the asia pacific real estate debt market - tighter regulation brings opportunities

TIGHTER REGULATION BRINGS OPPORTUNITIES

The Asia Pacific Real Estate Debt Market

CBRE GLOBAL RESEARCH

Introduction 4

Stricter Regulation of Real Estate Lending 5

Asia Pacific Debt Market Overview 7

The Emergence of New Lending Sources 10

Opportunities for Non-bank Lenders 12

Conclusion 15

CONTENTS

CBRE GLOBAL RESEARCH This report was prepared by Asia Pacific Research, which forms part of CBRE Global Research—a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate. © CBRE Ltd. 2015 Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

THE ASIA PACIFIC REAL ESTATE DEBT MARKET 4 © CBRE Ltd. 2015 CBRE GLOBAL RESEARCH

In the years following the onset of the Global Financial Crisis (GFC) in 2008, banks in Asia Pacific became more prudent towards real estate lending as they sought to keep their balance sheets in shape. At the same time, financial institutions in the region have become subject to stricter regulations covering capital requirements such as Basel III, along with a series of government-led real estate cooling measures. Bank lending for real estate, including residential investment and development, has therefore slowed in recent years. This has had a direct knock-on effect on the real estate investment market. Long term lending for commercial real estate In the commercial real estate investment market, investors are now subject to lower loan-to-value ratios and prefer to invest into bond-like properties. Many investors have adjusted their strategies to focus on core or value-added investments. Although this means they need to put more equity into investment deals, which is different from the situation before the GFC, investors are beginning to look for longer maturity debt to lock in low interest rates as they prepare for the entry of the upward interest rate cycle. Funding gap for real estate development Bank financing and proceeds from pre-sales have been the two key funding sources for real estate development. As banks turn more conservative towards providing development finance, the funding gap being left by banking market is posing a challenge for both mature and emerging markets. This is especially prominent in the latter, particularly in China and India where the pool of lenders is smaller and alternative funding options are relatively limited. With more stringent underwriting requirements required ahead of the implementation of Basel III in 2019, lending by banks is set to remain tight relative to previous cycles. New sources of funding are required The tighter lending environment is encouraging borrowers to look for alternative funding sources, which are emerging quickly in the region. As a result, borrowers are shifting to the public debt market, which is driving the strong growth of real estate bond issuance by listed real estate groups, including developers and REITs. However, the public debt market can only mainly be accessed by large listed property groups with a credit rating. Borrowers who cannot access the public market are being forced to seek funding from other private channels. This is attracting more market players to participate in real estate lending. The two major groups are: (1) institutional investors providing long term senior lending with terms competitive to banks for asset

acquisitions; and (2) private equity real estate funds offering structured debt financing to development projects. The purpose of this report is to provide an overview of the Asia Pacific real estate debt market and identify opportunities for investors.

Introduction

THE ASIA PACIFIC REAL ESTATE DEBT MARKET 5 CBRE GLOBAL RESEARCH © CBRE Ltd. 2015

Banks in Asia Pacific became more prudent across the board towards lending for real estate following the onset of the GFC. This was mainly due to the following: 1. Legacy Issues – Banks have had to manage legacy real estate loans agreed at aggressive terms during

2006-2007. The value of property fell substantially during the nine months after the GFC. Although aggressive rate cuts and various stimulus packages launched during 2009-2010 helped drive a rebound in values, which in turn helped alleviate the rate of defaults on legacy loans, banks have remained conservative towards property lending to control leverage levels.

2. Regulatory Changes – Since the GFC there have been changes to the regulatory environment and the implementation of stricter lending terms, which has limited bank lending for real estate.

Deleveraging after the GFC

Stricter Regulation of Real Estate Lending

Chart 1: The CBRE Asia Pacific Capital Value Indices1

Source: CBRE Research, Q1 2015.

1. The CBRE Asia Pacific Capital Value Indices track the performance of prime assets only. 2. Basel II was implemented in December 2006. Consultation of Basel III was rolled out in 2009. Implementation is scheduled between January 2013 and January 2019.

