us.
The Singapore Straits Times ran an article on the increase in number of millionaires for 2013 which showed a healthy 5% increase, according to the World Wealth Report published by Capgemini and RBC (Royal Bank of Canada). http://www.straitstimes.com/news/business/economy/story/wealthy-ranks-swell-singapore-report-20140619
By millionaire, the definition is simply people with investible assets of US 1 million or more.
What was not mentioned is that the global growth rate for millionaires is 15%, mainly led by Japan (22%), Kuwait and China. Even US millionaire numbers is growing at a rate of 16.6% with a total of 4 million millionaires.
Hong Kong only grew 9.4% for 2013 but has averaged 27% growth in millionaires over the last 5 years.
Why are Singaporean millionaire numbers not growing as quickly as the rest of the world ?
Well, I think the number is hugely understated for one thing as it does not include the prudent Singaporean investors that are maxed out in property wealth.
Using the data from the article, statistics from URA and net migration numbers, I compiled two tables for perspective and comparison.
Migration and the real estate prices appear to have peaked along with millionaire growth. The immigration factor is noted in the US as well, as reported in this Business Insider article : http://www.businessinsider.sg/immigrants-are-favorable-to-us-housing-2014-6/#.U6-tarHb5X8
Real estate wealth is the only Mass Market Wealth Effect I can think of for the population at large, because a rising tide lifts all boats and majority of the population are property owners to varying degrees.
Yet as a population, we cannot break the 1.2 – 1.5 million property sweet spot which caps further price gains unless we design smaller apartments.
Link the article I wrote last year : https://tradehaven.net/market/wealth-the-fallacy-of-singapore-property-written-for-my-friends/
There are other ways to get rich, of course. But usually limited to a smaller audience. For instance, in the case of the Alibaba IPO, many employees will become overnight millionaires yet it is limited to only the employees of Alibaba.
Now that the real estate market is slowing in prices gains and volumes, the probability of making more Singaporean millionaires in 2014 will be reduced. And those who have missed the boat, or those who had bought at the high, will be beating their chests in despair.
Whilst Singapore is slowing down in millionaire creation, Japan is running at full steam with their Nikkei index and property market reflating/inflating away. The UK too, at 13.4% millionaire growth for 2013.
At the rate the worlds’ central banks are running loose monetary policies, a correction will likely take a long time in its coming. And the existing millionaires are only going to get richer with access to more leverage and better investment opportunities. Needless to say, the richest millionaires can afford to takeover the world, if they want.
That is why the hurry in most places to hike minimum wages to keep the peace and spread prosperity which is a futile measure because Relative Wealth is what makes people happy and Not Absolute Wealth.
We will end up with a world full of millionaires and even more billionaires and trillionaires at that.
The residential real estate route to riches is closing fast as governments step in to introduce cooling measures such as the UK’s mortgage curbs last week.
For Singaporeans, the loan curbs stretch into commercial property too. This allows only companies to be able to exploit the real estate ownership loophole that individuals cannot reach which will make more millionaires out of business owners etc.
I have said so much without saying anything of use to the reader who may be keen to become the 105,001th millionaire in Singapore.
What can the average Singaporean do to attain the mass market wealth/millionaire effect in real estate ?
- Wait for the next property boom cycle (we have not even Bust yet !!!)
- Buy overseas in undervalued jurisdictions (which looks like Japan in this WSJ article http://blogs.wsj.com/moneybeat/2013/12/11/a-worldwide-ranking-of-the-most-over-and-undervalued-housing/ )
- Do not buy the next luxury development in Cambodia, for Heaven’s sake. Based on upscale home prices over the country’s GDP per capita, Cambodia is the 2nd most unaffordable country in Asia and Europe (I excluded Africa and America) where it would take 319 years of work to buy an upmarket home.
Yet do note that the average monthly income in Cambodia is US80 dollars and if that doubles to US160, the affordability would be reduced to a 160 years thus it does make sense to invest if there is high expectations for minimum wage raises in places like India with their reforms and their young population, vis a vis China which is facing an aging problem.
Finally, you can realise the gains on your property portfolio, rein in the profits to become rich instantly.
We have to admit that the planet cannot accomodate high-income status for all 7 billion of its inhabitants. http://www.project-syndicate.org/commentary/zakri-a–hamid-and-anantha-duraiappah-highlight-the-growing-disconnect-between-gdp-and-human-wellbeing
The problem is the rest of the 4.9 million Singaporeans are reading a bit too much about the 105,000, and without the mass market wealth effect that comes from real estate, the next millionaire is going to be harder to mint besides the standard lottery winners each week.