Research Papers on Investing in Singapore
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The government promoted investment through a whole range of tax and investment allowances and “soft loans” aimed at attracting new investment or at helping existing businesses expand, update and upgrade. There is no capital gains tax. Incentives exist for foreigners, including the following:
- Concessionary tax arrangements for some nonresidents
- Relief from double taxation
- Permission to buy commercial and certain types of residential property
It is important to understand Singapore economics before investing or attempting any business venture. Though Singapore bills itself as a free-enterprise economy, and many countries invest in Singapore, government has a pervasive role in the economy. The government, that governs both the city and the nation, is responsible planning and budgeting for everything from international finance to sewage treatment and trash collection. Investment in commercial property involves working closely with the government as is owns, controls, regulates and allocates land, labor and capital resources. This control put the government in the place of setting or influencing many of the prices on which an investor will need to calculate their investment decisions.
This intervention has proven to be very beneficial for those in business and for the nation’s general population. Housing, education, health and recreation services as well as public transportation are all subsidized by the government. The government enforces savings and pension plans, determines mandatory annual wage increments, and sets minimum fringe benefits in both the private and public sectors. With this sort of relationship between the government and the governed, the result has been a great deal of security and stability in the nation. These and all the other control measures taken by the government are designed to safeguard the nation from the economic ups and downs as experienced in East Asia in recent years. Being so dependent on others in the world economy, the government has opted to control what it can. In implementing these controls the government has managed to be pro business without being antilabor.
Historically, Singapore has been an international trading center operating as a free port with free markets since its founding in 1819. The past has seen yearly economic fluctuations following the unpredictable cycles of world markets. Though the great increase in international trade has granted Singapore great benefits, even slight downturns in world trade can result in a recession in the Singapore economy. Singapore’s great strength and weakness are the same; its dependency upon international trade. Continued survival as a sovereign nation continues to be an ongoing challenge for both Singapore business and governmental leaders. This dependence on external markets and suppliers has pushed Singapore toward economic openness, free trade, and free markets. In the 1980s, Singapore was a free port with only a few revenue tariffs that were set for abolition in the 1990s. It had no foreign exchange controls or domestic price controls. There are no controls on private enterprise or investment, nor any limitations on profit remittance or repatriation of capital. Foreign corporations are welcome as is foreign investment, with fully 70 percent of the investment in manufacturing coming from foreign sources. “The government provides foreign and domestic enterprises with a high-quality infrastructure, efficient and graft-free administration, and a sympathetic concern for the problems of businesses.” Unable to control outside forces the Singapore leaders have concentrated on developing domestic institutions that could be controlled. The consequence has been an odd combination of free trade and free markets with a dominant government role in macroeconomic factors, government control over land, labor, capital and civil etiquette.
As an investor is considering the development of commercial properties two other considerations need to be made. They included the nation’s urban renewal authority and land management policies. Clearly, these are concerns in Singapore because of the basic fact that it is an island. Given their population of a little over 2 million people, the use of what land there is of major concern. As a result, one of the government's most important roles has been the oversight of land use and development. This was a particularly critical when it understood that Singapore has a population density of 4,166 per square kilometer making Singapore one of the most densely populated countries in the world. Consequently, pressure to maximize economic growth and to optimize land use are pivotal issues for anyone wishing to pursue the development of commercial or other properties.
Singapore maintains restrictions on investment in a limited number of sectors. Armament manufacturing is strictly closed to foreign investment. Other sectors where foreign investments are limited include news media, telecommunications, broadcasting, property ownership and domestic banks. The telecommunications sector has been steadily liberalized since 1989. Singapore Telecom's 15-year monopoly to provide basic telecommunication services that include domestic and international telephone services, telex and telegram services, leased circuits and videotext services will end in 2007.
Except in the few areas discussed above, the Singapore Government does not restrict or discourage investment to protect local industries or for any other reason. The EDB does screen foreign firms for their eligibility for various incentive schemes, to determine the relevance of the investment and to provide assistance. Though screened-out investments are not prohibited, they are not given incentives. The EDB provides a one-stop service for foreign investors, helping them avoid red tape, and has a reputation for being responsive to changing business conditions.
As noted earlier, the issue of land is a primary concern of much of Singapore’s planning. A booming export trade and growth of the manufacturing sector have created strong demand for industrial space. Occupancy rates have increased throughout the republic, and most prime industrial buildings continue to enjoy a high rental rate. The government’s efforts to encourage foreign investment in Singapore through such actions as granting tax incentives have also contributed to the demand for industrial space.
Industrial land prices vary depending on location, demand and other factors. Most industrial land is owned by the state. Approved tenants may obtain at reasonable rates from the Jurong Town Corporation (JTC), a government development agency. The JTC also manages Singapore’s 29 industrial estates, which are in various stages of development. These estates incorporate all necessary infrastructural facilities, such as roads, telephones, electrical power and running water.
Because many industrialists prefer to buy or rent existing factories, the JTC also builds standard factories. Prices for these factories are competitive, and production can begin almost immediately. Rental rates vary depending on the location and type of building.
Office and other commercial spaces are located in the central business district and adjacent areas. Occupancy levels are high, and rents have recently risen because of the large number of corporations that set up offices in Singapore. The government is always exploring ways to increase available commercial real estate. Hence, the reclamation and landfilling programs noted earlier. What space is available is highly valued with prices to match.