The onset of the GFC exposed some risks related to bank capital adequacy and liquidity management. In response, international banking supervisory authorities revamped the existing Basel Accord2, to strengthen banks’ ability to absorb shocks triggered by financial stress. Risk and capital management requirements had already been tightened following the implementation of Basel II in 2006. Further tightening is expected, with all major central banks in Asia Pacific having committed to implementing Basel III in phases starting from 2013. Full implementation is scheduled to be completed by 2019.

Higher capital requirements for banks

Office Retail Industrial


As Basel III takes effect, banks will need to gradually increase the level of capital they hold. Many of the changes will be around the gradual increase in the tier I common equity to risk-weighted assets ratio3 from 2% in 2012 to 7% in 2019. Banks will have to increase their risk sensitivity to property loans according to their leverage ratio. The higher the LTV, the higher the risk weighting. Under the latest proposals for credit risk control, the risk weighting for residential lending will be increased from a flat rate of 35% to a maximum of 100%; and for commercial property lending the rate will increase from 50% to a maximum of 120%4. According to Basel III, construction loans and financing development projects entail greater risk as they do not generate cash flow for the repayment of loans. Banks will therefore be more inclined to lend for income generating properties that have respected covenants and landlords with sound credit ratings. Apart from regulations (Basel II and Basel III) at the global level, banks have also become subject to new regulatory measures at the local level. The rapid escalation in property prices in recent years5 has prompted authorities in a number of markets to implement cooling measures to curb price growth. These measures have mostly been directed at the residential sector and have included the following: • China relaxed the maximum LTV from 40% to 60% for second home purchases in March 2015 to

stabilise the residential market; • Indonesia, Malaysia and Thailand all introduced a LTV cap on second and third home purchases; • Hong Kong, Taiwan and Singapore implemented similar cooling measures along with additional

taxation measures such as an additional stamp duty and a luxury property tax. Some measures were also extended to commercial real estate, including the following: • Hong Kong limited the LTV ratio for commercial property mortgage loans to 40%; • Singapore introduced a more rigorous debt-servicing ratio in 2013 to limit borrowers’ debt leveraging to

no greater than 60%. These measures reduced the size of loans provided by banks to borrowers at the asset level.

3. The common equity tier I ratio is the ratio of a bank’s core equity capital to its total risk-weighted assets. 4. Consultative Document, Standards, Revisions to the Standardised Approach for credit risk, issued by 27 March 2015, Basel Committee on Banking Supervision. 5. The CBRE Asia Pacific All-sector Capital Value Index increased by 50% from 2009 to Q1 2015.

Table 1:Typical Commercial Property Bank Lending Terms in Major Markets

Country LTV Ratio (Pre GFC) LTV Ratio (Current) Cost of Financing

Australia 65-70% 60-65% 3.4-4.0%

China 50% 50% or below 6.3-7.3%

Hong Kong 70% 40% 2.7-3.2%

Singapore 60-70% 50-70% 2.8-3.3%

Japan 75% 65-85% 0.6-1.4%

Source: CBRE Research, S&P Capital IQ and various central banks and monetary authorities, Q2 2015.


Private debt market – Slower growth of real estate bank lending

Source: CBRE Research, CEIC, various central banks, June 2015.

Chart 2: Average Annual Growth of Bank Lending for Real Estate6 in Asia Pacific

Asia Pacific Debt Market Overview

The increase in regulations and restrictions has seen growth in commercial and residential real estate bank lending in Asia Pacific decelerate from 15% per annum in the period between 2005 and 2008 to just 7% between 2011 and 2014 (Chart 2). A general slowdown in bank lending for real estate has been observed in all major markets. This reflects the shift in real estate financing away from the traditional bank lending model and the fact that banks have turned very selective and prudent towards real estate lending. As a result, many borrowers have attempted to diversify their sources of funding due to more stringent loan underwriting from banks. The slowdown in bank lending for real estate has hit small and medium sized investors and developers particularly hard. The biggest decline has been in India, where the real estate sector has struggled amid subdued demand and slow residential sales. For commercial real estate lending, lower LTV demand from investors, who adjusted their strategies to core or value-added investments after the GFC, is acting to reduce their demand for bank loans. Investors are seeking more long-term loans to prepare for the entry of the upward interest rate cycle.

