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A SINGAPORE manufacturer did his sums after Finance Minister Tharman Shanmugaratnam scrapped estate duty last Friday.

He was surprised to discover that his family would save at least $200,000, based on his assets of a terrace house, cash in the bank, Central Provident Fund (CPF) savings, shares and his stake in the company.

‘I didn’t know it would have cost me so much,’ said the 57-year-old, who put his net worth at about $6 million. He spoke to The Straits Times on condition that he would not be named.

‘But you can’t tailor your life to avoid estate duty. I focus on my business and how to make a profit.’

Last Friday, that death tax - known as estate duty - a legacy of the British colonial administration, was laid to rest when Mr Tharman announced its demise in Parliament.

Estate duty kicked in when a person died and left assets worth over a certain threshold. Most people thought it affected only the very rich.

In fact, with rising affluence, a growing number of middle- and upper-middle income earners were also liable.

Many had accumulated more than $600,000 of assets in cash, shares and other such assets in their lifetime, said KPMG tax services executive director Ooi Boon Jin.

‘If you had CPF savings of up to $600,000 already, and if you had $700,000 of cash and shares outside CPF, that entire $700,000 was technically subject to estate duty,’ he said. ‘It was a significant ‘cost of death’ and did not affect very rich people only.’

Indeed, tax experts say the abolition of estate duty will benefit the middle class in particular. Unlike the very rich, this group may not have had the resources to set up trusts and other legal arrangements that would have enabled them to sidestep death duty.

Mr Dennis Khoo, general manager of Standard Chartered’s wealth-management division, said many rich people minimised death duty by holding more assets in residential property - rather than stocks, cash and insurance.

Estate-duty rules tended to encourage people to channel money into property because it had a much higher exemption threshold than other assets.

Those wealthy enough were also advised to set up a trust, a legal arrangement enabling them to give away their assets, such as shares and property , to named beneficiaries. A trustee, typically an institution, administers the trust. A very basic trust to hold as little as $50,000 cost $3,000 to $5,000 to set up, with an annual fee of about $1,000 to $2,000.

‘It is true that there were mechanisms for minimising or avoiding estate duty, but these were the domain of the wealthy end of the scale as they could involve quite complex and expensive arrangements,’ said PricewaterhouseCoopers tax partner David Sandison.

On a broader level, one of the more significant impacts of scrapping the death tax is that it may attract new wealth. Well-heeled families may be encouraged to live in Singapore permanently and keep their assets here.

The Government stands to lose about $75 million a year from estate duty. ‘But it’s not a huge loss to the Budget,’ said chief executive of LGT Bank in Liechtenstein (Singapore), Mr Rolf Gerber.

The pros outweigh the cons, he said.

Doing away with estate duty, he explained, will encourage wealthy foreigners to move here as they will not face the ‘added layer’ of cost of death duty. Long-time rival wealth centre Hong Kong did away with its death tax three years ago, he said.

Dr Francois Monnet, Credit Suisse’s head of private banking in South-east Asia and Australasia, also expects that wealthy individuals will be encouraged to move their wealth here and take up permanent residence.

Countries such as Britain, Japan and South Korea still have estate duties, whereas Malaysia and Australia have abolished theirs.

Mr Michael Troth, head of global wealth structuring (Asia-Pacific) at Citi Global Wealth Management, said scrapping the tax removed a negative perception about Singapore.

‘Prior to last Friday, it was felt that as Hong Kong had abolished its estate tax a couple of years ago, somehow it must be more attractive to invest there than in Singapore,’ he said.

‘By abolishing estate duty in Singapore there is no issue any more, either perceived or actual, and Hong Kong and Singapore are on a level playing field as far as estate tax is concerned.’

There is another potential boon. Private bankers hope wealthy people spared the death tax will be encouraged to give back more to society.

‘It will be great to see new names and new donors enter the fray of giving, especially the new rich and also rich immigrants,’ said Ms Tan Su Shan, managing director and head of Singapore, Malaysia and Brunei for Citi Private Bank.

Still, the smart money believes that in order to attract more assets to Singapore, other measures are needed too.

Abolishing estate duty alone is unlikely to attract a ‘tidal wave’ of assets to the wealth-management industry here, said UBS Wealth Management’s wealth-planning consultant, Mr Bill Lexmond.

He singled out the issue of the taxing of Singapore-based and managed assets. Now, there is an incentive for assets to be held outside Singapore as individuals here have a ‘blanket exemption’ from taxes on all foreign-sourced income, while only certain Singapore-sourced income is tax exempt, he said.

Mr Lexmond believes the Family-Owned Investment Holding Company Investment Scheme, a proposed new incentive aimed at attracting assets to Singapore, due to be unveiled by May by the Monetary Authority of Singapore, must be broad enough to address this.

‘This incentive should apply to all returns from investments for qualifying family-owned investment holding companies,’ he said.

What estate duty entailed

THE first $9 million of residential property and the first $600,000 of all other assets, including Central Provident Fund savings were exempt from the now-abolished estate duty.

