Higher living costs unlikely to hurt S'pore's pull as business hub

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 next year.

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

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 next year, 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 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.

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

OCBC Bank's head of treasury research and strategy Selena Ling said that while living costs may influence the perceived attractiveness of an investment destination, there are other factors for economic competitiveness like tax, corporate governance and talent availability.

She said the main concern is whether the elevated inflation trend is likely to be sustained through next year as border closures and global supply chain bottlenecks have not 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 it to tighten monetary policy again next 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 factors such as "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. The lack of supply in the market is due to construction delays as well as some condominium units being sold amid rising property prices.

British national Michael de Waal-Montgomery, 32, rents a two-bedroom condo unit in Tanah Merah. He said that while the rent for his apartment has not risen much over the past 31/2 years, he noticed 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 low tax jurisdiction and good political connections, play a bigger part.