4 Quick Thoughts on Budget 2018 from a Retail Investor

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Image credits: Business Times
  1. REIT ETFs now a viable option

Arguably one of the most important changes arising from Budget 2018 is the tax transparency treatment for S-Reit ETFs. Previously, REIT ETFs in Singapore were subject to a 17% corporate tax on their distribution. By removing this, REIT ETFs are now potentially viable options for investing in REITs, without having to undertake a detailed analysis and understanding of the individual REIT. However, as with all ETFs, it is crucial to understand:

  1. What does the ETF track (Who created the index, and how is the index weighted?)
  2. Is the index well diversified, or are there potential concentration risks?
  3. What are the management fees?
  4. Is there sufficient trading liquidity?

Given the seismic change that this entails for retail investors, I will be writing a full article to examine the available REIT ETFs on the SGX, and whether they are a good investment opportunity.

  1. Curious timing of GST increase

Depending on how you look at it, the GST hike from 7% to 9% is either the worst kept secret ever, or a textbook case of managing expectations in politics. Yet the timing of the GST hike is surprising. Given all the ground work done in preparing us for a hike in GST rates, I was half expecting the hike to kick in next year. The anticipated hike in early “2021 to 2025” is quite far out. Is the government trying to balance the delicate and nascent recovery of the Singapore economy with the need to increase revenue to fuel increasing government expenditure? For reference, the next parliamentary election has to be held by January 2021. Perhaps GST vouchers and a General Election in 2020, and a GST hike in 2021?

Short term however, I view this as bullish for the Singapore economy, as the rise in prices across the board, without a corresponding wage increase, would have hurt consumption.

  1. Overheating property market

I do not believe that the current surge in property prices is sustainable. I do not think that it is grounded in structural factors, as upcoming supply is strong, and demand is weak due to the lower numbers of expats and the presence of ABSD. My personal belief is that this is largely driven by the current en bloc fever, which in itself is due to property developers replenishing their land bank.

The increase in buyers stamp duty from 3% to 4% for the portion of residential properties in excess of S$1 million is interesting, given that ABSD of up to 10% for a third property remains. My own take on this is that the government wants to curb speculation in the Singapore residential market, preferring that it remain largely for residential purposes. This increase in stamp duty may potentially have a dampening effect on property prices at the high end, and provides ammunition to jump-start the property market if there is a future downturn in prices. Of course, the fact that this provides additional revenue to the government doesn’t hurt as well.

Whether this works out as planned though, remains to be seen. In the long run however, I am highly supportive of this move. Residential property should be for living in, and rampant speculation in residential property never ends well (eg. US before the financial crisis, Canada and Australia more recently). Short term though, I would prefer to see its impact on property prices before diving in to property stocks (CDL, UOL etc).

  1. Pump priming the economy

The SG Bonus of up to S$300 follows the NS50 vouchers last year, and the SG50 vouchers before that. This seems awfully generous of the government. If I didn’t know better, I would say this was a textbook case of pump-priming the economy, to stimulate demand in products and services. The S$5 billion into the Rail Infrastructure Fund can be viewed in the same light as well.

However, Singapore’s GDP grew at a healthy 3.7% in 2017, casting doubt on this thesis. Perhaps this is truly a way of spending the surplus in a meaningful way that helps the population. Or perhaps this is to help the economy on its recovery path, a small redistribution of wealth. Either way, this bodes well for the Singapore economy, and for Singapore oriented stocks.

Did I miss out any major point? Leave your thoughts below!

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