Singapore, one of Asia's largest financial centers, has seen a big inflow of expatriates in recent years. Now, as a sharp rise in the cost of living threatens high living standards, the city-state may well be at risk of becoming a victim of its own success.
Foreigners make up about 38 percent of Singapore's population, up from about 25 percent in 2000. More than 7,000 multinational companies operate in the city and expat workers are seen as key to developing Singapore, not just as a regional hub in finance but also in other sectors such as oil and gas.
Weak exports and a slowdown in the manufacturing sector hurt Singapore's economy last year, with the economy just avoiding a recession in the final three months of 2012.
While low taxes, good air quality and less crime lure workers to Singapore from across the world, the recent push up in housing, schooling and transport costs could discourage expats from moving or staying in the city long-term, analysts said.
Darika Suter, who has lived in Singapore for 24 years, is re-locating her antiques business to the Thai island Phuket in March. She says that while higher costs are not the only reason for the move they certainly make it no "fun" to do business in Singapore any longer.
"I can use the funds I have built up to live comfortably in Thailand, so why stay in Singapore and sweat it out?," she says. "Basically, I can keep up the lifestyle I have here, where I spend about S$2,000 a month (US$1,613), and have the same in Phuket for S$800 a month."
Rising costs and a growing population, which the government expects could increase to almost 7 million by 2030 from the current 5.3 million, has also led to discontent among locals who feel the influx of foreign workers has led to overcrowding on trains and buses and contributed to the overall rise in living costs.
For economists the implications of rising costs in Singapore could not be clearer: wage pressures could build up, they warn. "From a cost point of view, Singapore has leaped frog ahead in terms of being one of the world's most expensive cities," said Vishnu Varathan, an economist at Mizuho Corporate Bank. "This is something to watch, because it would translate into pipeline wage pressures."
Singapore has slowly moved up human resources firm Mercer's rankings of most expensive cities, moving to sixth place in 2012 from eighth in 2011 and eleventh in 2010.
"When I moved here in 2004, I used to think that everything was cheap especially because the (British) pound was stronger against the Singapore dollar," said Paul Dodson, who works for an international bank and lives in Singapore with his wife and two children.
"I used to pay S$2 for a short hop in a taxi, which was less than one pound then. Now it's more than $$2 before you even start using the taxi. It's not just that prices have gone up, but because sterling has weakened, it feels like there is a double-whammy effect," he said.
The Singapore dollar has appreciated almost 15 percent over the past 5 years.
High property prices, pushed up by increased demand from a growing population, have been one of the major contributors to the cost of living. For instance, Singapore property prices surged 50 percent between 2007 and 2011, driven partly by foreign buying.
Analysts said it's a problem the government is only too aware of, as seen by its latest stringent property measures aimed at keeping a lid on home prices. The steps, which include restrictions on properties bought by foreigners, could however discourage expats from staying long-term.
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"I think the housing policies could put people off from staying here...they can't get on the property ladder and renting is expensive," said Dodson.
Singapore ranks eighth in the world's most expensive cities for rent, a survey by consulting firm ECA International showed this week, with Hong Kong taking the top spot.
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While inflation for much of the past five years has stayed around four percent, real inflation is higher with costs for food, transport, eating out all rising. Singapore is also one of the most expensive places in the world to buy a car, with permits to buy new vehicles called a certificate of entitlement (COE) adding to the cost of buying a car in Singapore.
A Honda City for example costs about US$120,887 in Singapore and about US$29,000 in neighboring Malaysia.
A New Trend?
Diana Low, a director at the recruitment firm Michael Page, says rising living costs have become a big factor in job negotiations compared with 5 years ago and even more so as a growing number of international firms shift to local packages from expat ones.
Stella Tang, director at employment firm Robert Half says: "The trend is towards employing expats on more local terms and there are fewer large expat packages out in the market. As a result, professionals considering junior or mid-level positions may find the cost of living to be a major disincentive to working here."
"We continue to see a lot of interest to work in Singapore. But one thing that we have noticed in salary negotiations is the cost of living," said Low at Michael Page. "And although we haven't seen much sign of people moving out of Singapore, the high cost of living has certainly provoked people to think about it."
Singapore could lose some of its competitive edge to fast-developing neighbors in Southeast Asia, if costs continue to rise, said regional experts.
The rapidly-developing region of Johor in Malaysia, just across the border is growing in appeal to locals seeking a less pricey property investment and expats who see it as a destination from which to commute.
"Foreigners have bought about 70 per cent of the Nusajaya properties we have sold so far, with strong interest from Singaporeans, Europeans working in Singapore, and expatriates from across Asia," said Wan Abdullah Wan Ibrahim, the CEO of UEM Land, a property developer working on the Nusajaya residential site in the west of Johor.
The rapid economic development of Singapore's neighbors means workers and investors have more choice compared with a few years ago, analysts said.
"Singapore certainly has more competition in recent times. And from a supply point of view, many international bankers tell me that Jakarta (Indonesia's capital) has an acute squeeze of highly-qualified bankers, so naturally the amount they are paid is going to be more competitive vis-a-vie Singapore," said Mizuho's Varathan.
"Given two facts, the acute lack of qualified workers that means pay has been chased up and higher costs in Singapore, means other cities start to look more attractive," he added.
Low, who has worked for Michael Page in Singapore for nine years, says more candidates are pondering the alternatives.
"We are seeing a lot more expats being more open to working not just in Singapore. It's a question of receiving those offers but people are putting up their hands and saying they're happy to explore the opportunity. This is a trend we've seen in the past 2 years," she said.
Despite the high expense of living in Singapore some expats are willing to pay a premium for the quality of life offered by this island state.
Varathan adds: "Most investors are willing to pay for quality. London, Tokyo, New York are all global cities, expensive cities. But people are willing to pay a premium to live there because they get benefits in return."
"(But) The trade-off is that the cost of living has accelerated more than the standard of living and that's the mismatch," he said.
- By CNBC's Dhara Ranasinghe; Follow her on Twitter: @DharaCNBC