Pre-Budget 2019 Perspectives - Real Estate
A sustainable and green real estate sector is key to making Singapore more sustainable as nation. Singapore is considered a global leader in sustainability in building construction, with its Green Mark Scheme adopted in 71 cities. However, a few challenges remain, including building owners being reluctant to voluntarily invest in long-gestation technologies such as chiller plant systems, and retailers resisting energy efficiency in malls as it is perceived to have a negative effect on sales.
The development community has been slow to adopt innovation in property technologies (proptech) aimed at making buildings greener. This can be attributed to lack of awareness and some developers being not technologically savvy. Some are reluctant to change the way things are done, or are simply not ready to make such significant capital investments. There is also a lack of available sustainability solutions for new developments, as well as for retrofitting old buildings to adapt to local conditions.
Until there exists a direct correlation between a building’s sustainability and its occupancy, rent and valuation, greening of buildings will remain largely a top-down agenda with the government driving uptake through policy initiatives. For Singapore to achieve its sustainability goals, the real estate market needs to begin offering a premium for green buildings; to impel developers to design and build green buildings while also making it attractive for buyers and tenants, thereby creating a more sustainable supply and demand for green buildings. The government can then limit its role to setting and monitoring sustainability standards. Developers will be spurred to seek out more efficient green technology solutions, generating a market for such products that then enables providers to secure green startup capital as well as green loans and bonds. Together, these players and factors will then create an ecosystem with its own momentum towards sustainability, without having to be led by the government.
Examples of proptech in use overseas include augmented and virtual reality to enable architects to optimise green design and enhance a building’s sustainability on cloudbased platforms, 3D printing that enables design and construction to become more energy efficient, building materials like bricks made from waste, windows that convert light into electricity, and building management systems incorporating AI and drones for aspects including energy saving, ventilation and fire safety. Singapore can provide the initial impetus for the inception of a green ecosystem by introducing additional tax incentives and grants for landlords and tenants who align with the government’s sustainability goals, and by encouraging the adoption of proptech such that it becomes easier and cheaper to make buildings green.
It is apparent that developers, tenants and owners are reluctant to embrace sustainability as they see it bringing more inconvenience and complications than business benefits.
To encourage various stakeholders in the real estate sector to go green, new measures need to be taken to make financing, developing, owning and adopting sustainability good for business, across the entire real estate ecosystem.
1. Support green loans and mortgages.
To provide a further push to spur the green capital and debt market through the following:
- 5% concessionary tax rate for financial institutions on interest income from loans for acquisition and development of green residential and commercial properties.
- Tax exemption on income from green bonds.
2. Create supply and demand for green properties.
- 200% tax deduction on financing costs and 30% property tax rebate for green property owners.
- 50% rebate on stamp duty on conveyancing of green properties.
- 250% tax deduction on rental paid by tenants of green properties.
- Allow owners of green buildings to claim commercial building allowances, and thus to claim tax depreciation of building costs which would otherwise not qualify for capital allowances.
- 50% tax exemption on gains by developers from sale of green buildings (commercial and residential).
- GST rebates for developers of green residential developments, and exemption of GST on import of green-related equipment, raw materials etc.
3. Encourage existing property owners to go green.
Further tax incentives may encourage more property owners to commit to retrofitting existing properties into green buildings:
- 200% tax allowance on capital expenditure (including professional fees) on green initiatives in addition to normal capital allowances and tax deductions.
- 50% reduction in tax payable on rental income derived from buildings that undergo green renovation and retrofitting.
- 50% property tax rebates for three years following the building being certified green.
- Extend the commercial building allowance to owners that modify buildings to make them green i.e. allowing owners to opt for grants to modify buildings as opposed to claiming tax depreciation. Direct grants should also be considered.
4. Encourage adoption of proptech in all aspects of design, construction and management of new and existing buildings.
- Grants and assistance to co-fund 50% of research and development (R&D) work on proptech-based proprietary technologies that can lead to sustainability in buildings.
- A concessionary tax rate of 5% on income derived from businesses for proptech solutions for green buildings.
- Enhance certainty of the R&D tax incentive scheme, which provides 250% tax deduction on qualifying costs (such as staff and outsourcing costs), by including development of new or enhanced proptech solutions to enhance regulatory processes as pre-approved areas under the scheme.