Challenging times ahead for Singapore Reits

SINGAPORE'S EDGE: Fortune Reit, which holds a portfolio of retail malls - like The Metropolis Mall (above) - and properties in Hong Kong, was able to list on the Singapore Exchange in 2003 because Singapore is the only market where you can list purely offshore assets.


    Nov 28, 2013

    Challenging times ahead for Singapore Reits

    The Business Times

    SINGAPORE has established itself as a major Asian hub for real-estate investment trusts (Reits) in slightly over a decade, but it now faces both external challenges and domestic constraints.

    Other regional markets are establishing their own Reit and business trust (BT) frameworks and will compete increasingly for listings.

    Singapore's Reits success has spurred others in the region into action. For example, both the Philippines and Thailand have regulations for Reits in place.

    India has also joined the fray, with market regulators expected to issue final guidelines on Reits early next year.

    Reits tend to do best when located in the jurisdiction where their physical assets are found, given that investors will be more familiar with the assets.

    As other Reits jurisdictions develop, there will be less incentive for real-estate players in these markets to leave home and come to Singapore to list.

    Singapore Reits venturing overseas may also have to compete against these Reits for assets.

    "There will still be opportunities for Singapore Reits to acquire overseas assets, but they will always be competing against the local Reit market which may trade at a lower cost of capital because of investor familiarity," said Mr Michael Smith, head of real-estate investment banking in Asia ex-Japan at Goldman Sachs.

    That said, the asset diversity of the Singapore Reits sector is seen helping it stay ahead despite the increasing competition.

    "In Singapore, our Reits are buying everywhere, including Europe, US and Vietnam, and investors appreciate it. So I think for regional Reits, Singapore will continue to have the competitive edge," said Mr Tan Kok Huan, managing director, asset-backed structured products, capital markets group, at DBS Bank.

    The regulatory regime in Singapore also remains attractive and does not impose any restrictions on ownership of foreign assets.

    "Singapore is currently the only market where you can list purely offshore assets. If somebody wants to list purely offshore assets and that country doesn't have a Reit or BT market, Singapore would be the natural choice," added Mr Tan.

    It is for this reason that Fortune Reit, which holds a portfolio of retail malls and properties in Hong Kong, was able to list successfully on the Singapore Exchange in 2003, just two years after the first Reit in Singapore was successfully launched.

    "Because Singapore is a very finite island...some say there's limited 'Reitable' property, that's why they have to go overseas," said CapitaLand Singapore chief executive Wen Khai Meng.

    "But I think there are still a lot of opportunities because the population is still growing, the economy is expanding, and there's going to be a lot more shopping malls, hotels, offices, industrial buildings, business parks and logistics warehouses, etc. In addition, we have a lot of government buildings and HDB carparks which could well be put into a Reit."

    Looking ahead, Mr John Stinson, executive managing director for Asia-Pacific capital markets at Cushman and Wakefield, said that he expects to see more listed Reits providing a vehicle for exposure to emerging markets and a range of foreign currencies - for example, a yuan fund.