John Lim, who serves as CEO to the ARA Asset Management Group, presented several proposals for the benefit of Singapore real estate investment trusts (S-REITs) in the wake of the financial crisis. According to Lim, refusing to relax bank lending to S-REITs would result in severe consequences for the whole of the S-REITs industry.
“We don’t want to see even a single REIT fall,” Lim said. “Because when even a small REIT falls, in today’s market, confidence in the whole S-REIT sector will collapse. It would be the same phenomenon as Lehman Brothers.”
To Lim, it is very much possible for the S-REIT industry to go down the Lehman Brothers path; it is also, in his opinion, a worst case scenario that may become inevitable if the warnings he gave are not taken seriously.
Given his concerns, Lim took it upon himself to make a list of possible solutions to the problem of the S-REITs. The first of his suggestions involved the lifting of a particular cap that the Monetary Authority of Singapore (MAS) has imposed on banks. The cap in question limits the exposure of banks to property investment and development activity (excluding certain types of residential mortgages). Otherwise, Lim argued, S-REITs should be exempted from Section 35 for Singapore banks.
Lim had other suggestions, such as a temporary relief fund line set up by MAS to help S-REITs refinance for the next few years. The fund in question, Lim proposed, should theoretically amount to $10 billion, and should be managed by the banks. The ARA SEO also recognised privatisation as a possibility, but expressed concern with the inevitable downsizing of the industry in that scenario.
Lim admitted that his suggestions would not solve all the S-REIT industry’s problems, but he hoped they could reduce the probability of S-REITs falling into the Lehman Brothers scenario.