Investment Risks in Foreign Property Purchases

Mr Liang Eng Hwa asked the Prime Minister in light of the increasing number of Singaporeans buying foreign properties (a) what is the Government doing to raise awareness of various risks of cross-border investments; and (b) whether the Government can institute measures to address the impact of excessive speculation or borrowing.

Overseas property purchases by Singaporeans have increased significantly in recent years. The value of such purchases made through real estate agents in Singapore has grown to S$2 billion in 2013 from S$1.4 billion in 2012.

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MAS is concerned that some individuals may be over-extending themselves through such investments, or may not recognise the risks involved.

MAS has, therefore, issued warnings about overseas property purchases

First, the risk of price fluctuations may be more difficult to assess or manage in overseas markets, which investors are likely to be less familiar with.

Second, there are foreign exchange and interest rate risks.

Third, the legal and regulatory framework governing property purchases and financing agreements in other countries may not provide the level of protection that investors are used to in Singapore.

The Council for Estate Agencies (CEA) has also been highlighting these risks. CEA issued an online guide in March 2014 on what investors in overseas properties should look out for. These include finding out about rules or restrictions on foreign property purchases and ownership, the taxes payable, and the dispute resolution avenues available in the foreign market.

To encourage financial prudence on the part of both borrowers and financial institutions (FIs), MAS' Total Debt Servicing Ratio (TDSR) framework covers all loans taken from FIs in Singapore to finance property purchases, whether in Singapore or overseas. When a borrower seeks a property loan, the FI is required to include in the TDSR all existing debt service obligations, including those relating to any foreign property purchases.

With global interest rates at very low levels, it is quite understandable that Singaporeans should want better returns than what bank deposits offer. But most local savers already own a property in Singapore, and have to be concerned about how much concentration they can afford to have in properties, especially when taking risks in overseas property markets. Property markets tend to move in cycles, and several of these markets have already seen significant run-up in prices. Financial advisors also advise that investing in a diversified portfolio of assets, such as bonds and equities, in addition to the property they already own, is generally a more prudent way to seek good returns, and at lower risk than concentrating investments in properties.

We are developing our financial markets so that retail investors have broader options for earning returns. The bond market, in particular, can offer better returns than bank deposits, with risks that are not excessive. MAS is working actively on measures to encourage well-rated companies to issue bonds, and to improve retail investors' access to the bond

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market.