6 Bank lending to real estate includes lending to residential and development projects.


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Recent years have seen a rapid increase in real estate bond issuance by listed real estate groups including developers and REITs. The total size of bond issuance by listed real estate companies in Asia Pacific increased four-fold from 2011 to 2014, bringing the total issuance to US$33.9 billion in 2014 (Chart 3). The growth in real estate bond issuance by listed real estate companies has mainly taken place in China (70%) and Southeast Asia excluding Singapore (14%) during 2011 and 2014. Proceeds raised from bond issuance to date have mainly been used to finance development projects in listed real estate companies’ home countries. The rapid growth of the real estate bond market has also been supported by international financial investors’ stronger appetite for high-yield bonds. The size of bond issuance in mature markets such as Japan, Singapore and Hong Kong has been relatively stable. Although bond yields in emerging Asian markets are high at over 6% or more, they are still relatively cheaper than utilising onshore bank loans. Using Chinese real estate companies as an example, coupon yields at issuance for companies with an investment grade credit rating in 2014 stood in the range of 4% to 6%. In contrast, yields at issuance for companies with a non-investment grade credit rating were much higher, at between 6.35% and 12.75%. However, the cost of capital from public markets has been lower than the borrowing costs for non-listed companies from private loan and mezzanine finance, ranging from 15% to 20% or even higher. The situation is similar among Indian developers.

Public debt market – Growing appetite for public bonds

Corporate bonds

Source: CBRE Research, Bloomberg, June 2015.

Chart 3: Total Size of Bond Issuance by Listed Real Estate Companies in Asia Pacific


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A BBB+ BB BB- B+ B B- Private loans Mezz Debt

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Source: CBRE Research, Bloomberg, June 2015.

Source: CBRE Research, Japan Securities Dealers Association, Macquarie Bank, June 2015.

Chart 5: Total Size of CMBS Issuance in Japan and Australia

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Chart 4: Bond Yields and Interest Rate Costs for Chinese Real Estate Companies

7 The total value of outstanding CMBS in Asia Pacific covers Hong Kong, Japan, Singapore, South Korea, Taiwan, Australia and New Zealand with data extracted from Bloomberg. 8 Source from Securities Industry and Financial Market Associations

Commercial Mortgage Backed Securities (CMBS)

In contrast to the rapid growth of the real estate corporate bond market, demand for CMBS fell significantly after the onset of the GFC. The size of the CMBS market in Asia Pacific is small (around US$27 billion7) compared to the United States (US$627 billion8) as of the end of Q1 2015. Australia and Japan were the only two markets which had a substantial amount of CMBS issuance prior to the GFC. In Japan, the low cost of financing has made CMBS less attractive to borrowers. In Australia, the comparatively higher availability of other financing channels, such as non-bank lending or lending from offshore banks, has reduced the appeal of CMBS.


The rise of non-bank lenders

The Emergence of New Lending Sources

The public bond market is generally only available for large listed property groups, meaning that non-listed small- to medium sized (SME) property companies are unable to utilise this funding channel. The funding gap in non-listed groups remains under-served. Banks are reluctant to lend money for development projects and for lower quality assets. This has fueled the growth of non-bank lending in the region. The non-bank lending industry in Asia Pacific has grown rapidly in recent years, standing at around US$5 trillion as of the end of 2013, with China and Japan the largest markets9. China recorded the fastest growth of around 34% y-o-y in 2013, followed by India with growth of just under 18% y-o-y. Non-bank lending for real estate is growing in tandem and is creating opportunities for investors to provide capital to bridge the gap for real estate. Many such groups are looking to enter the Asia Pacific real estate debt market. According to CBRE’s 2015 Investor Intentions Survey, 31% of real estate investors in Asia Pacific have already invested in real estate debt, a percentage which lagged behind participation in EMEA (34%) and the United States (45%). The regional debt market also needs to catch up in terms of market depth and transparency. Investment funds and institutional investors are the major investors in debt, accounting for over 60% of survey respondents which had invested in debt as of the beginning of 2015. Chart 6: Breakdown of Investors Indicating they have Invested in Real Estate Debt

