I was reading how Millennials, those born in early 1980s to late 1990s or in other words those 21 to 35 years of age are now taking over as the biggest group in the labour force in America, even bigger than the baby-boomers who are retiring. Here in Singapore this group is also the driving force behind the economy. However in one report I also read that, compared to Generation-X just before, Millennials are more risk-averse yet expect quicker returns from investments.
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Real estate has always been cornerstone investment for Asian-based investors. However with TDSR, a structural change in credit lending policies in Singapore, I believe the game for real estate investment has changed. It may no longer be realistic to expect multiple-fold capital upside from investing in Singapore properties alone. Millennials who have time on their side should seize this once-in-a-lifetime opportunity to invest for long term into the UK real estate market in the next 12 months. Before I go on, let me re-iterate this is not for everyone. There are inherent risks in overseas property investment. We are not experts in this arena nor are we allowed to market real estate here in Singapore without a license. This is just an opinion piece on what we think is an unique investment opportunity into what is long regarded a popular overseas property investment destination by Singaporeans, aided by its strong rule of law.
Last month on 29 March, Theresa May triggered the long-awaited Article 50 to start “divorce proceedings” with EU in what is likely a long-drawn negotiation process. Key on the agenda for UK is access to a single European market which comes with the inherent free flow of both goods and people, the latter being pet peeve in the referendum last year. Much of the world’s attention is focused on whether this is going to turn out as a “hard” or “soft” Brexit and how real is the threat to London’s status as a major financial hub within Europe, and if the global banks will be shifting out their operations to Dublin or other major cities. This certainly has bearing on the rental demand and appeal of real estate investment in UK post-Brexit. These and many other uncertainties will cause Sterling to swing up and down in the next 12 months while negotiations are ongoing, impeded in a way by the upcoming French and German elections. First let us take a look at the hit to GBP/SGD from XE.com:
Certainly GBP/SGD is at its lowest point in the past 30 years in fact. Question is how much more downside is there from here and at how much will it stabilize at when more clarity emerges on the UK-EU deal? The strength of a country’s currency is ultimately a factor of its economy and GDP. In the months post-Brexit vote, many were surprised by the resilience of UK economy which was held up mainly by two factors. First, a weaker Pound which drives up tourism spend and cause profits of FTSE listed companies to swell when converted back to Pound. Indeed FTSE 100 has risen by about 16% since the vote. Second, many underestimated the action of BOE (Bank of England) which has voted to cut benchmark interest rate from 0.50% to 0.25% in August 2016, along with bond purchases, and which has continued to maintain this rate in the latest February review.
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These two factors, weaker Pound and central bank action, will continue to “steady the ship” as UK negotiates for an exit deal with EU. Should UK emerge “unscathed” from Brexit and confidence bounces back slowly, its currency will strengthen. And should investors keep watch and make their calculated move in the next 12 months and do a deal at the right price, locking in exchange at say another 5-10% dip from the current GBP/SGD 1.749, they might just profit from this unusual “once-in-a-lifetime” opportunity to reap both capital and currency appreciation when UK’s economy recovers from Brexit lows in the next few years. In earlier blog posts, I have also talked about the added benefit of leveraging in a SGD loan for London property purchase when a rising Sterling would cause one’s mortgage to become smaller over time, hence magnifying the returns further. Now you know why I think Millennials, especially those here in Singapore, who have the financial means and stability from a growing income coupled with age advantage, and with full access to Singapore lenders extending such loans for purchases in Zone 1 to 3 of London, stand to lose out if they do not take action within the next 12-24 months. Contrast buying in London where there is perennial supply shortage leading to consistent rental demand base, versus investing in a 2ndinvestment property in Singapore where capital upside could be limited and rental demand is a question mark.
Before we end, let me qualify again we are not against buying investment property in Singapore, after all this is our home base where one is most familiar and comfortable with the rules and jurisdiction. As a Singaporean we should all be proud of our Singapore homes and market our own country as an investment destination to the world. However just like Singapore is an open economy that believes in free trade, we need to stay open to global opportunities especially in an increasingly inter-connected world in the 21stcentury. Still overseas property investment comes with substantial risk and laws and regulations would also change over time. Investors who are looking for higher returns need to be comfortable with the higher risks involved. Still for those Millennials who aspire to build up a portfolio of global real estate over time, the opportunity brought about by Brexit should not be overlooked. Speak to our experienced consultants today.
At MortgageWise, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements. We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal. We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of mortgage products for banks and financial institutions in Singapore.