How to safeguard your investment as Russia’s invasion of Ukraine drives up Singapore’s inflation?

Russia and Ukraine’s conflict date backs to 2014. The simmering dispute embroiled into a war when Russia openly invaded Ukraine with a military assault on 24 February 2022. While the world was already overwhelmed with the pandemic, the Russia-Ukraine invasion brought them to full alert.

One might think that something happening in Europe may not have much drastic effect all the way in Asia. But the world’s global economy is much more intertwined now. An invasion on such a massive scale will inevitably affect the economy and price of commodities globally.

What does Russia’s invasion of Ukraine mean for Singapore?

Just after Putin announced military operation, followed by an attack on Kyiv, the capital of Ukraine, Brent crude oil jumped over $100. The rise in global oil price means oil prices in Singapore will also increase. This would be followed by a price hike of all kinds of other commodities, especially ones imported from Europe.

In December 2021, the year-on-year inflation in Singapore escalated to 4%, growing at the fastest rate since 2013. This was reported in a press release by the Authority of Singapore (MAS) and the Ministry of Trade and Industry (MTI). And now, the Russia and Ukraine conflict leading to the oil price hike is creating further inflation pressure. 

Chua Hak Bin, Maybank Kim Eng economist, said if an all-out war takes place, Singapore’s inflation could climb to more than 5%, with core inflation well over 3%, by the second or third quarter of 2022. 

How will the Russia-Ukraine invasion affect Singapore’s economy?

The oil price shock caused by the Russia-Ukraine invasion would be a big blow to the global economy. It would severely affect the global financial market, which is already at a vulnerable phase since the pandemic. What is more concerning is that it would drive Singapore’s growth to below 1% this year, which grew at a healthy rate of 7.6% in 2021.

How do investors safeguard their assets in this crisis?

Investors need to have a resilient source to safeguard their assets amid this impending crisis. Though Singapore is impacted by the Russia-Ukraine invasion like any other country, it has a better capacity to safeguard investments.

Singapore’s economy has always managed to maintain a reliable standard even amid recessions or the more recent pandemic. A peek at the Central Bank Balance Sheet in Singapore shows that the country has a healthy growth of cash deposits. It has grown remarkably over the last 10 years.

People have savings and deposits in the bank. So, even if they are hit by a shock such as current Russia’s invasion of Ukraine, they can override it without having to force sell their assets. This would prevent the economy from an oversupply of properties, which could lead Singapore property prices to drop. The Government also has the ability to strengthen Singapore’s currency to make it more resilient for investors. 

So where should investors put their money in Singapore to safeguard their assets? They can explore Singapore real estate. 

Why is Singapore’s real estate a good hedge against inflation?

Recently, CBRE Asia Pacific Investor Intentions Survey found that in 2021, more than 70% of respondents were interested in purchasing cross border investment. The survey results ranked Singapore as the Top 3 destinations investors find attractive to invest in, consecutively for 2021 and 2022. Singapore saw itself ranked among other capitals such as Tokyo and Shanghai. This positions Singapore real estate as a promising hedge for investors to safeguard their assets.

Besides, according to the Urban Redevelopment Authority (URA), Singapore’s Property Price Index (PPI) is expected to increase between 3%-5% in 2022. A property bought today will appreciate in value over time. So, purchasing property in Singapore can very well be a legit store of value for investors in this testing time. 

Benefits of investment in Singapore property

Singapore plays a key role as the financial and economic hub of Southeast Asia. This gives foreign investors an advantage if they own real estate here. A valid example is, in 2012 the price for a shophouse unit on St. Amoy Street was at S$5,000 per square feet (based on land psf). Today in 2022, the price has gone up by 240%, making it S$12,000 per square feet for the same unit.   

Another benefit of investing in Singapore property is how its rental value is in tandem with inflation. With an inflation hike, property rental will increase just like any other commodity, bringing more cash flow to investors. While their mortgage payment will remain the same, their yearly returns will increase and be profitable. On the other hand, property owners residing in their own houses will not have to deal with the escalating rental price and rental market volatility.

Which location in Singapore will be the best real estate hedge for inflation?

While Singapore’s property ranking and capital appreciation are favourable factors for investors, not all locations would yield the same return. Singapore is a land-scarce country. Especially in the Central Business District (CBD) such as the orchard area. The properties in these areas will rise regardless of inflation due to limited supply. Buying property in such a location can be a potential timely investment to safeguard investors’ assets with promising returns. 

If investors are interested in residential properties, they can look into undervalued properties, many of which are still present in the Sentosa area. In fact, some luxury condos such as Marina Collection and Turquoise in Sentosa are selling at a 30% to 50% discount.

For a wider portfolio, they can venture to commercial properties. In commercial real estate, investors will have the option to choose between office, retail, industrial and not to mention, the very popular shophouses.

However, investors have to match the speed at which the world economy is changing. To best safeguard their investment, they need to move in fast. But buying real estate is not easy. It has a lot of factors, both legal and financial, to consider. 

If investors are looking for an undervalued gem or considering investing in commercial properties, it is best to consult a real estate expert. They might have access to valuable information that can give them an edge in their transaction. They can guide them to safeguard their investment with the best possible outcome.