Being what it is – a trading, investment banking and tourism hub, commercial real estate in Singapore is a major exposure for most commercial banks. Therefore, unsuprisingly, securitisation in Singapore has mostly been focussed around the commercial real estate sector.Outstanding loans against commercail real estate by commercial banks and financial institutions stood at Sing $ 72.2 billion as of March 2003, which is 42% of the total loans and advances by financial institutions.
With the introduction of REITs, activity focussed on CRE became all the more prominent.
Capital market funding into commercial real estate in Singapore has taken 3 forms – mortgage backed bonds, CMBS and REITs. Mortgage-backed bonds are traditional on-balance sheet funding instruments.
REITs are ownership-based instruments that securitise the ownership of a commercial real estate. REITs are typically listed and the market value of REIT units appreciates/moves along with the market perception of the value of the real estate. REITs may achieve further yield enhancement by combining a securitisation structure with a REIT – as has been done in some of the recent transactions.
Securitisation of the famous Raffles complex in 2001 marked one of the significant CMBS transactions in Singapore. Fitch, which recently rated a REIT-securitisation transaction named Orion Prime has listed several CMBS deals in Singapore, as under:
- Silver Maple 2002
- Silver Maple 2003
- Silver Loft
- Silver Maple 2004
- Platinum AC1
The REIT activity in Singapore picked up with offerings by CapitaMall Trust (CMT) and Ascendas REIT (A-REIT) – both of which received overwhelming support. Currently there are 5 REITs listed on the Singapore stock exchange. Fortune REIT relates to properties in Hong Kong but has listing on Singapore exchange. CapitaCommercial relates to commercial properties in Singapore.
Securitisation by REITs has emerged as a unique way out for the leveraging limit put in by MAS regulations on REITs.
Reported by: Vinod Kothari