Updated: Jul 19, 2022
It seems the world just can't catch a break.
Just as the covid pandemic appears to be receding, Russia launched an invasion of Ukraine on 24 February 2022. The largest conventional military attack seen globally since World War II, the devastating conflict continues with no signs of resolution.
In Singapore, the tangible impact for many has thus far been felt most at the petrol pumps. Electricity prices are also set to increase. As a property owner or investor, you may be wondering how the crisis will impact your Singapore property and investment strategy. Here, we discuss.
Lessons from past geopolitical crises suggest markets shake off geopolitical risks quickly
Past performance is not a guarantee of future results, but is nonetheless looked to by many for an indication of what is to come. Studies of global markets largely point to the same thing - that markets shake off geopolitical risks quickly.
This study by Top 10 US bank, Truist, shows that majority of the time, markets shake off risk adversity and rise above pre-event highs within 3 - 12 months of a significant geo-political/military event.
US - S&P 500 performance around select geopolitical / military events
Market implications of rising Russia-Ukraine tensions (Source: Trust, 14 February 2022)
It can also be noted that for the last 5 events since 1991, all 5 times markets recovered above last highs within 3 months.
An analysis by Reuters corroborates this.
What history says about geopolitics and the market (Source: Reuters, 19 February 2022)
What does this mean for the Singapore real estate market?
Historically, the Singapore real estate market has had a high correlation to the US stock market, with a 2 - 8 quarter lag (average of 4.2 quarters).
How is the Ukraine-Russian crisis likely to impact our real estate market? (Source: Navis Research)
This can primarily be explained by the stock market being an indicator of the strength of the global economy and general investor sentiment. As stock markets rise, investors are also likely to cash out some profits and diversify into lower risk assets such as real estate.
We have not seen any correction in the Singapore real estate market thus far in reaction to the Russia-Ukraine crisis, but the above suggests that any decline, in response to a geopolitical event, may be short-lived.
Other implications from the Russia-Ukraine war for the property market
1. Previously expected interest rate hikes may be delayed
Interest rates have been creeping up, and still tipped to rise further as central banks seek to end an era of almost-free money. Given hotter-than-expected inflation data, the US Federal Reserve had been expected to hike rates 6 times for a total of 1.5% in 2022 to rein in inflation.
Now, inflation is set to spike higher as the Russian-Ukraine crisis has led to supply concerns on oil and other commodities. While oil has retreated from recent highs, prices remain volatile amidst the ongoing turmoil.
Oil prices remain volatile amid the fallout from the Russia-Ukraine War (Source: Bloomberg)
A spike in inflation driven by the war, rather than growth, poses more of a dilemma for the Fed, and could slow the pace of rate hikes. As rates in Singapore generally move in tandem with US interest rates, slower hikes by the Fed would mean lower rates here as well, and would be supportive for the local real estate market.
2. Opportunities may arise, more likely in select overseas markets
With sanctions falling on Russia and its oligarchs, more wealthy Russians may attempt to liquidate investments quickly to prevent their assets from being seized. We see this with Russian oligarch Roman Abramovich's attempt to sell Chelsea Football Club.
Russians are not big buyers of real estate in Singapore. The top foreign property buyers in Singapore are from China, Malaysia, India, Indonesia, and the USA.
Number of non-landed homes sold to foreigners (Source: EdgeProp)
Other real estate markets may see more impact. According to a survey by property firm Aston Chase, Russians own about £8 billion of property, businesses, and other assets in the UK. More than 150,000 Russians live in London.
What if you believe in a WWIII scenario?
The events in Ukraine over the past weeks were not just unexpected, but unimaginable by most prior to 24 February 2022. Some may now wonder, what happens if the conflict escalates further into World War III?
One might feel inclined to hold cash, but billionaire investor Warren Buffett warns that in a major war, "the last thing you would want to do is hold money". He explains that the value of money would go down, as it has done in virtually every war.
In his book "Wealth, War and Wisdom", famed money manager Barton Biggs examined wealth preservation against the backdrop of World War II. He notes:
In anticipation of a time of chaos, the key is diversification.
Equities did well over the long-term
Hold offshore assets as catastrophe insurance to help in rebuilding
For in-country wealth, land and properties are the safest havens. Still, brick-and-mortar real estate can be expropriated or bombed, but the land is always there.
A self-sufficient farm may be an excellent diversifier.
We certainly hope it does not come to this.
It is with immense sadness that we follow these events in Ukraine; our hearts and prayers are with the people of Ukraine. We hope that humanitarian efforts will help alleviate the suffering, and invite you to collectively make a difference with the Red Cross Response team at https://www.giving.sg/singapore-red-cross-society/ukraine-crisis.
About The Author
In her former life as an equity analyst, Evon analyzed companies and stocks to find the best ones for her investors to invest in, with over a decade of consistent outperformance. Now as a realtor, she enjoys using her analytical skills to help her client secure the best properties to invest in, and finds the greatest joy in journeying with clients towards their dream homes and ideal units.