Carbon tax and water price hike to dampen REIT dividends

New policies might decrease net operating incomes.

With the implementation of carbon tax and increased water prices in Singapore after the Budget 2017, dividends paid out by the Real Estate Investment Trusts (REITs) is expected to decrease.

According to Cushman & Wakefield Director for Research Christine Li, the increase in electricity tariffs and water prices will result in higher operating expenses for commercial and industrial properties, dampening profitability for landlords.

"The rise in utility costs will have a greater impact on properties with high electricity consumption and require large volumes of chilled water for cooling purposes, such as data centres," Li noted.

To recall, a carbon tax of $10-20/tonne of greenhouse gas emissions on power stations and other large direct emitters of greenhouse gases will be imposed from 2019. Water prices will also increase by 30% in two phases from July 2017.

Li explained that this would consequently result to dividends getting lower for REIT shareholders, due to the decrease in the net operating incomes of buildings in the REITs’ property portfolios.

"The valuations of REIT properties may also be subjected to a minor downward revision during their next annual re-valuation exercise," she added.