Politicians worldwide face a dilemma with the visiting rich: their spending, taxes and investment is good. But politicians being politicians certainly don’t want to appear they’re showing favoritism toward these foreigners who have more than say their own middle class.
Monaco, U.K. and Switzerland are just some of the countries facing this dilemma but now there’s a new country ready to join their exclusive party: Singapore.
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According to Bloomberg, Singapore will end its program, the Financial Investor Scheme, which enabled individuals carrying net personal assets of S$20 million ($16 million) with a minimum of S$10 million of assets in Singapore for five years to apply via the “fast track” for permanent residence.
So why halt the program during these tough global economic times? By doing so, it will slowdown the quick rise of property that has occurred from these wealthy foreign investors. A nice bungalow in the tony Sentosa Cove in Singapore sold for a ridiculous $39 million, according to The Wall Street Journal.
Needless to say, the rising property prices as well as the increased number of permanent resident foreigners, which encompasses over a third of Singapore’s 5.2 million population, hasn’t been embraced by the locals. Singapore now carries the distinction of the greatest “millionaire density” in the world: 15.5 percent of all households are millionaires.
While the government hasn’t said no the foreigners it has raised taxes for non-Singaporeans purchasing property, made it more difficult for overseas workers and raised levies on the hiring companies.
Singapore hasn’t shut the door on wealthy people trying to become permanent residents but now they have a S$2.5 million investment requirement in either a new company or business. These rules are expected to get tougher and now begs the question on whether the actions will spur change.
The wealthy including the Chinese, Indonesians, Russians, Middle Easterners and Europeans will still seek out offshore venues for their money in safe havens. What’s their next venue of choice, the U.S.?
Will the U.S. Be Next?
According to a recent USA Today story, a flurry of cash from foreign investors–namely the Chinese–is pouring into the United States. These investors primarily from mainland China and Hong Kong are gobbling up luxury homes for cash in many of the major cities including New York, Los Angeles and San Francisco. In Manhattan, many of them are also buying hotels and commercial property.
If they’re not hitting the cities, the Chinese are purchasing foreclosed properties in the hard-hit states of Florida and Nevada.
As the second-highest buyers of U.S. properties behind the Canadians, approximately 40 percent of these Chinese buyers are using the purchased property for an investment thanks to its large number of millionaires while the remaining 60 percent will use it for their children when they attend American education institutions, business and/or immigration uses.
U.S. residents could stage their own backlash with rising properties in these areas or is it good to get money back into banking system? What percentage of these Chinese are likely to become U.S. residents?
Some lawmakers see these investors as a way to lift the U.S. housing marketplace. In 2011, senators Charles Schumer, D-N.Y., and Mike Lee, R-Utah created legislation that would allow foreigners a three-year resident visa from a $500,000 investment in U.S. real estate, with $250,000 for their primary residence.
The catch? They’d have to live a minimum of 180 days per year in the property and also pay taxes in the U.S.
I have to think Republican presidential candidate Mitt Romney would favor the foreign investment with his lack of interest for the middle class and a way to improve the housing market while President Obama, a proponent of the dying middle class, would like to see U.S. citizens realize the American dream and purchase a home.
Gentleman, I look forward to this debate topic in the fall.