SINGAPORE (Feb 21): Morgan Stanley says the increase in Buyer's Stamp Duties (BSD) announced in Budget 2018 is not enough to derail Singapore's ongoing home price recovery although this could weigh on sentiment on Singapore developer stocks in the near term.
The marginal BSD rate was increased from 3% to 4% for the portion of property values above $1 million, effective from Tuesday.
Lead analyst Wilson Ng says for a typical $1.5 million home, the effective BSD paid will increase by $5,000 or a 33bps to $44,600. He estimates primary home sales transactions in 2017 would have attracted an additional 0.3% in stamp duties in total under the new structure.
"While the impact on the actual market is likely to be small, a reminder of the fluidity of the policy environment could weigh on sentiment and developer stock prices in the near term," says Ng.
Meanwhile, distributions from S-REITs to ETFs will no longer be subject to a 17% corporate tax rate.
"We believe this will make S-REITs more attractive and drive ETF inflows. The consequent improvement in liquidity also has longer-term positive implications on S-REIT valuations, in our view," says the analyst.
The government intends to raise the goods and services tax (GST) by 2ppt, to 9%. While no decision has been made on the exact timing, the hike will likely come in the earlier part of 2021-25 and the rate will be increased progressively, with GST vouchers and offset packages muting the impact; Ng notes that retail sales tend to increase prior to a GST hike, and this could boost the variable component of rental income for retail landlords in the near term.
GST on imported services such as music streaming and app purchases will be implemented from Jan 1 2020 but not for e-commerce products. However, the government is reviewing this, suggesting it could happen in the future.
"Overall, for retail REITs, we see the later-than-expected GST implementation and introduction of an e-commerce GST offsetting each other," says Ng.