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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.