Over the past 20 years, Singapore has been a model for REITs. Its securitisation model enabled REITs with Singapore sponsors and managers to expand overseas, and for foreign sponsors and managers to list their assets in Singapore - becoming effectively an Asian REIT hub. Now though, countries such as India and the Philippines have effected their own REIT regulation enabling Indian assets to be listed as REITs in India, and Philippine assets to be listed as REITs in the Philippines. China is likely to join the REIT race soon.
In effect, regulators of countries in Asia have followed the likes of Singapore and Hong Kong in their implementing REIT and other regulations that enable efficient securitisation of real assets including infrastructure. The Asian Development Bank has estimated that developing Asia needs to invest US$1.7 trillion a year to the end of the this decade in infrastructure, including to eradicate poverty and respond to climate change.
India - which really needs new infrastructure - has announced a US$1.5 trillion infrastructure pipeline. In addition to three Indian REITs listed in India, the sub-continent has four listed Infrastructure Investment Trusts or INVITs.
Chinese infrastructure REITs to IPO soon
The market likely to attract the most attention is likely to be China. The Middle Kingdom has announced plans to invest US$7 trillion in new economy infrastructure over the next five to seven years, and in 2020, Chinese regulators announced a regulatory framework for the listing of infrastructure REITs.
According to Chen Lijian, senior executive president, China Orient Summit Capital, five to 10 infrastructure REITs are waiting for approvals from the China Securities Regulatory Commision (CSRC) which is the last step before attempting a listing.
“The value of the China REIT market is RMB1 trillion just for infrastructure. If you add commercial property, you would be looking at RMB5 trillion. But the true REIT form and framework is going to take time,” Chen acknowledges.
Under the Chinese infrastructure REIT framework, logistics assets, data centres and industrial parks are recognised as infrastructure assets, as well as toll roads and electric power stations, Chen points out.
Chen is also China Chapter Chairman of Asia Pacific Real Estate Association’s (APREA), which represents the real asset sectors in Singapore, Hong Kong, Australia, Japan, China, India and other Asean economies. He was one of the speakers at the launch of APREA’s rebranding. The pan-Asian organisation has rebranded with a refreshed logo to represent connectivity, transparency, sustainability and diversity.
“In terms of opportunities, its a natural progression for APREA, as a lot of our industry players are seeing allocation to infrastructure increasing,” Chen says.
What will individual REIT regulations in countries such as India, China and the Philippines mean for the Singapore Exchange as an Asian REIT hub?
Let large S-REITs grow bigger
John Lim, co-founder and deputy chairman of ARA Asset Management, and chairman of APREA says that Singapore’s big cap REITs should grow bigger as anchor for the local REIT market. “The key is not for 100 REITs to be listed here. If you get 100 small REITs, it’s no use. The key for the big ones -eg CapitaLand Integrated Commercial Trust, Suntec REIT, Mapletree Logistics Trust and Ascendas REIT - those with over $10 billion to $11 billion in assets - to go out and acquire,” he suggests.
“It’s the quality of assets, the quality of manager and sponsor, and size that matter. If you have 10 to 15 REITs with an asset size of $10 billion, and they acquire say $1 billion a year, [your market] is growing at 10% a year,” Lim reasons. In that way the market can continue to grow to $200 billion.
“You need sound policy, good quality assets, investor education to grow the market. There’s no need to continue to attract cross border listings from India and [other countries]. Why should Indian assets come over when there are so many taxes and operating expenditure issues such as property management?” Lim wonders.
In his view, the big local REITs should buy assets in mature, developed markets such as Japan, UK, Australia and US rather than in emerging markets which pose forex, economic and political risks. The big REITs have sponsors which already have operations on the ground in these developed markets.
“Emerging market REITs should list in their home markets where investors understand their products, and we should allow our REITs to buy into developed markets,” Lim says.