Higher living costs unlikely to dent Singapore's attractiveness as a business hub: Analysts

SINGAPORE - Living costs have been on the rise in Singapore over the past year, but issues such as higher accommodation and transport costs are unlikely to put a dent in the Republic's overall competitiveness.

This is given that Singapore has traditionally competed on intangibles such as trust, efficiency and value-added services, analysts said, noting that higher inflation is unlikely to derail the country's overall economic growth picture for 2022.

Inflationary pressures have been on the rise in Singapore and around the world, and Singapore, being a small and open economy, is naturally susceptible to external inflation due to supply bottlenecks, energy and food commodity prices.

Accommodation costs have also been increasing, with data released by the Urban Redevelopment Authority in October showing that private housing rents hit a six-year high in the third quarter of 2021.

Last week, the Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry raised the official inflation forecast for this year to 2.3 per cent, up from around 2 per cent previously, citing the sharp rise in private transport costs due to higher certificate of entitlement premiums.

Headline inflation is expected to average 1.5 per cent to 2.5 per cent in 2022, while core inflation, which excludes rents and private road transport costs, is forecast to be between 1 per cent and 2 per cent.

UOB economist Barnabas Gan said that at this juncture, inflation costs are not too much of a concern, and that a 2 per cent inflation for the full year in 2022 would be close to the 10-year average of 1.8 per cent.

But Singapore has rarely competed on prices in its history, he stressed.

"What we have been competing on is really on value-added (services), efficiency, and all these non-tangible benefits," Mr Gan said.

Similarly, Ms Selena Ling, head of treasury research and strategy at OCBC Bank, said that while living costs may influence the perceived attractiveness of an investment destination, other factors for economic competitiveness include tax, corporate governance and talent availability.

She said that the main concern is whether the elevated inflation trend is likely to be sustained through 2022, since border closures and global supply chain bottlenecks have not largely been resolved.

"So businesses that are ramping up will face continued cost pressures including wage inflation, but may not enjoy as robust a demand recovery yet due to the pernicious nature of the Covid-19 pandemic," Ms Ling said.

Both economists pointed to how MAS has taken steps to tighten monetary policy, through managing the Singapore dollar nominal effective exchange rate (S$NEER) policy band, and that its raising of the S$NEER slope in October would help to keep a lid on imported costs. Several observers are expecting the central bank to tighten monetary policy again in April.

But at this juncture, the manageable pace of inflation will likely have little impact on the overall economic growth picture in Singapore, Mr Gan said.

A survey released by human resource consultancy ECA International earlier this month showed that Singapore is the 12th most expensive city in the world for expatriates, moving up two spots from last year's ranking due to higher costs of day-to-day items and "relatively high rates of growth in costs of rental accommodation".

OrangeTee & Tie senior vice-president of research and analytics Christine Sun said demand has been outstripping supply and this imbalance has driven up rental prices, with a lack of supply in the market due to construction delays.

"Some stock has also been removed as many people have sold their condos over the past year since prices have been rising," she said.

British national Michael de Waal-Montgomery, 32, rents a two-bedroom condominium unit in Tanah Merah. He said that while the rent for his apartment has not risen much over the past 3½ years, he noticed when looking at alternative housing options earlier this year that prices in the area looked to be increasing.

But accommodation cost is not a major factor when considering Singapore's attractiveness as a place to work and live in, said the public relations director.

Other factors, such as the country's pro-business regulatory environment, low tax jurisdiction and good political connections play a bigger part, Mr de Waal-Montgomery said.

Mr Lee Quane, ECA International's regional director for Asia, said that besides cost of living, companies consider many factors such as talent availability and the size of the market when deciding where to do business.

"Singapore will continue to be a competitive and attractive destination for businesses and expatriates because it ranks very high in all these categories," he said.