Source: AFP.
Singapore’s Deputy Prime Minister (DPM) and Finance Minister Lawrence Wong delivered the Budget Statement on 16 Feb 2024. While fiscal year 2023 (FY2023) racked up a deficit of SGD3.6b (0.5% of gross domestic product (GDP)), the government expects a modest budget surplus of SGD0.8b (0.1% of GDP) in FY2024. Mr. Wong cited a mixed outlook for 2024. While growth in major economies is expected to remain resilient, geopolitical tensions – particularly in Europe and the Middle East – could potentially escalate, leading to disruptions in global energy markets and supply chains. On the bright side, global inflationary pressures are expected to recede further, which may allow for financial easing.
Against this backdrop, Singapore’s FY2024 budget aims to support Singaporeans and businesses in managing near-term cost of living pressures without neglecting social aspects, while planning for long-term growth via investments in workforce development, artificial intelligence (AI), and sustainability. We highlight the implications of Budget 2024 across the various sectors and potential beneficiaries. Singapore’s defensive equity market offers a safe haven for investors, in our view, especially in a scenario where left tail risks to global equity markets escalate. With attractive and stable dividends (~5% yield), as well as undemanding valuations, we maintain our Overweight rating on Singapore equities.
Near term cost-of-living relief
For households, the government has set aside SGD1.9b (0.3% of GDP) to enhance the Assurance Package to help Singaporeans cope with the increased cost of living. This covers an additional SGD600 in Community Development Councils (CDC) vouchers for all Singaporean households, which will be evenly distributed in two tranches. Eligible Singaporeans aged 21 and above in 2024 with an assessable income of up to SGD100k, and who do not own more than one property, will receive a Cost-of-Living Special Payment of between SGD200-400 in Sep 2024. All Singaporeans aged 21 to 50 will also receive a one-time MediSave bonus of up to SGD300.
Middle income workers are likely to benefit from a 50% Personal Income Tax Rebate for 2024’s Year of Assessment (YA2024), capped at SGD200. Meanwhile, lower-wage workers will receive further support as the local qualifying salary will be raised from SGD1,400 to SGD1,600 for full-time local employees, and from SGD9 to SGD10.50 per hour for part-time local employees from Jul 2024. Wage costs are expected to be partially cushioned by increased co-funding by the government from a maximum of 30% to 50% under the Progressive Wage Credit Scheme.
Special emphasis was placed on seniors and retirement security, with the government setting aside SGD7.5b to cover the lifetime cost of the Majulah Package. From 2025, Central Provision Fund (CPF) contribution rates will be increased by 1.5 percentage points (ppt) from 31% and 22% of monthly wages for seniors aged 55 to 60, and 60 to 65, respectively. CPF Special Accounts (SA) will also be closed for those aged 55 and above. CPF SA funds will be channelled to the Retirement Account (RA) to fulfil the Full Retirement Sum (FRS), and any remaining amount will be moved to the CPF Ordinary Account (OA).
For businesses, the government has set aside SGD1.3b (0.2% of GDP) in an Enterprise Support Package for corporates to manage costs. On top of enhancements to the Enterprise Financing Scheme, businesses that employed at least one local employee in 2023 will receive a minimum benefit of SGD2,000 in cash payouts. Companies will also enjoy a one-off 50% Corporate Income Tax rebate capped at SGD40,000 in YA2024.
Long-term economic priorities
To encourage lifelong learning and upskilling, a new SkillsFuture Level-Up Programme will be introduced, with all Singaporeans aged 40 and above receiving SGD4,000 in SkillsFuture Credit for selected programs with better employability outcomes. Singapore will invest more than SGD1b over the next five years as part of the National AI Strategy 2.0, to accelerate efforts in AI computing, talent, and industrial development. This includes working with leading companies to set up AI centres of excellence in the city state, and upgrading the nationwide broadband network (NBN) to support widespread AI adoption.
Sustainability remains a key focus, with the new Refundable Investment Credit (RIC) being set up to attract high-quality investments and to support the green transition. The budget will inject a further SGD3b into the Research, Innovation and Enterprise (RIE) 2025 plan to support research and related investments in sustainability. A new Future Energy Fund with an initial injection of SGD5b will also be set up to support Singapore’s transition to cleaner energy.
Source: AFP.
Sector Implications
Real Estate
There were a few measures announced during Budget 2024 that will directly impact the property sector. Although the impact is expected to be only mildly positive, in our view, it does feel like a breath of fresh air as this round of policy tweaks contrasts with the previous Budgets in 2022 and 2023 when property tax rates and marginal buyer stamp duties were hiked, respectively.
First, the annual value (AV) bands of the owner-occupier residential property tax rates will be increased with effect from 1 Jan 2025. AV refers to the estimated yearly rent of the property if it were to be leased out and is used in the assessment of property taxes. The resulting change is an expected decline in property tax bill for owner-occupiers of residential properties. While the government had initially expected the property tax changes introduced in 2022 to impact the top 7% of owner-occupied residential properties, the AV increases due to the surge in rents had led to the proportion of affected owner-occupied properties increasing above expectations to 13%. Although the reduced property tax bill will bring relief to homeowners, we do not believe this alone will materially change a potential homebuyer’s decision to purchase a property.