Source: CBRE Asia Pacific Investor Intentions Survey 2015, March 2015 Note: Institutional investors include insurance companies, pension funds and sovereign wealth funds

9 Global Shadow Banking Monitoring Report 2014, Financial Stability Board. Markets included in these statistics are Japan, China, Australia, India, Hong Kong, Singapore and Indonesia.


A recent empirical study10 found that in the United Kingdom between 1981 and 2012, commercial real estate debt investment provided higher total returns than equity returns in commercial property. The average debt total returns ranged from 9.2% to 9.8% per annum depending on the leverage ratio, higher than the average total return of 9% from commercial property. Debt investment can therefore provide an attractive alternative investment angle for long term investors. However, pure real estate debt fund structures have not yet evolved in Asia Pacific. Nevertheless, private equity real estate funds with opportunistic strategies have already become involved in debt investment in the region. Most are engaged in financing property development for high yields and short investment terms. Bond yields have fallen in tandem with a decline in short term interest rates globally over the past few years. This has encouraged institutional investors to look for other assets beyond government bonds and equities. The long-term nature of real estate investment makes it a good match for insurance companies’ and pension funds’ liabilities. This has resulted in an increase in institutional capital flowing into the real estate sector in search of higher-bond type returns providing steady income streams. Due to intense competition for core assets, some insurers and pension funds have shifted to debt investment by providing property loans as an alternative way of capturing real estate returns. They can provide long-term senior loans at a competitive rate of interest and meet borrowers’ growing requirements for long maturity loans.

10 Barkham R., and Frodsham M., (2015), “Simulating the cyclically adjusted returns to UK property lending”, Journal of Property of Investment & Finance, Vol. 33 Iss 1 pp.66 - 80.

Real estate debt investment can provide an attractive alternative investment angle for long term investors


Greater sophistication of the real estate capital stack

Chart 7: Traditional and Current Real Estate Capital Stack

Source: CBRE Research, June 2015

With the addition of more sources of funding, more layers are being added to the real estate capital stack, which originally consisted of two components: traditional bank loans and equity. Essentially, there are two layers evolving. These are: (1) Mezzanine financing or junior lending to boost the LTV or bridge short-term cash requirements (2) A preferred equity portion that allows capital to be structured as a hybrid between equity and debt. The senior lending layer is seeing the greater involvement of non-bank financiers providing longer term loans for borrowers. The greater sophistication of the real estate capital stack in Asia Pacific is changing the way investors finance both development projects and standing investments.


Opportunities for Non-bank Lenders

Mature markets: Long-term lending

AUSTRALIA: Growing demand for longer term funding

Borrowers in mature markets are increasingly keen to secure long-term loans ahead of an anticipated increase in interest rates, with the US Federal Reserve hinting at a possible rate hike in the near future. This is providing opportunities for non-bank lenders to step in and engage senior loans on stabilised properties, given that banks’ maximum lending terms are typically up to five years. This type of debt investment will offer a return profile similar to that for core assets and provides an alternative way for investors to seek real estate exposure amid the limited availability of core assets for sale. CBRE believes that this strategy is more viable in mature markets, particularly in Australia.

