Singapore Budget 2018 - And its probable impact on the real estate market - Commentary

Commentary

Singapore Budget 2018
And its probable impact on the real estate market

February 2018

Yang Liang CHUA, PhD (UPENN)
Research & Strategy, ARA Private Funds

ARA Asset Management

Singapore Budget 2018 and its probable impact
on the real estate market

•   The government of Singapore has just released the 2018 budget on 19 th February 2018. The
    Minister of Finance Heng Swee Keat identified three shifting trends that the budget targets
    explicitly - 1) the shift in global economic weight towards Asia which is accompanied by the
    broader shifts in the global order, 2) the emergence of new technologies, and 3) ageing.

•   The proposed measures serve four visions;

      •     A vibrant & innovative economy

      •     A smart, green & liveable city

      •     A fiscally sustainable & secure future

      •     A caring & cohesive society

•   Among the proposed measures, there are five that we reckon could have some bearing on the
    local property market:

      •     Enhanced Proximity Housing Grant – up to additional SGD 10,000 for families/singles
            buying public housing flat to live with or near their parents.

      •     Buyer’s Stamp Duty for residential properties – top marginal Buyer’s Stamp Duty rate
            revised from 3% to 4% for residential property in excess of SGD 1 million.

      •     Goods and Services Tax – consumption tax to be revised by up to 2 percent points
            between 2021-2025. Imposition of consumption tax in 2020 on imported services
            including apps and music provided by overseas suppliers.

      •     Smart nation – embarking on strategic national projects including sharing of more data.

      •     Tax transparency – extension of tax transparency for Singapore-listed Real Estate
            Investment Trusts to Singapore-listed Real Estate Investment Trusts Exchange-Traded
            Funds.

•   We will examine the probable impact these proposed measures may have on the Singapore
    property market next.

          Singapore Budget 2018 and its probable impact on the real estate market                     2

Singapore Budget 2018 and its
probable impact on the real
estate market

                                                 Residential

•   Enhanced Proximity Housing Grant - Families applying for a public flat to live with their
    parents or children will now get an additional grant of SGD 30,000 up from SGD 20,000
    previously. Singles who are the sole caregiver, buying to live with their parents will also receive
    a grant of $15,000, up from $10,000 previously. Those buying to live near their parents will
    now get to enjoy $10,000.

       Impact

       •     The impact of this budgetary measure may provide some price support to public flats
             especially in mature neighbourhoods (where most parents reside) but not a widespread
             increase in the market. According to the HDB Resale Price Index, resale prices of public
             flats have corrected some 11% since 2013, although the decline has slowed to 0.2% in
             4Q17. As this proposed budgetary measure is to encourage the formation of a tighter
             social network, we do not expect a strong rebound in public housing prices as a result of
             these incentives alone. Any rebound in public home prices should come from a stronger
             underlying economic growth.

•   Buyer’s Stamp Duty for residential properties – the top marginal Buyer’s Stamp Duty rate for
    residential properties has been revised from 3% to 4%. The new top marginal rate of 4% will
    apply to the portion of residential property value which is in excess of $1 million, and it applies
    to all residential properties acquired from Feb 20, 2018.

       Impact

       •     While we do not reckon this proposed budgetary measure aims to control the market, it
             does suggest that the government is not relaxing any of the measures they have put in
             place since early 2010. Based on our analysis of caveats lodged with the government,
             about 65% of the private residential market transactions in 2017 were over SGD 1
             million. Of that, deals priced between SGD 1.2 - 1.7 million contributed the majority. The
             tax that these buyers have to pay (based on the old rates) ranges between SGD 30,600
             and SGD 45,600. The 1 percent point increment in buyer stamp duty would be equivalent
             to an additional tax of SGD 2,000 to SGD 7,000. We reckon this amount is not likely to
             have a significant effect on the recent residential activity.

