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Delay in GST hike a short boost for retail REITs

Shopping sentiment expected to increase this year as the government delays GST hike for another year.

Singapore REITs (S-REITs) with retail exposure are expected to see a short boost this year, thanks to the government announcing a delay in the goods and services tax (GST) hike.

In its latest Budget 2022 announcement on Feb 18, finance minister Lawrence Wong announced a happy surprise for Singaporeans. The inevitable increase in GST will once again be delayed. The current GST rate of 7% will increase to 8% from Jan 1, 2023 and again to 9% from Jan 1, 2024.

The government first mentioned to increase GST during Budget 2019, but this move has been delayed several times due to the Covid-19 pandemic. This will be the first time in 15 years that Singapore raises its GST.

To that end, DBS Group Research and RHB Group Research both believe that this will give a short-term boost to local retail REITs as consumers frontload their spending this year.

“The delay [in GST hike] to Jan 2023 is a pleasant surprise. Retail sales will benefit from front loading of purchases this year while an anticipated inflow of tourism receipts should see more traction from 2H2022. We remain positive on REITs with retail exposure such as Frasers Centrepoint Trust (FCT), CapitaLand Integrated Commercial Trust (CICT), Lendlease Global Commercial REIT (LREIT) and Suntec REIT,” say DBS analysts Yeo Kee Yan and Woon Bing Yong.

They also expect consumer staples such as Sheng Siong and Kimly to remain resilient amid the delay in GST hike, while benefiting from the enhancements to the Assurance Package and GST schemes.

Yeo and Woon note that retail sales registered positive y-o-y growth in three out of past four times that GST rates were adjusted up with 1994 the only exception when GST was first introduced. Likewise, median y-o-y growth in retail sales during GST hike years was also higher at +2.95% compared to 2.73% from 1990 to 2021.

“We might see a boost in bigger ticket items ahead of the first GST hike in 2023, which will likely benefit discretionary retail trade, luxury retail goods and jewellery & watches. These trade categories are generally concentrated within the prime Orchard retail stretch, which will come as a boost in retail sales for our Orchard landlords such as Starhill Global REIT,” say the analysts.

Meanwhile, RHB’s Shakhar Jaiswal says, “Retail REITs and consumer companies could benefit from continuing business support for small and medium enterprises (SME) in the F&B, retail, tourism and hospitality sectors, as well as from planned GST hikes driving consumer to bring forward their spending.”

On the overall S-REITs space, Jaiswal expects it to still “outperform”, despite the impending interest rates, due to stronger growth prospects as the economy reopens, and better demand and supply dynamics, which underpin healthy rental reversions.

“Although interest rate hikes are generally unfavourable to REITs, we think the impact is lesser for S-REITs given the expectation of a stronger economic rebound, as well as earnings growth for the sector,” he adds.

Jaiswal prefers industrial REITs for their resilience and growth and view office S-REITs as the best proxy for recovery play, as Singapore’s Grade-A office segment continues to see positive rental reversions.

Photo: Albert Chua/ The Edge Singapore

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