Given the unstable condition of credit markets, the listed property firms, especially the real estate investment trusts (REITs) are asking the government to refinance the estimated $12 billion debts.
The request came from Asian Public Real Estate Association (Aprea), an organisation set up in Singapore, representing the entire listed firm of real estate in Asia.
“Government assistance is needed to get liquidity moving and reduce the risk of plummeting real estate values and pressure on the capital positions of lenders,” said Aprea officials. “Its help is needed to restart the credit markets for commercial real estate debt.”
“This is an issue for the general commercial real estate market and, by extension, the broader real estate market and the broader economy,” said Peter Mitchell, Aprea‘s chief executive.
Lots of proposals have been submitted by Aprea to several regulators in Japan and Singapore since November of last year, seeking for assistance during these crucial times.
According to Aprea, one proposal would be a financial institution being managed in Australia. The Australian government already announced a US$3.86 billion fund with support coming from four Australian banks to aid the refinancing of several commercial property sectors.
Singaporean government revealed their measures to free credits of businesses in the country, but nothing was particularly designed at listed real estate firms.
According to the Aprea, inability to refinance and raise credit could lead to forced sale, bankruptcies and foreclosures which may lead to more potential downward spiral and the instability of the market. “The more that real estate loans can’t get refinanced, the more risk there will be of losses for the banks, some of which can ill afford more losses.”
“Banks’ jobs are to make loans, not own real estate. There is a risk that banks will not be able to absorb, manage and turn around properties at this scale if they come back to the lenders,” they said.
“The collapse of an otherwise healthy real estate market caused by general credit paralysis has the potential to significantly aggravate recessionary pressures.”
Several rating agencies are discussing about the declining Singapore REITs due to the refinancing concerns. However, Mr. Mitchell said that the real concerns lie on the dysfunctional credit environment.
“It is not the REITs themselves having problems. They are just being impacted by the freezing of credit.”
Out of the estimated $12 billion refinancing this year, one-third of the fund is allocated to REITs. Aiding REITs is important during the turmoil as it will attract potential investors as the country moves out from the current economic downturn.
“Investors are going to be risk-averse and will look for things that are liquid, transparent and lowly geared, equity-oriented investment. That’s what REITs are,” Mr. Mitchell added.