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Boost seen for S-Reits but not property developers

Reit incentives expected to be renewed but not any rollback in cooling measures

For Singapore's property sector, Budget 2015 is expected to bring mixed news.


FOR Singapore's property sector, Budget 2015 is expected to bring mixed news. Real estate investment trusts (Reits) are more likely than property developers to see their wishlists come true.

Reits are hoping for extensions on the tax incentives they currently enjoy, but which expire on March 31, 2015. And analysts believe that some, if not all, of the expiring incentives would probably be renewed, in line with the government's moves to keep Singapore's Reit market competitive alongside regional counterparts.

Meanwhile, nothing much is expected to come out of property developers' continued faint hopes for some easing of cooling measures - simply because prices have not fallen enough, consultants say.

Market voices on:

The Reit Association of Singapore (Reitas) has asked the finance ministry to extend the existing income tax, stamp duty and GST concessions for Singapore Reits (S-Reits) for another five to 10 years. It has also asked for the tax exemption on foreign-sourced income received from overseas properties to be extended until March 2025.

Most crucially, it is also hoping for a continuation of the reduced withholding tax (from 17 per cent to 10 per cent) for foreign institutional investors in S-Reits.

The association said that it wants to remove uncertainties in the tax regime that may hamper the long-term growth of S-Reits and derail Singapore from its goal of becoming the pre-eminent global listing hub for Reits.

Teo Wee Hwee, a tax partner at PwC, thinks that if there is one extension the government must definitely provide, it is the 10 per cent withholding tax for foreign investors, without which the Reit market would be adversely affected.

"Imagine suddenly you have to pay an additional 7 per cent tax. It will be an immediate hit. There will potentially be capital outflows. That's quite serious, since a big chunk of investors in S-Reits are foreign institutional investors."

If the tax exemption on foreign income is not renewed, it will also mar the case for Reits planning to buy overseas assets for higher yields, in a bid to diversify from falling capitalisation rates in Singapore, Mr Teo added. Having to pay taxes on acquisitions abroad could then feed into less cash for distribution to unitholders.

But market watchers believe that most of the tax incentives will likely be renewed.

Budget boost seen for Reits, but not developers

This is because it makes no sense to lessen Singapore's competitiveness especially when other Asian markets are aggressively building up their own Reit markets, DMG & Partners Research analyst Ong Kian Lin said.

"Thailand and Pakistan have just launched their inaugural Reits in the past five months. India may be coming up next. I am sure the Singapore Exchange wants to dominate the Reits space in this region," he said.

China, too, is expected to revisit its long-stalled proposal to introduce Reits in some pilot cities, possibly in the first half of this year. This is to help Chinese developers de-gear their balance sheets amid a liquidity crunch.

At the same time, within the region, Singapore's stock market is lagging behind Japan's, which is supported by a strong domestic market, and Hong Kong's, which enjoys major listings from China play.

Mr Teo said that attracting more Reit listings to Singapore would help to boost the local bourse's growth. After all, this asset class has put up huge offer sizes in recent years - the S$1.6 billion raised by Mapletree Greater China Commercial Trust in 2013, for instance.

Meanwhile, property developers are again hoping for some reprieve from policies such as the additional buyer's stamp duty and qualifying certificate rules in this year's Budget - if not a complete rollback, at the very least some tweaks.

Some are even hoping for an increase in borrowing limits under the permanent total debt servicing ratio framework.

But consultants are expecting the status quo to continue. JLL South-east Asia research head Chua Yang Liang said: "Unless developers can demonstrate that prices across the board, particularly in the mass market, have effectively softened 10-20 per cent, or counter propose with alternative measures that help increase sales activity without driving prices up, I don't think the state will respond with any affirmative action.

"They may allow some exemptions for some developers on a case-by-case basis, but not a blanket policy covering the entire market."

Lee Nai Jia, associate director of research at DTZ, added that there was still hot money sloshing around in the market despite anticipated interest rate increases. "The European Central Bank's stimulus programme, China's interest rate cuts and Japan's expansion of loans and rate cuts will add to the state's concerns that the lifting of cooling measure (will be) too early."

Still, Nomura analyst Sai Min Chow mulled the likelihood of cooling measures relaxation in the second half of this year.

He said: "We believe the government may take into consideration the rising mortgage rates (typically pegged to the spiking three-month Singapore Interbank Offered Rate, or Sibor) and deem it appropriate to unwind some of the housing policies."

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