Amounts above those thresholds attracted the duty. The rate was 5 per cent of the first $12 million and 10 per cent of anything above that.

Estate duty had to be paid within the first six months after a person’s death or penalties and interest applied.

The amount of estate duties collected for financial year 2007 was about $147 million, according to the Ministry of Finance.

Source : Straits Times - 21 Feb 2008

REAL estate has been the hottest investment topic in Singapore over the last year or so, and now retail investors have a new avenue for investing in Asia’s property market.

An arm of Deutsche Bank - RREEF - on Monday launched three new funds investing in property , backed by a belief that the sector has plenty of upside in Asia.

Asian real estate is at an ‘early stage of a long-term structural uplift’, said RREEF Asia Pacific real estate securities head Daniel Ekins.

RREEF said these new funds - previously exclusive to institutional and wealthy investors - are now offered to local retail investors. A minimum investment of US$1,000 (S$1,400) is needed.

‘Asia’s rising prosperity and consistent high economic growth have driven greater demand for residential and commercial real estate, creating exceptional growth potential for real estate securities in the region,’ said Mr Ekins.

Asia-listed real estate developers and real estate investment trusts (Reits) look set to deliver as much as a 20 per cent profit growth this year, he added. Global real estate securities have outperformed global stocks by 12.5 per cent and bonds by 24.6 per cent over a five-year period, the bank said.

One of the funds, the Asia-Pacific Real Estate Securities Fund, has a pure Asian focus, and will add to a growing crop of similar products, including the Barclays Asian Real Estate Income Fund and the Henderson Asia-Pacific Property Equity Fund.

Mr Ekins expects yearly returns of 12 per cent to 17 per cent in about five years.

Reits will comprise 20 per cent of the fund’s investment, while the remaining consists of publicly traded firms that own, develop or manage real estate.

RREEF has 65.2 billion euros (S$135 billion) in assets under management worldwide, with 10 billion euros in the Asia-Pacific.

Source : Straits Times - 20 Feb 2008

MOST of the attention so far in the escalating battle for The Straits Trading Company has centred on the two prominent business families slugging it out for one of Singapore’s oldest companies.

But there is another player with a pivotal role in the unfolding drama which has so far stayed largely under the radar: OCBC Bank.

Last week OCBC announced it would not accept either of the competing offers for Straits Trading, in which it has a 6.2 per cent stake, as it sees greater value by staying put and taking an active role in the company’s affairs. That decision demands close scrutiny from OCBC’s shareholders.

Last month, Ms Chew Gek Khim, the grand-daughter of the late Tan Chin Tuan - chairman of OCBC between 1966 and 1983, made what many consider to be an audacious bid to gain control of Straits Trading via investment vehicle Tecity.

In doing so, she pitted herself against the bank’s biggest shareholder and founder, the Lee family, which seems determined to stop her with a competing bid.

The sums involved are not trifling. Buying up the rest of Straits Trading would cost Tecity $1.7 billion, after it raised its offer to $6.70 a share on Monday.

For the Lees, the sum involved is equally daunting. Excluding OCBC’s 6.2 per cent stake, they may have to pay nearly $2 billion - not a petty sum even if they are one of Singapore’s richest families.

Both the Lees and Ms Chew have stayed largely out of the media spotlight so far.

The Tan family, like the Lees, had seemed content to let professionals run a company linked to OCBC as long as anyone can remember. Until now, Ms Chew was best known for the ruckus she kicked up over the manner in which the Indonesian Lippo Group booted out the then chairman of Robinson & Co, Mr Michael Wong Pakshong, nearly two years ago. She later resigned from the board.

Many believe that calamitous event marked a turning point for her - shattering a belief that her family’s interests would always be aligned with that of OCBC, Robinson’s former controlling shareholder.

Indeed, it might have prompted Ms Chew to take a hard look at the inheritance left by her grandfather. This could have led to the battle for Straits Trading.

Ms Chew has little to lose. She either gains control of a listed vehicle with a big land bank, or walks off with $480 million or more, if the Lees call her bluff and make her an offer she cannot refuse.

Her offer also comes at an opportune time for Straits Trading shareholders. While other property firms like City Developments and CapitaLand are trading 30 per cent below their peaks last year, Straits Trading is being valued at a 42 per cent premium over its average price of $4.70 last year.

But OCBC shareholders must be wondering why the bank rejected both offers for its stake. Isn’t it better if the bank keeps its options open until the final wash-up?

At a time when cash is king and global banks are struggling to raise funds to re-capitalise their battered capital base after suffering big losses in the United States, OCBC is in an enviable position - getting fabulous offers for its non-core assets such as Straits Trading and Robinson. Tecity’s latest offer of $6.70 values the tin smelting company above independent financial adviser CIMB-GK’s break-up value of $6.52 per share.

It also begs the question whether there is much more value to be unlocked out of a company, where the share price had hovered between $2 and $3 for much of the past 10 years.

