Fortitude Budget enhances rental support to SMEs; rental waivers to be mandated
By Timothy Tay
/ EdgeProp Singapore |
SINGAPORE (EDGEPROP) - The Singapore government is extending its rental relief support to benefit more small and medium enterprises (SMEs), says Deputy Prime Minister (DPM) Heng Swee Keat. He said this in a parliamentary address on May 26 to unveil the government’s proposed fourth budget — named the Fortitude Budget — to support the country amid the Covid-19 pandemic.
The DPM, who is also the Finance Minister, stated that many businesses, especially SMEs, have voiced their difficulties in meeting rental costs at this time. “We will significantly add to the support for rental costs earlier provided through the Property Tax Rebate for 2020 in the Unity and Resilience Budgets,” says DPM Heng.
The government will provide a cash grant to offset the rental costs of SME tenants, which will be disbursed through property owners. The grant will cost the government about $2 billion in total, and will be disbursed automatically from the end of July.
Rental relief schemes | Qualifying criteria | Amount of relief for qualifying commercial property | Amount of relief for other non-residential properties (e.g. industrial and office properties) |
|---|---|---|---|
Property Tax Rebate for non-residential properties, announced earlier in the Unity and Resilience Budgets | The rebate is given to property owners, who are required to pass it on fully to their tenants | 100% Property Tax Rebate (equivalent to about 1.2 month’s of rent) | 30% Property Tax Rebate
(equivalent to about 0.36 month’s of rent) |
[New] Government cash grant | SME tenants in private properties | Cash grant of ~0.8 month’s of rent, which will be automatically disbursed to property owners from end-July 2020.
Landlords are required to pass on the benefit to their SME tenants. | Cash grant of ~0.64 month’s of rent, which will be automatically disbursed to property owners from end-July 2020.
Landlords are required to pass on the benefit to their SME tenants. |
Table: Ministry of Finance
Responding to the new support measures, the Real Estate Developers' Assoiation of Singapore (REDAS) says it welcomes the Government’s continued effort to help businesses manage costs in these challenging times. A Redas spokesperson adds: "We would urge our members who are owners of malls and non-residential properties to work closely with their tenants to provide the necessary assistance on a win-win approach to ensure business sustainability & continuity."
Christine Li, head of research for Singapore and Southeast Asia at Cushman & Wakefield, says: “The expanded rental relief for SMEs is a welcome one, as SME tenants in commercial properties are also part of the ecosystem of the real estate sector. The risk sharing between the government and the private landlords will allow SME tenants to benefit from four months of rental relief in total.”
DPM Heng says that together with the previously announced Property Tax Rebate, the government will offset about two months of rental for qualifying SME tenants of commercial properties. This translates to about a month’s rent for qualifying SME tenants in industrial and office properties. SME property owners who run a trade or business on their own property will also be eligible for the new cash grant. This new grant comes on top of the $1.8 billion set aside for the Property Tax Rebate.
To ensure that SME tenants benefit from this handout, the government will table a new Bill that will mandate that landlords grant a rental waiver to their SME tenants, “who have suffered a significant revenue drop in the past few months”, says the DPM.
On top of a cash grant to offset the rental costs for SME tenants, the government will introduce legislation to mandate that landlordspass on the benefits to their tenants. (Picture: Samuel Isaac Chua/The Edge Singapore)
DPM Heng notes that the government does not ordinarily intervene in contracts after they have been signed, but this is an “exceptional situation” where the government needs to step in with “temporary targeted steps to safeguard the economic structure for the common good”, he says. The new Bill will also cover provisions on temporary relief from “onerous contractual terms” such as excessive late payment interest or charges. When passed, the Bill will allow tenants to pay their arrears through instalments.
But according to Li, some landlords will be stuck in a difficult situation if the mandatory rental waiver is legislated. “Many asset owners and operators (of commercial real estate) are faced with drastically reduced operating income arising from concessions and rebates they have to dish out to save struggling tenants,” she says.
Li adds: “Assets that thrive on the intensification of real estate and human interactions could also experience a much longer-term fundamental drop in future demand. By subjecting them to the mandatory rental waiver for their tenants, it could create a bigger problem down the road when these asset owners are unable to re-position their properties in time to tide through the difficult period.”
Tay Huey Ying, head of research & consultancy at JLL, notes that another standout in the Fortitude Budget is the shift from saving jobs to reskilling the workforce. This demonstrates the government’s efforts to provide businesses and workers with a much needed push to transform and prepare for the new norm post COVID19, she says.
Tay adds: "Overall, the size and emphasis of the Fortitude Budget in areas not adequately addressed in the earlier budgets should go some way to prolong the lifespan of more businesses and cushion the dent in demand for real estate arising from the protracted fight against COVID19."
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