       •     As the government has indicated it would continue to study ways to make the tax system
             more progressive, this revised marginal tax rate, should it be applied to non-residential
             transactions, would have a larger impact on the investment market given the larger
             quantum deal size for commercial assets. We will continue to monitor this conversation.

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Singapore Budget 2018 and its probable impact
on the real estate market

                                                     Retail

•   Goods and Services Tax- This consumption tax is proposed to be revised upward by 2
    percent points between 2021-2025

       Impact

       •     Typically an upward revision to a consumption tax would have a lift in consumption as
             consumers advance their purchases before the hike. Given that this measure is not
             coming into effect for another three years, it is unlikely to have any immediate lift to
             consumption till six to nine months before the implementation date. Meanwhile, the retail
             market is likely to continue to face pressure from the shift in consumer preferences
             towards e-commerce and experiential retail.

•   Goods and Services Tax- New consumption tax to be levied on services purchased from
    overseas supplier in 2020. Services include consultancy and marketing as well as apps and
    music from an overseas supplier. No proposed taxes on the import of goods at this point as this
    issue is being discussed at a broader international platform.

       Impact

       •     We do not reckon this proposed budgetary measure would have any significant effect on
             the retail property market at this juncture.

       •     The downside effect of e-commerce has been part of a larger structural shift in consumer
             preferences for more experiential retail. This imposition of a new consumption tax on
             services (or goods eventually) should not have any material impact on the retail property
             market eventually.

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Singapore Budget 2018 and its probable impact
on the real estate market

                                        Industrial/Data Center

•   Smart nation – Embark on strategic national projects such as Smart Nation, Sensor Platform,
    National Digital, Identity System, e-payments, and sharing of more data

      Impact

      •    This budgetary measure is more long-term and strategic. It could eventually result in
           spillover demand for supportive real estates such as data centres as well as research
           hubs for technology and fintech firms. This budgetary measure to drive the greater use of
           technology and data at the national level should support and further cement Singapore’s
           position as a choice destination for hosting data centres in Asia Pacific.

          Singapore Budget 2018 and its probable impact on the real estate market                    5

Singapore Budget 2018 and its probable impact
on the real estate market
                                     Real Estate Investment Trusts

•   Tax transparency – tax transparency for Singapore-listed Real Estate Investment Trusts (S-
    REITs) to be extended to Singapore-listed Real Estate Investment Trusts Exchange-Traded
    Funds (ETFs) via

      a) tax transparency treatment on the distributions received by REITs ETFs from S-REITs
            which are made out of the latter’s specified income;

      b) Tax exemption on such REITs ETFs distributions received by individuals, excluding
            individuals who derive any distribution:

              i.    through a partnership in Singapore; or

              ii.   from the carrying on of a trade, business or profession; and

      c)     10% concessionary tax rate on such REITs ETFs distributions received by qualifying
             non-resident non-individuals.

      Impact

      •    This budgetary measure achieves parity in tax treatment between investing in S-REITs
           and REIT ETFs. This equalisation would have a positive effect on the S-REIT market given
           the potential broadening of the institutional investor base and enhanced liquidity. We
           expect more listing of REIT ETFs here, further strengthening Singapore’s position as a
           REIT listing hub.

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About the Author

Dr Chua Yang Liang heads up the Research &
Strategy team at ARA Asset Management. He is
responsible for monitoring the economic and
property markets across Asia Pacific, and
providing strategic advisory to the Firm.

Dr Chua has almost 20 years’ experience in the
research and planning-related field. His most
recent stint was with JLL where he headed their
research teams across South-East Asia.

Trained as an urban planner, Dr Chua brings to
the Firm a different perspective to property
market research and he publishes original papers
covering property market updates as well as
investment and property related matters.

Dr Chua has a doctoral and a master degree in
city planning from the University of
Pennsylvania, USA. He also has a BSc in Estate
Management (First Class Hoours) from the
National University of Singapore.

ara-asia.com

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