Singapore investors are playing a growing role in Australia’s real estate market, with surging borrowing costs opening up opportunities in the credit space as non-bank lenders step in to help finance distressed-asset and value-add plays, according to panellists at Mingtiandi’s Singapore Forum last week.
Trent Winduss, head of Asia structured debt investments at Hong Kong-based Phoenix Property Investors, told the audience at the ParkRoyal Collection Marina Bay that Australia’s key banks tend to support core assets and, in rare instances, the repositioning of “unicorn” properties.
As a result, nearly all borrowers for opportunistic and value-add investments are being pushed into the non-bank space, said Winduss, who oversees debt investments made by Phoenix across China, Southeast Asia and Australia. Feasible projects can still borrow from non-banks in the current climate, he said, while less-workable projects are being shelved.
“Some of the biggest Singapore investors are also some of the biggest investors in the credit space in Australia and have been over the last couple of years,” Winduss said.
Fergal Harris, head of capital markets for Australia at JLL, agreed that the shifting cost structure in the debt market could lead to a deeper non-bank lending market.
“The rise in rates not only gives private debt funding more attractive returns, it also breaks the formula that has governed the four-bank pillar in real estate,” Harris said, referring to Aussie lenders ANZ, NAB, CommBank and Westpac.
He predicted that interest coverage ratios would remain under pressure through the first half of 2023, leaving highly regulated banks to struggle with flexibility.
“So that model is broken,” Harris said. “And that model is not going to get fixed by Citibank or by Standard Chartered Bank or UOB coming into town and picking up, where in previous cycles we saw local banks replaced by ambitious and flexible international banks. That part of the market is now going to have to be filled by private credit.”
The JLL exec said at least $2 billion in capital was raised in the last six months for the credit markets, “so that’s not going away, that’s now a trend, and it’s going to be really interesting to see the competition for credit in the unregulated space”.
Sharon Sng, head of sales, at digital assets exchange SDAX, said Singapore-based real estate investors looking to spread their risk have eagerly headed Down Under.
“In the Australian market, Singapore has been a key driver and supporter as an alternative lender into that market,” Sng said. “Because the Singapore capital has been very comfortable in that space in terms of property development specifically.”
Laurent Fischler, head of APAC investment at Ivanhoe Cambridge, noted that the Canadian fund manager has invested alongside partners in Australian projects in the build-to-rent segment for the past several years. And while vacancies are low and rents are rising in the competitive space, the underlying conditions haven’t made it easy to source new opportunities.
“The cost of debt is going up, construction costs have exploded over the past 18 months, and yet the people selling land don’t seem to have got the memo and they’re not really adjusting their expectations,” Fischler said. “So there’s a bit of a mismatch and it’s been pretty hard to deploy, if I’m entirely honest. One of our frustrations is we would like to deploy more in that sector, but it’s hard to get good deals to meet your return targets.”