Surely, if the bidding continues at a furious pace, OCBC and its unit Great Eastern Holdings should consider throwing in the towel as well. This will help to further unravel the intimate cross- holdings of shares in companies held by the bank and its biggest shareholder, started four years ago when the Lees sold their Great Eastern stake to OCBC.

With fewer non-core assets to distract, OCBC’s management will have more time - and more resources - to build a banking empire by buying up distressed banking assets overseas when they are going cheap. That would definitely win accolades from investors.

Source : Straits Times - 20 Feb 2008

Wealthy people aside, fund managers and the financial sector have welcomed the Government’s decision at last Friday’s Budget sitting to remove the Estate Duty with immediate effect.

They said this will attract the super rich to not only invest in Singapore, but also relocate here.

Estate duty affects those with properties worth over S$9 million as well as those with over S$600,000 in non-property based assets like cash, stocks and even expensive cars.

Surviving family members of the deceased must also bear the annoyance of having the authorities carry out checks on whether the estate should be taxed. However, this will not happen anymore.

Finance Minister Mr Tharman Shanmugaratnam revealed at the Budget 2008 that on average, Singapore collected about S$75 million per year from estate duty.

However, experts think its removal could potentially bring in funds worth 1,000 times that.

Philip Overmyer, Chief Executive of Singapore International Chamber of Commerce, said: “It’s not a huge tax revenue for the government, and we think it makes things much simpler and easier and more predictable for people with a lot of money that want to come here and bring some of it with them.

“We think it’ll attract more people with larger wealth, and we think it’s more equitable for the companies and people with high assets which are not property-based.”

International wealth management experts, like UBS, have started receiving calls from foreign investors on possible fund relocation to Singapore.

Bill Lexmond, Managing Director of Wealth Planning Consultant, UBS, said: “It’s not just to get people’s money into Singapore, but to get them here as well. You can say that there’s one less reason for anyone to have concern about coming to Singapore.”

Associate Professor Eugene Tan from the School of Law at the Singapore Management University, said: “It’s not just about removing estate duty that we’ll have wealthy people coming here to park their money, to set up philanthropic foundations and all.”

“This is the place that values your investment and because society has been receptive towards wealthy people parking their money here. The idea is that we hope these wealthy individuals will then share some of the wealth that they have and so the whole idea of trying to get people to feel for the community that they’re in,” he added.

The removal of estate duty may be getting a lot of attention, but wealth managers said the announcement of a new tax incentive scheme for family-owned investment holding companies is more significant.

The scheme will allow such companies to enjoy the same scope of exemptions that individuals currently enjoy on Singapore and foreign-sourced investment income.

This is because rich Singapore family enterprises which have been investing their money overseas to avoid paying taxes, like the estate duty, may now relocate their funds back home to be managed here.

Mr Lexmond said it will take up to two years before such policy changes can result in a huge inflow of funds.

Source : ChannelNewsAsia - 19 Feb 2008

IN A bellwether post-Budget property launch, Frasers Centrepoint and Far East Organization sold 20 units at the weekend at their Waterfront Waves condo fronting Bedok Reservoir. The project was officially launched at the weekend with the start of an advertising campaign.

The sales brought the total sold so far at the 99-year leasehold project to 100 units, including 80 sold earlier after the condo was soft launched around mid-January. So far, 180 units at the 405-unit development have been released.

The average price currently for the entire development is $750 per square foot after discounts, with the spread ranging from around $650 psf to $930 psf. However, for the 100 units sold so far, the average achieved is $801 psf, as they are among the better-facing units. About 85 per cent of buyers of the 100 units are Singaporeans and 35 per cent have existing HDB addresses.

Property industry watchers were keeping an eye on Waterfront Waves for an indication of buying sentiment after Friday’s Budget.

Some developers hoped the Budget would boost buyer confidence, paving the way for them to go ahead with launches they had held back because of sentiment dented by the stock market plunge and sub-prime woes.

While the 20 sales at the weekend seem modest, Frasers Centrepoint assistant general manager (sales & marketing) Elson Poon said the result was ‘within our expectations in view of current market sentiment’.

‘People are still cautious when it comes to making big-ticket purchases,’ he added.

The project’s pricing may have been a factor, market watchers reckon.

Mr Poon confirmed that the $801 psf average price achieved for the 100 units is a new high for a condo launch in the Bedok Reservoir area. Three-bedroom units at Waterfront Waves cost between $880,000 and just over $1 million.

Giving his take on the outcome for the maiden launch post-Budget, CB Richard Ellis executive director (residential) Joseph Tan said: ‘The buying mood is still cautious. But if you’re expecting a price correction, it may not happen for a while. The bulk of unlaunched projects are held by mainstream developers. They have the capacity to hold and control prices.’

Another property consultant said: ‘If there’s any price drop it may be started by smaller developers, who usually try not to hold. As long as they can make money, they’ll let go.’

Source : Business Times - 19 Feb 2008