What does the Jubilee Budget mean for Singapore REITs?

Will REITs take a hit as the stamp duty remission lapses?

The REIT sector breathed a little sigh of relief after Deputy Prime Minister Tharman Shanmugaratnam unveiled the government’s plans for Singapore-listed REITs in yesterday’s budget.

Income tax concessions for overseas properties were extended for another five years, the stamp duty remission for Singapore properties will be allowed to lapse after March 31 2015.

Analysts concur that the removal of stamp duty remissions will have limited impact on the REIT sector as a whole, but will have considerable effect on Singapore-focused REITs.

“For REITs investing in overseas properties, the extension of the income tax and GST concessions for another five years would facilitate more overseas acquisitions and encourage the listing of cross-border REITs on the Singapore Exchange. However, the withdrawal of the stamp duty remission, which will expire on 31 March 2015, will make it more challenging for Singapore-focused REITs to grow their portfolios,” said Lim Gek Khim, Partner, Tax Services, Ernst & Young Solutions LLP says

Christine Li, Director of Research at Cushman & Wakefield, added that newly established REITs in the industrial segment will be particularly affected, as they might have to be less aggressive in acquiring local properties.

“However, we believe that 3% is still considered marginal as the decision for Reits to buy properties still boils down to finding the right assets,” Li said.

The expiration of this policy will naturally lead to higher acquisition costs for REITs looking to invest in Singapore properties.

“The lapse of stamp duty concessions for REITs will pose another barrier amongst the already comprehensive checklist for the acquisition of properties by S-REITs. Generally, this works out to about a 3% increase in acquisition costs.” said Desmond Sim, Head, CBRE Research, Singapore & South East Asia.

Sim added that S-REITs transacted $3.2 billion in investment sales in 2014, or 19% of the total investment tally for the past year. With this lapse in the stamp duty concession, CBRE expects the volume of REITs acquisitions to be under pressure.