BUDGET 2025: S-REIT tax breaks extended, but immediate gains remain limited

The extension of the 10% final withholding tax rate is expected to encourage broader investor participation in S-REIT ETFs.

The Singapore government has extended the income tax exemption on foreign-sourced income for S-REITs until end-2030, but analysts believe the immediate benefits will be limited as most S-REITs have already optimised their foreign income structures.

From 1 July 2025, the tax transparency treatment will cover all co-location and co-working incomes, which Vijay Natarajan, analyst at RHB, said will broaden the revenue streams qualifying for tax benefits.

Rental and ancillary income received in Singapore will now qualify under certain conditions. Additionally, wholly-owned companies of S-REITs no longer need to be incorporated in Singapore, provided they remain tax residents.

Repayment of shareholder loans and return of capital will qualify as acceptable remittance methods. Furthermore, Singapore sub-trusts can deduct operational expenses before passing income to S-REITs.

To promote S-REIT exchange-traded funds (ETF), the tax transparency status will be permanently retained. The 10% final withholding tax rate for qualifying non-tax resident investors will also be extended until end-2030.

This move is expected to encourage broader investor participation in S-REIT ETFs. It will also help stabilise capital flows into the sector.

Retail REITs with suburban mall exposure will benefit from government handouts such as $800 CDC vouchers and SG60 vouchers. These measures are expected to boost retail sales growth by increasing consumer purchasing power.

The launch of 50,000 new HDB flats will further increase the catchment population for nearby malls. Key beneficiaries include Frasers Centrepoint Trust and CapitaLand Integrated Commercial Trust.

In the industrial REIT sector, demand will be driven by government investments in biotech and semiconductor infrastructure. The greater One-North area will benefit from enhanced biosciences and MedTech infrastructure.

A national semiconductor R&D fabrication facility will also be developed, boosting industrial space demand. Beneficiaries include CapitaLand Ascendas REIT, AIMS APAC REIT, and ESR REIT.

Overall, the tax concessions and structural enhancements offer a slightly positive outlook for retail, industrial, and overseas S-REITs. However, immediate gains may be limited, as many S-REITs have already adapted their foreign income structures.

Whilst retail REITs will see short-term gains from consumption-led demand, industrial REITs will benefit from long-term growth driven by biotech and semiconductor sector expansion.