Crazy rich Singaporeans
? We expect some rental yield erosion and impact on selling prices for higher end properties on the back of higher property tax with effect from Jan 23.
? A staggered introduction of GST from 7% to 8% in 2023 and 9% in 2024 may give some relief to the low-income earners amidst inflationary environment.
? Near-term reliance on foreign semi-skilled labour remains; pro-local hiring with higher qualifying salary for mid-skilled/skilled foreign workforce.
? Property tax looks negative for CIT, UOL, Propnex and Apac Realty. Extended help for aviation sector is slightly positive for SIA, SIE and SATS.
Taxing the rich – property tax
We are surprised by the increase in property tax especially after the recent hike in Additional Buyers’ Stamp Duty rates and tightening Total Debt Service Ratio announced in Dec 21 (see our report). Property taxes for non-owner occupied residential properties will be raised from 10-20% currently to 11-27% with effect from 1 Jan 2023 and higher to 12- 36% with effect from 1 Jan 2024 (Fig 1). Meanwhile, property taxes for owner occupied residential properties with an annual value in excess of S$30,000 will also be increased from the current 4-16% to 5-23% from 1 Jan 2023 and to 6-32% from 1 Jan 2024 (Fig 2). The government expects the increased rates to impact the top 7% of owner-occupied residential properties. We expect some erosion in the rental yield on investment property, particularly for high-end segment. In our view , this could negatively impact demand and selling prices for larger properties in the high end in the near-term. How ever, with the rental rates rising by c.10% since 3Q20 (URA data) and island-wide residential vacancy lowered to 6% in 4Q21 (6.4% in 3Q21), w e believe that rental rates could trend up to offset the increase in tax. On selling prices, w e think there could be more impact for the high-end
segment and larger sized properties vs. smaller units. See page 2 for more analysis.
Taxing the rich – higher income earners and luxury goods
Luxury cars will also be imposed an additional registration fee of 220% for the portion of Open Market Value in excess of $80,000. Finally, w ef Year of Assessment 2024, personal income tax rates will be raised for the top 1.2% personal income taxpayers from 22% currently to 23% for S$500k –S$1m p.a. and 24% for above S$1m p.a.
Staggered GST and top-up in relief packages
GST will be raised from 7% but staggered with 8% from 1Jan 23 and 9% from 1Jan 24. Historically, the government tends to zoom in on lower-income group. As expected, there is a top-up in government relief packages by S$640m to S$6.6bn to cushion the higher GST on households. We believe the impact of the hike on private consumption is expected to be confined to the months immediately before and after implementation. In the medium to longer term, private consumption should remain a function of the state of the local economy, less so of consumption taxes.
Pro-local hiring for PMETs; still relying on foreign skilled labour
Our impression is that the government will not worsen the current labour shortage situation by keeping the foreign workforce with DRC (Dependent Ratio Ceiling) for construction and process sectors unchanged at 87.5% now . This will only be lowered to 83.3% in 2024. Singapore corporates should also brace for higher operating costs as the government addresses grouses on the ground to protect the PMETs (Professionals, managers, executives and technicians). Qualifying salary for Employment Pass is raised from S$4.5k to S$5k (S$5.5k for financial services) and mid-skill S pass is up from S$2.5k to S$3k
(S$3.5k for financial services) and eventually S$3.3k to S$3.8k by 2025. There will also be an extension of targeted assistance for the aviation sector. Details will be announced later but w e think that the quantum of help is likely to be maintained at the current 10% (wage subsidy for Jan-Mar 22), offering a slight reprieve in costs for SATS, SIE and SIA.