Source: AFP.
Source: AFP.
Investment summary
Singapore’s Deputy Prime Minister (DPM) and Finance Minister Lawrence Wong unveiled a wide range of grants, incentives and top-ups on Valentine’s Day. While there were sufficient goodies for both young and old, the surprise announcement of higher rates for Buyer’s Stamp Duty (BSD) caught the market by surprise. This could rein in some buying interest, especially in the current environment of high mortgage rates and high property prices. Lower-income groups will receive support to cope with the increase in GST and rising inflation, but high-end items such as luxury cars and properties will be taxed more. Over time, more progress will be made to narrow income inequality. More incentives and programs will also be rolled out to uplift and upskill workers. This is a budget with something for everyone. The key business impact is likely to be on the property/REIT sector. We retain our overweight on the Singapore market.
Investment Highlights
Goodies for young and old
Singapore’s 2023 budget comprised of a wide range of goodies and grants for both young and old. The tone is cautiously optimistic, and the rallying call is to ensure that the country has sufficient resources to weather any future storms. For the long-term sustainability of the Singapore economy, more incentives and programs will be rolled out to ensure workers are constantly upskilled and uplifted to participate in the new future. Changes to housing application for young married couples and giving more incentives to families with young children are some of the measures that will support young married couples. Lower income families will also have access to various programs.
Singapore’s future in a new era
DPM Wong also outlined three key initiatives for Singapore’s future in the new era. Firstly, the government will grow the economy and equip workers with relevant skills for the new future. Secondly, it will strengthen the social compact and provide better support for families, seniors and vulnerable groups. Thirdly, it will build up and bolster a collective resilience to support our economy so that the country is prepared and can rebound from any future external shocks.
Wealth and sin taxes, and the impact on the property sector
The key surprise in this budget was the announcement of higher BSD rate for residential and non-residential properties. For residential properties, with property value of SGD1.5m and up to SGD3m, BSD will be taxed at 5%, up from 4% previously. For properties with value above SGD3m, the BSD will be taxed at 6%; a jump from the previous rate of 4%. For non-residential properties, with property value of SGD1m to SGD1.5m, the BSD will be taxed at 4%. For those above SGD1.5m, the BSD will be taxed at 5%; up from the current rate of 3%. These rates will take effect immediately (from 15 Feb 2023). This change could potentially have a negative impact on Singapore’s pure-play S-REITs, given that they would need to incur a higher capital outlay in the acquisition of non-residential properties. Hence, S-REITs would likely continue to seek diversification of their portfolios geographically.
The changes to BSD will generate SGD500m in revenue per year. The adjustment to the Additional Registration Fee (ARF) for luxury cars will bring in SGD200m of additional revenue. Finally, the 15% increase in tobacco excise duty will generate SGD100m in revenue.
Exhibit 1: Changes to Buyer’s Stamp Duty (BSD)
Source: Singapore Budget 2023 statement.
Singapore property sector
According to the Budget statement, this change is expected to affect 15% of residential properties in Singapore. Looking at the quantum of private residential properties transacted in 2022 based on data extracted from the Urban Redevelopment Authority (URA), we note that larger ticket sized residential property transactions have gained traction, with homes costing at least SGD2m accounting for 32% of overall market transactions in 2022, versus 27% in 2021. Higher stamp duties are expected to adversely impact the affordability of homebuyers, especially amid an elevated interest rate environment with the 3-month compounded Singapore Overnight Rate Average (SORA) at ~3.2%. This could lead to more cautious sentiment among consumers, thus exerting downward pressure on residential property price appreciation momentum. We recently highlighted that we were more cautious than consensus and are projecting Singapore’s private home price growth to come in at -3% to +1% for 2023 and for 7-8k of primary private home units to be sold.
For non-residential properties, the portion of the value of the property in excess of SGD1m and up to SGD1.5m will be taxed at 4%, while a tax rate of 5% will be applied for the portion in excess of SGD1.5m, as compared to the current rate of 3%. This is expected to affect 60% of non-residential properties. The revised BSD rates will apply to all properties acquired on or after 15 Feb 2023, and is expected to generate an additional SGD500m in revenue per year for the Singapore government. This change could potentially have a negative impact on Singapore pure-play S-REITs, given that they would need to incur a higher capital outlay in the acquisition of non-residential properties. Hence, S-REITs would likely continue to seek diversification of their portfolios geographically.
Another measure affecting the property sector announced during Budget 2023 was the increase in CPF Housing Grant by SGD30k for eligible first-timer families purchasing 4-room or smaller resale flats, and by SGD10k for those purchasing 5-room or larger flats, which will come into effect immediately. Together with the Enhanced CPF Housing Grant and the Proximity Housing Grant, eligible families can receive up to SGD190k in grants when buying a resale flat. Given the additional grants for HDB resale flats and HDB’s plan to launch up to 100k build-to-order (BTO) flats in total from 2021 to 2025, we believe this would help to shift some demand from the private residential market to the public market. However, since there is an income ceiling of SGD14k for first-timer families to be eligible for the grant, we believe this will be unlikely to impact the high-end segment of the market.
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