Analysts see consumer plays as biggest winners from Budget 2023; mixed on property impact

SUPERMARKET operators and other consumer plays are expected to be the biggest beneficiaries of Singapore’s Budget 2023, analysts said on Wednesday (Feb 15). They were mixed in their assessment of the impact on property developers and agents. There could also be some positives for businesses, they added.

The Budget, delivered on Tuesday, included substantial payouts to defray the higher cost of living. On top of higher cash distributions, the government also increased the amount of Community Development Council (CDC) vouchers it will distribute.

There was also an increase in the buyer’s stamp duty (BSD) for higher-value properties, and an additional grant for those buying their first Housing and Development Board flat.

The amount that both employers and employees contribute to Central Provident Fund (CPF) accounts is set to rise.

And businesses will enjoy higher tax deductions for certain types of research spending.

The government also intends to implement changes to its tax regime for businesses, to bring Singapore in line with global minimum tax guidance.

Consumer spending boost

The cost-of-living cash payouts may result in a near-term boost to the retail sector and benefit real estate investment trusts such as CapitaLand Integrated Commercial Trust , Frasers Centrepoint Trust (FCT), and Mapletree Pan Asia Commercial Trust , JPMorgan said.

DBS, meanwhile, highlighted grocers and neighbourhood malls as likely beneficiaries. Grocery retailers that allow the use of CDC vouchers, such as Sheng Siong Group , could enjoy a spending boost. And because supermarkets and grocers occupy about 10 per cent of total net leasable area of suburban malls, a suburban mall proxy such as FCT would also stand to benefit. 

“As these cash payouts target predominantly the lower income with limited disposable income, we believe the majority of the cash payout will go towards non-discretionary spend like groceries,” DBS said.

RHB named Sheng Siong as well as food and beverage stocks Japan Foods Holding and Kimly Group as beneficiaries, saying: “These companies mainly retail food and basic necessity products, and are the direct beneficiaries of better disposable income among consumers from the support measures.”

Property stocks upheaval

DBS expects property agencies Apac Realty and PropNex to benefit from higher demand for resale flats, as more first-timers take advantage of the new grant money to buy homes.

As for property developers, analysts noted Budget 2023 impacts from two fronts. The higher BSD would raise costs for property buyers, potentially dampening demand for residential properties and raising costs for businesses buying non-residential properties. But the higher CPF contributions, although lowering disposable income, would increase the amount available in CPF for mortgage payments.

DBS sees minimal negative impact on the property developers, and therefore remains positive on City Developments (CDL), UOL Group , and Wing Tai Holdings .

RHB said a “marginal negative impact” to property sales volumes can be expected, and has maintained its “neutral” call on the real estate sector.

UOB Kay Hian (UOBKH) and CGS-CIMB, on the other hand, expected CDL to be negatively affected. CGS-CIMB also flagged UOL and CapitaLand Investment as stocks that could be impacted.

It has more than 2,000 units in its Singapore residential launch pipeline, UOBKH noted. PropNex, too, could see a slowdown in higher-end property transactions, although history suggests the effect of higher stamp duty changes on the property agent lasts only for one to two quarters.

The higher BSD also affects the transaction costs of Singapore real estate investment trusts, UOBKH said. But this is a “marginal negative”, and comes amid other positives such as peaking interest rates and the reopening of China.

Bank loans and taxes

Any changes to property transaction volumes would also impact the banks. RHB was already expecting a slowdown in property loans before the Budget announcement, and does not expect its base case to change now.

It remains “overweight” on banks, expecting robust earnings on the back of higher interest income and a recovery in fee income.

JPMorgan concurred with this view, adding that support for HDB buyers might even help OCBC and DBS as they have “traditionally had higher market share in relatively smaller ticket mortgages”.

But JPMorgan also flagged that there could be a negative impact of 2.4 per cent to 2.7 per cent on the earnings of both banks if they are subject to the global minimum tax.

Spurring research and innovation

Higher tax deductions under the new Enterprise Innovation Scheme may be “slightly positive” for companies that consistently invest in research and development (R&D), such as Nanofilm Technologies International and Venture Corporation , DBS said.

This sentiment was echoed by UOBKH, which also highlighted AEM Holdings as a potential beneficiary of the new scheme. It cautioned, however, that any impact on earnings could be marginal due to the cap in reliefs that can be claimed, as well as the activities potentially being conducted in other countries.