The second change affecting the property sector was the adjustment of the Additional Buyer’s Stamp Duty (or ABSD) for the purchase of residential properties to a small group of people. Singapore citizens who are single and aged 55 and above can now claim a refund of ABSD when they right size their property by selling their first property within six months of buying a lower value replacement private property (effective 16 Feb 2024). Previously, this concession only applied to married couples (at least one Singapore citizen spouse).
Third, there was also a revision in ABSD for housing developers. Currently, licensed housing developers who purchased residential land in Singapore are subject to an ABSD of 40%, of which 5% is non-remittable and the balance 35% is an upfront remittable component. This remittable component will be clawed back by the government in full with accrued interest if the housing developer did not commence construction of the project within two years from the date of land acquisition and did not complete the development and fully sold all housing units within five years from the land acquisition date. The government is cognisant of the challenges faced by housing developers. In order to provide more flexibility, it was announced that the ABSD remission clawback rate will be lowered in accordance to the proportion of units sold with effect from 16 Feb 2024 if at least 90% of the housing units in the development are sold within five years from the land acquisition date. The fact that at least 90% of the housing units must be sold to qualify for the ABSD remission clawback highlights the government’s signal that housing developers are not to hog inventory and to ensure that housing supply remains available on a prompt basis.
We view this change as a slight positive to property developers as the previous ABSD rates are viewed as onerous and some units in a development project can be difficult to sell due to more undesirable characteristics. Housing developers would also be under less pressure to lower prices in order to move units. However, we do not expect the current soft sentiment towards landbank replenishment to change and bidding prices for land tenders are expected to remain cautious.
In terms of indirect impact on the property sector, we believe the various supportive measures introduced such as the additional SGD600 of CDC vouchers, personal income tax rebate of 50% (capped at SGD200), SGD200 in the form of LifeSG credits to all past and present national servicemen will provide some boost to consumption spending and thus benefit the shopping malls of retail REITs.
Industrials
As significant effort and costs will be required for Singapore to move from a system powered mostly by natural gas to one powered largely by clean energy, the government will set up a Future Energy Fund with an initial injection of SGD5b for investments in clean energy initiatives. For instance, the import of low-carbon electricity, Singapore must invest in submarine cables and upgrade its power grid. Hydrogen also has the potential as a clean fuel. Such costly investments cannot be done by the private sector alone and will need catalytic funding from the government. Thus, firms operating in the space would stand to benefit from the announced Future Energy Fund.
Consumer
To help households cope with the elevated cost of living, the Assurance Package was enhanced by a substantial SGD1.9b, increasing its size to SGD12b. Aside from the aforementioned CDC vouchers and Cost-of-Living Special Payment, the government will be providing U-Save utility bill rebates and Service & Conservancy Charges rebates. A SGD6b top-up will also be made to the Goods & Services Tax (GST) Voucher Fund, to defray GST expenses for lower- and middle-income households through the GST Voucher Scheme.
In our view, these measures could increase disposable incomes and potentially benefit supermarket operators as well as retail malls. Demand for groceries could be boosted by an upsized cash handout and a potential shift in consumption patterns towards a focus on “value for money” due to inflationary pressures and a higher cost of living.
Telcos/Trusts
To support Singapore’s National AI Strategy 2.0, which was announced in Dec 2023, more than SGD1b will be invested in AI computing, talent, and industry development over the next five years. Meanwhile, more resources will be allocated to catalyse investment in upgrading the NBN to 10 gigabytes per second, which is ten times faster than the speed at which most households are operating on today. The upgrade will ensure that Singapore’s connectivity infrastructure is able to support technologies such as AI and immersive media as they become more pervasive in the future.
Maintain Overweight on Singapore market
We remain constructive on the Singapore market, given its defensive characteristics and attractive dividend profile. The current dividend yield of 5.1% represents a healthy spread of 2.2% over the 10-year Singapore government bond yield. The Straits Times Index’s (STI) lower volatility versus peers makes it ideal to add to a diversified portfolio to reduce price movements and volatility. Moreover, valuations are undemanding; the STI is currently trading at a forward price-to-earnings (P/E) ratio of 10.1x, which is around 2.1 standard deviations (s.d.) below the 10-year historical average.
Singapore’s Ministry of Trade and Industry (MTI) has maintained its GDP growth forecast of 1-3% year-on-year (YoY) in 2024. While Singapore is projected to buck the downtrend, the domestic economy is acutely vulnerable to external factors, and will similarly be impacted if external demand weakens faster than expectation. Singapore companies which are heavily reliant on external demand are likely to face a challenging environment of slower sales in 2024. However, domestically focused and cash-rich companies are able to differentiate and even register growth.
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