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Within a year, the Singapore property scene has changed with the focus, shifting from the typical and traditional capital appreciation
paradigm to one that is yield based and taps into the capital market for its funding. Pioneered by CapitaLand by its launch of
CapitaMall Trust (CMT), the real estate investment trust (REIT) is now an important feature not only in the property market
but also as the new asset class for investors. The three REITs in the market are CMT, raising $1.1 bill ion in July 2002; A-REIT
by Ascendas, raising $573 million in November 2002; and Fortune REIT, by Cheung Kong Holdings raising $500 million (basedon five Hong Kong retail mall properties and denominated in HK$) in June 2003.
Reuters News Agency reported recently that governments in
Asia are keen to revive the property markets and spur job-
creating construction projects via REITs. In Japan, since 2000,
there have been seven REITs while there have been three each
in South Korea and Singapore. This year, Hong Kong and Taiwan
changed laws to create a REIT market in their respective countries.
The upshot is that the Asian real estate are now following the
US, UK, Europe and Australia counterparts where there will be
greater differentiation between the developer, the investor as
well as the property manager. In this trend, like in the West,
public real estate capital markets in Asia will grow. There will be
a shift from the over-focus on capital growth and appreciation
to a focus on yield.
From the financing perspectives, real estate financing will now see a shift from banks to capital markets - as has happened in
the US. The capital market investor demands performance based on yields and looks upon real estate as an asset class that has
to deliver acceptable returns consistently. As such, capital markets expect real estate companies to be professionally managed,transparent and to have strong corporate governance.
GREATER CAPITAL MARKET FINANCING
With the shift towards capital markets,
real estate securitisation will become
important vehicles for investment in
Asian real estate. Real estate
securitisation can in fact be an effective
solution to the current financial woes
of the Asian real estate industry. It paves
the way for capital markets to fund real
estate, and provide liquid and efficient
instruments for investors to invest in
real estate. For the real estate firms,
securitisation allows them to diversify
their funding sources, lower financing
costs as well as take the risks off balance
sheets. This is important as real estate
projects have now become larger.
Securitisation also allows real estate
firms to tap international investors, and
this is particularly important for
companies in developing economies or
small markets. In addition, securitisation
provides a vehicle for the many Asian
firms that own non-core real estate
assets to divest of these assets.
SIGNIFICANT ROLE OF THE GROWING SINGAPORE REIT MARKET
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V1 N5 2003 • 11The article is contributed by the REDAS Research & Statistics Committee. Slides are by
courtesy of Ascendas-MGM Funds Management Limited and CapitaLand Limited.
Moreover, the regulators have been
looking favourably at this investment
instrument. Monetary Authority of
Singapore (MAS) has drawn up its
guidelines along the practices of the
Australian Listed Property Trust
model. There are other Western
practices to look at. The National
Association of Real Estate investment
Trusts (NAREIT) in the US and the
Property Council of Australia, for
example, categorise equity REIT by
property sector and therefore sector
specific REITs are important to
provide better diversified portfolios.
With CMT a pure play retail fund, A-
REIT in industrial properties and
Fortune REIT being cross border,
Hong Kong retail properties, the
Singapore equities market is cut out
to have more diversified sector
specif ic REITs, going forward.
AN IMPORTANT ASSET CLASS FOR INVESTORS
With REIT now an accepted asset class in Singapore and with more companies contemplating
going in that direction, it will be appropriate to recapitulate its attributes:
• Less volatile than equities - REIT provides an income stream with low volatility because
of the contractual nature of rental contracts;
• Able to diversify risks - due to its low correlation with stocks and bonds; and
• Has favourable total returns, between equities and bonds.
There is other supporting evidence that it will takeoff in Asia. There is a demand for Asian real
estate backed securities that is driven by the high saving rates in Asian countries and also the
lack of suitable investment options. It is an excellent instrument for the pension fund category.
With an ageing population in Singapore and the more developed Asian economies, there is
increasing demand for higher-yield long-term investment instruments by both individuals and
institutional investors. REIT's steady income stream matches the drawdown profile of an ageing
population. International investors are also under-represented in Asian real estate and will be
keen to invest if the yields are acceptable.
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