Thanks to its ability to attract global property owners to list on its exchange, Singapore's real estate investment trust market continues to expand and could eventually surpass that of Japan, currently the largest REIT market in the Asia-Pacific region.
The first REIT listed in Singapore in 2002, and the Lion City now boasts the second-largest REIT market in Asia. The 43 so-called S-REITs listed in Singapore have an aggregate market capitalization of S$93.00 billion, or about US$67.84 billion. With 58 publicly traded REITs, the aggregate market value of the Japanese REIT market is valued at more than ¥11 trillion, or US$99.25 billion.
One factor distinguishing the S-REIT universe from other Asian REIT markets is the geographic diversity of company portfolios: Currently, over 70% of S-REITs and property trusts own at least some properties outside of Singapore, according to data from the Singapore Exchange. In contrast, all but one of the REITs listed on the Tokyo exchange own assets only located in Japan. Aeon REIT, which listed in 2013, owns two properties in Malaysia in addition to its Japan-based portfolio. Only one listed property trust in Thailand, an emerging REIT market in the region, owns offshore properties.
Additionally, Singapore is attracting companies that do not own any property in Singapore. The portfolios of the last eight REITs that debuted in Singapore are entirely located elsewhere, S&P Global Market Intelligence data shows.
In March, Sasseur REIT, which owns four outlet malls in China, completed its S$396 million REIT IPO on the Singapore stock exchange. The offering marked the first outlet REIT IPO and the largest REIT IPO in 2018 in Asia. Looking ahead, U.S.-based commercial real estate owner KBS Realty Advisors LLC and Luxembourg-headquartered property investor Aroundtown SA are planning to list REITs in Singapore, according to Bloomberg News.
Anthony Ang, CEO of Sasseur REIT's sponsor, Sasseur Cayman Holding Ltd., said that Sasseur was attracted to Singapore given its international dynamics, particularly as compared to the U.S., Japan and Australia. "REITs with foreign assets have become increasingly popular among investors; more and more REITs with foreign assets are choosing Singapore as the place to list," Ang said in an interview.
Furthermore, the investor base in Singapore is open to investing in global assets, Chen Zhen, head of investor relations at Sasseur, said. "If you go to Japan or Hong Kong, most of the investors are locals, and it's difficult to attract them with your [global] assets."
Singapore, a small country with a population of less than 6 million, has been working to establish itself as a regional financial hub by developing niche markets, and it focused much of those efforts on REIT listings, Christine Li, senior director of research at Cushman & Wakefield Singapore, said. The government has worked to make its REIT regulations beneficial to both property owners and investors.
S-REITs are exempt from paying corporate income taxes if they distribute at least 90% of their taxable income to unit holders. Singapore allows REITs to undertake major asset enhancement initiatives to rejuvenate portfolios and boost rental growth, a practice that is prohibited in many other markets, Li said.
"Singapore has continuously improved its tax framework to boost the REIT sector," said Max Loh, Ernst & Young managing partner for ASEAN and Singapore, who said that S-REIT rules are very clear. In its latest move, the government in 2018 expanded its tax transparency rule to include exchange-traded funds invested in S-REITs, exempting them from paying a 17% corporate tax.
Li said that as high-quality REITs list and provide investors with solid returns, more quality companies will be lured to Singapore, leading to a "snowballing effect."
"More and more Chinese and Indian companies are getting mature and starting to go asset-light, but REIT-related policies are not well-established in their home country, [so] they will see the advantages in Singapore and head there," Li said.
As of Sept. 11, US$1 was equivalent to S$1.38 and ¥111.51.