Asia’s dueling financial hubs invest a lot of capital—real and emotional—in what’s often cast as a zero-sum contest for the affection of foreign companies. Yet both cities have done so well wooing them of late that the major threat facing each isn’t the other, but bottlenecks in the expatriate infrastructure common to both. High-end housing costs are pushing past records set before the 1997-98 Asian financial crisis, prompting Singapore’s founding father, Lee Kuan Yew, to lament, “We must check this spike in rents or we will lose our competitiveness.”
Talent is getting tougher to find as both economies near full employment. Office rents are driving even the richest investment banks to seek cheaper alternatives to prime downtown addresses. And as both cities gear up to increase their populations by luring hundreds of thousands of additional outsiders over the coming decade, locals are getting squeezed. “There may be a political cost if Singaporeans feel priced out by foreigners,” warns Charles Chong, head of a parliamentary committee on national development in Singapore.
Both cities are, in a sense, victims of their success. Each ranks among the most efficient spots on the planet to register new businesses. They boast world-class banking, accounting and legal services, undergirded by respect for contracts and commercial codes not found in the rest of Asia. And the rivals are über-efficient travel hubs to boot. In a region awash in cash from record trade surpluses, Chinese expansion and a flood of new stock listings, the cities have posted incredible GDP growth numbers of late—6.8 percent and 7.9 percent for Hong Kong and Singapore, respectively, last year.
Given that local fertility rates are falling, both hubs hope to continue to fuel that boom via immigration. Singapore’s Minister for National Development Mah Bow Tan expects the city-state’s population to hit 6.5 million by 2027, up 2 million from today—which implies a yearly influx of 100,000 foreigners over the next two decades. Hong Kong Chief Executive Donald Tsang has said he envisions his city’s population eventually surpassing 10 million—a 30 percent increase from today’s total—thanks to “an injection of new blood from all nationalities.” As the hubs grow more receptive to outsiders, new factors are ensuring that immigrants arrive in large numbers. Whereas globalization was once confined to hefty multinationals, today’s expatriates work disproportionately for smaller-and medium-size companies. Nor are they predominantly European or North America anymore; China, India and South Korea are just three of the many countries now sending professionals abroad in strength.
The impact of such influxes on Hong Kong and Singapore is now evident everywhere. Education, once an afterthought in expatriate relocations, has rapidly become a vexing issue in both cities as demand for placements outstrips supply and drives up prices. Singapore’s top international school, United World College of Southeast Asia, now charges $16,500 a year for primary pupils and $20,000 for those in secondary school. Fees can run even higher in Hong Kong, where many of the 56 accredited international schools are fully enrolled. In a study released last week, the American Chamber of Commerce found that “Hong Kong’s competitiveness is being negatively affected by the inability of incoming investors to find places in school for the children of their expatriate staff members, which in turn limits their ability to transfer the best and brightest people here.” The Amcham study noted that combined waiting lists at five popular schools topped 1,600 in June and that schools wishing to expand faced regulation by 14 government entities. The study recommends that the government establish a “one-stop shop” for fast-tracking expansions.
The result is a booming market in debentures, which are like bonds issued by the school to raise money, giving holders preferential access. In recent years their price has shot above $100,000 for top placements in Hong Kong. The Amcham report’s appendices include a letter from one U.S. expatriate who, failing to find a school for his son and daughter, moved his family to Guangzhou, where spots at the American School were open. In Singapore’s case, the biggest issue is real estate. Citywide, foreigners purchased 27 percent of all private residences sold in the first quarter of 2007 and some 60 percent of those on offer at luxury developments in the Marina Bay and Orchard districts. Analysts say most of these were obtained as investments. Rents have even become a diplomatic issue. According to one European ambassador (who spoke to NEWSWEEK on condition that he not be specifically identified), “We are approaching a situation where embassy rents are no longer affordable for even the bigger countries.” In one private study circulated among diplomats, rents in the downtown area that foreign missions are permitted to inhabit were shown to have tripled. “We’re forced to either pay or close shop,” the diplomat said. Several embassies are now considering downsizing their presence in the city-state for budgetary reasons.
Indeed, numerous commercial and residential tenants in both hubs have begun to flee districts where rents have grown too dear. In Hong Kong, companies that negotiated sweetheart commercial leases in the Central District back in 2003-04 are now leaving due to massive increases imposed on renewal and the lowest vacancy rates in two decades. In one dramatic shift, Morgan Stanley has reportedly taken options on 18 floors in the yet-to-be-finished International Commerce Center on the Kowloon side of Victoria Harbor. It and other projects have expanded the financial district beyond Hong Kong Island into territory once best known for its tourist shops and working-class housing estates.
Of course, the hardest hit aren’t bankers or ambassadors, but regular people. Average Singaporeans, the majority of whom live in government-built apartments purchased at a discount, are rankled by rising sales and prices of luxury flats, which make it harder for them to afford to upgrade. In Hong Kong recently, the plight of a foreign teacher hired on a government program to teach English in local classrooms sparked a debate on the letters pages when he wrote in to say that he felt compelled to leave because he couldn’t afford to send his own children to international school. Singaporean newspapers have mulled the trials of 37-year-old IT consultant Yogesh Powale, who arrived from India last year with a monthly salary of $2,650 but couldn’t afford to live in the city with his wife and daughter. His solution: send the family home and rent a small room for himself.
All this raises the question of whether “second cities” in Asia will soon begin drawing people—and business—from the bigger hubs. Rents in Kuala Lumpur are comparatively affordable (a five-bedroom house in the city costs less per month than a top-end bachelor pad in Hong Kong). Taipei is gaining a reputation as a city friendly to middle-income expats with families. And Bangkok—despite its political tumult—has the potential to become a regional logistics center. One obvious hub-in-waiting is Shanghai, which has the advantage of being located inside the most highly coveted new market. Greened up and deregulated, allowing people to come and go as effortlessly as they can in Hong Kong, Shanghai would be extremely attractive.
Although the shift won’t happen in a dramatic way any time soon, the potential competition has leaders in both Singapore and Hong Kong taking countermeasures. The Hong Kong government recently released two decommissioned local schools for use by international counterparts from Germany and Singapore. Meanwhile, Singapore last week raised taxes on land development to slow a speculative redevelopment boom.
But the most likely end to the hubbub will be an outside shock. It’s worth remembering that during the SARS epidemic four years ago, rents plummeted after an expatriate exodus. Weighted as they are toward finance, both cities are vulnerable to regional market movements, particularly a downturn in China, where the economy has expanded at a double-digit pace for the past five years. Whatever the cause, boom-bust cycles are, truth be told, the norm in both of Asia’s hot hubs. But that’s scant comfort for anyone looking for a flat or a homeroom in this summer’s dog days.
