With the growth of PRs and non-residents far exceeding that of citizens over the last five years, there has been a growing sentiment among Singaporeans that foreigners are crowding out the market and pushing up property prices.

From 2004 to 2009, the number of PRs and non-residents grew at a compounded annual growth rate of 8.4% and 10.7% respectively, versus 0.9% for citizens (and 3.7% for the total population). Over this period a total of 677,000 foreigners (PRs plus non-residents) were added to the population versus 172,000 citizens. In other words, foreigners accounted for about 80% of the growth in Singapore’s population over the last five years. By the end of June 2010, Singapore’s total population hit 5.08 million with foreigners accounting for 36% – there is now more than one foreigner for every two Singaporeans.

A growing population certainly adds to housing demand, and in this case the growth has mostly been from the increasing number of foreigners. This increased housing demand comes in the form of renters and buyers. More buyers would push up property prices directly, while more renters would do so indirectly as higher rents would improve rental yields and entice investors to enter the market.

Another way to look at this issue is by the rising proportion of foreigners buying private homes here. Foreigners (including PRs) accounted for 15.5% of total private home purchases in the first quarter of 2009, and that has risen to 23.7% in the second quarter of 2010, so foreigners are playing a larger role in the private property market.

It’s not just the foreigners

But foreigners are not the only factor supporting property prices. The current environment of low interest (and mortgage) rates makes it easier for buyers to leverage up and pay higher prices. For example, a household earning S$8,000 per month can afford to borrow $811,312 when mortgage rates are at 1.5% versus $586,491 when they are at 4% (assuming a 30 year loan and 35% of income spent servicing the mortgage).

Also, incomes are rising and Singapore residents are becoming wealthier. The IRAS recently reported that the amount of personal income taxes received from individual tax payers rose from S$5.4 billion to S$6.1 billion in fiscal year 2009/2010, a 13% increase. With GDP growth expected to be 15% in 2010, incomes and wealth are likely to increase as well.

So it’s not just the growing population (mainly from foreigners), but also cheap money (interest rates are the price of money) and rising incomes which are supporting property prices. An additional factor could be the growing interest from foreign investors who are attracted by Singapore’s cosmopolitan buzz and strong currency.

These factors have contributed to a buoyant property market – prices rose 11% in the first half of 2010, and price levels have exceeded the historical peak reached in the second quarter of 1996.

In response, the government announced new measures on August 30 aiming to reduce the amount of speculative and investment demand in the housing market. In particular, the measures emphasize the role of HDB flats as a vehicle to fulfill resident end user demand and not investor demand. Also, the planned increase in supply of HDB flats (22,000 Built to Order, 8,000 Executive Condominium and 7,000 Design, Build and Sell Scheme flats) are meant to moderate the rapid price increases experienced in the past few years.

Going forward, despite tighter control of population growth and foreign worker inflow, Singapore’s overall population is still expected to hit 6 million by 2020. For 2010, due to the booming economy, around 80,000 new foreign workers will be needed. This growing population (mainly from “importing” foreigners) and rising incomes will continue to support end user demand in the long term.

How much do you think foreigners are responsible for rising Singapore property prices? Leave them in the comments below!