Lim Hng Kiang: Review of the property sector in Singapore and Asia
Opening speech by Mr Lim Hng Kiang, Deputy Chairman of the Monetary Authority of Singapore and
Minister for Trade and Industry, at Citigroup Asia Pacific Property Conference 2007, Singapore,
23 April 2007.
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Thank you Catherine
Distinguished guests
Ladies and gentlemen
A warm welcome to Citigroup's inaugural Asia Pacific Property Conference. This is an excellent
opportunity for developers, investors and financial intermediaries to share ideas and network with
other key players in the market. I am certain that this conference will be interesting and fruitful.
Strong regional prospects
Asia is witnessing robust growth, led by sustained growth of the Chinese and Indian economies and
the welcome recovery of Japan - now into its fifth year of expansion. The regional economy is
consistently growing at a much faster pace than the rest of the world.
Singapore is fortunate to be strategically located to enjoy the positive effects of Asian growth. We are
well positioned to serve as a gateway for global investors to access regional opportunities.
As the regional economics grow, they present exciting opportunities for direct investment in real
estate, as well as through real estate financial investments, whether in office developments,
commercial and retail complexes or industrial estates.
Prospects in Singapore property sector
Singapore is a good example. Demand for all property sectors in Singapore has been rising,
underpinned by Singapore's economic expansion, particularly in the financial, business services and
tourism sectors. Demand for office and retail space is strong. The high hotel occupancy rates have
spurred new interest in hotel developments. In private housing, annual take-up of uncompleted
residential units has surpassed the previous high in 1994.
The Government land sales programme will continue to provide new development opportunities in
Singapore. Already, we have seen strong market interest supporting the development of the Marina
Bay and Orchard Road areas. With the positive outlook for Singapore and the government's strategic
plans for development of key industries, investments in real estate from foreign investors have
substantially increased. Investors in Singapore real estate now come from many countries, namely the
U.S., Hong Kong, Australia, Germany, Japan, the Middle East and Indonesia.
Singapore as a gateway to property finance
Investment opportunities in Asia, including Singapore, have not gone unnoticed by global investors.
Property and property-related assets are also gaining popularity with investors seeking high-yielding
and predictable returns with exposure to capital gains. Attracted by the region's rapid economic growth
and positive outlook on Asia, global investment funds are increasing their allocation to Asia,
specifically in Asian real estate.
Singapore can play an important role as a gateway for global investors to access Asian opportunities
via our capital markets. As a leading home for global fund managers, total assets under management
in Singapore exceed S$720 billion with over 50% of these funds invested into Asia Pacific. The
Singapore Exchange is an established listing venue for regional property companies based in
Singapore as well as foreign property developers. Alongside Singapore's vibrant REIT market, we
offer a strong value proposition for real estate players to tap on Singapore's capital market to finance
the rapid growth in the Asian real estate sector.
Singapore's Real Estate Investment Trust (REIT) market
Singapore was the first country in Asia to introduce a regulatory framework to facilitate the offering of
Real Estate Investment Trusts (REITs). This framework allows property companies to securitise their
completed real estate assets in the capital markets, realise capital gains and re-invest into developing
new properties. By offering investors direct exposure to assets with stable cash-flows, REITs tap a
new pool of investors who are seeking higher-yielding securities, including pension funds and
insurance companies.
Since the first REIT listing in 2002, the Singapore REIT market has become the largest REIT market in
Asia outside of Japan. Currently, Singapore has 16 listed REITs, making up a total market
capitalization of over S$26 billion. Singapore REITs offer investors access to a diversity of real estate
assets including retail malls, office buildings, industrial properties and serviced apartments. In 2006,
we also saw the first dedicated hotel REIT as well as Asia's first healthcare REIT.
Several key factors have contributed to the growth of the Singapore REIT market. Our established and
robust, yet pro-business regulatory framework and competitive tax regime have drawn the attention of
global investors, attracting the securitization of not just domestic, but increasingly offshore assets.
The number of cross-border REITs listed on the Singapore Exchange has increased, further
consolidating Singapore's status as a regional REITs hub. These REITs offer global investors
exposure to properties throughout Asia Pacific via the Singapore market, including properties in China,
Hong Kong, Australia, Indonesia, Vietnam, Malaysia and Japan.
To sharpen Singapore's edge as an Asian REITs hub, it is crucial for us to maintain a conducive
environment both for issuers and for investors. To this end, MAS regularly reviews its regulatory
regime to keep pace with market development while providing adequate safeguards for investors and
issuers, in close consultation with the industry,.
Despite substantial growth in market capitalization of REITs in Asia, from approximately US$40 billion
in 2005 to US$63 billion in 2006, estimates suggest that the current market only represents 4% of
investible-grade real estate in Asia, whereas in Australia estimates lie in the region of 50% to 60%.
This suggests immense potential for increased securitization of Asian real estate assets, and for
diversification beyond the conventional types of properties.
Innovations in property finance
The success of our REIT market has also spurred growth in other areas. Take for example our debt
market. Singapore-listed REITs have also been large issuers of commercial mortgage-backed
securities, contributing 20% of all issuance of mortgage-backed securities in Asia-ex-Japan last year.
Indeed, Asia's largest ever commercial mortgage-backed security was issued jointly by two Singapore
REITs - CapitaMall Trust and CapitaCommercial Trust. Another example of product innovation is in
the growth of investment products such as property securities unit trusts and listed property securities
funds.
A potentially exciting area for innovation is in the property derivatives market. Property derivatives
offer the potential for property companies, asset managers, banks and investors to hedge or
rebalance their property exposure according to their views on the market. A key criterion to develop the
property derivative market in Singapore would be the existence of transparent, reliable and
wellfollowed direct property indices, which serve as reference points or benchmarks for structuring of
property derivative products.
Given the prospects of the Singapore property market, industry players are currently studying the
construction of property indices based on the Singapore property market. We are excited to see the
introduction of these property indices which would enhance information on Singapore's property
market and provide benchmarks for structuring property derivatives and other innovative investment
products. These developments will add to the breadth and depth of Singapore's markets by providing
investing and hedging tools for market participants in a cost-effective and flexible manner. Moreover,
they would lead to development of expertise in product structuring as well as real estate portfolio
analysis and performance measurement.
Conclusion
So ladies and gentlemen, general positive sentiments suggest that 2007 and the years ahead will be
exciting for Asia and its property sector. I am certain that with judicious planning and sound execution,
the sector will see strong growth, sustained by liquidity from the capital markets. I wish you continued
success as we build together on our strong foundations.
With this, I wish all participants at this conference a fruitful exchange of ideas and discussion.