Is there a business case for REITs in Singapore

Abstract

In an attempt to determine whether there is a business case for the establishment of a Real Estate Investment Trust in Singapore(SREIT), we analyzed the market fundamentals and the regulatory framework governing the SREIT. A case study on the failure of the first SREIT offering is also presented with the aim of examining the prospects of SREITs going forward. We found that there is a viable business case for REITs in Singapore. On the supply side, there is a strong impetus for real estate owners to divest their properties after the Asian Economic Crisis due to the capital intensive and low return nature of these assets. On the demand side, there is clear investor demand for yield based investment instruments like SREIT given the significant amount of investible funds from the Central Provident Fund and retail deposits. Except for the lack of full tax transparency, the SREIT regulatory framework is largely in line with international best practices. On the failure of the first SREIT offering, we found that the key factors contributing to the failure were specific to the trust itself and had little to do with the broader market conditions like supply, demand and regulation.