In Australia there is growing demand for long term loans from property syndicates and large public and private investors to lock in historically low interest rates. International insurance companies and pension funds are entering the market and are providing long term senior lending for commercial property acquisitions. The tenor can be around 7 to 10 years at a competitive interest rate of 4.5% - 5%11. There is also room for real estate funds to provide mezzanine development funding to developers as banks, who have increased lending growth in commercial development over the last year, may turn more selective towards financing commercial development projects. Banks are more concerned about risks such as softer occupier demand in the commercial property market and signs of oversupply in markets such as Brisbane and Perth. Although lending margin have tightened from 170-180 bps over the three-month Bank Bill Swap Rate in 2014 to a current level of 130-150 bps for loans of around AU$20 million, these numbers are still attractive to investors entering the market.

Chart 8: Vacancy Rates in Australian CBD Office Markets

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Sydney Melbourne Brisbane Perth

Source: CBRE Research, June 2015

11 The interest rate is as of June 2015.


HONG KONG & SINGAPORE: Cooling measures in both markets but opportunities vary

Although authorities in Hong Kong and Singapore have both implemented cooling measures to tighten bank lending for real estate, opportunities for non-bank lenders to provide funding differ in each market. In Singapore, there are not many opportunities for non-bank lenders as domestic banks have been efficient in providing competitive lending terms. Borrowers can still secure a LTV ratio of around 50-70% for commercial property acquisitions. In contrast, the stricter lending restrictions in Hong Kong have created opportunities for non-bank lenders. Since February 2013, banks in Hong Kong have been required to adopt an increase of 3% in interest rates when stress-testing borrows’ repayment ability. The LTV ratio for commercial property mortgage loans is often less than 40% when borrowers pass the stress test. This may not affect blue chip developers as they can still obtain cheap financing via corporate loans from banks and high-grade corporate bond issuance. Nevertheless, many private equity real estate funds and private investors have been affected by the restrictions. More international financiers and private funds are now interested in providing lending for commercial property acquisitions in Hong Kong. The rates offered by these lenders vary depending on the loan tenor, asset quality and the borrower’s profile. Generally, insurance companies can offer competitive lending terms but have strict requirements on the underlying asset quality of the loans. They prefer to lend against en-bloc commercial properties in prime locations with stable rental yields. Private real estate funds and family offices may require higher returns for real estate lending but are comparatively less selective in terms of the underlying asset quality. One recent transaction saw a private equity fund provide financing for the acquisition of a shopping centre at an interest rate of around mid-4% with a LTV ratio of 65%.

JAPAN: Limited prospects due to cheap and abundant liquidity from banks

The Japan real estate market has enjoyed cheap financing costs and ample liquidity since the Japanese banking system was flooded with cheap capital under the government’s Quantitative and Qualitative Easing (QQE) programme following the election of Prime Minister Abe in December 2012. The aggressive lending terms offered by local banks can easily eclipse non-bank lenders and is limiting opportunities for them to win lender bids. Large domestic banks can provide favourable lending terms with interest rates of under 1% to borrowers sponsored by large Japanese companies with good credit ratings. CBRE therefore sees few non-bank lending opportunities in Japan in the short term. Instead, Japanese lenders have turned more active in providing loans on the offshore market as they look to benefit from their low cost of capital.


The funding gap for development projects is more prominent in emerging Asia. Private equity real estate funds have been active in this space as such investments enable them to gain access to property markets which have foreign ownership restrictions on direct investment. Preferred equity and mezzanine financing are the usual format of such investments as they provide high yields and flexibility for equity conversion. CBRE sees significant opportunities in China and India as developers in both markets have been active in expanding their potential sources of capital.

CHINA: Big opportunities in financing development deals

Banks remain reluctant to provide development financing to property companies, particular the smaller groups. Proceeds from pre-sales have become their major source of funding. Residential sales have stabilised after the central banks cut the interest rates three times in 2015 and relaxed lending rules for residential mortgages. However, the pace of pre-sales has slowed substantially compared to 2013. Small and medium sized developers continue to look for other sources of funding. With a large pool of small local developers in China, CBRE sees ample opportunities for non-bank lenders. Real estate funds have turned more active in funding residential development in China in recent years. Many such groups are acting as pure debt providers to receive high interest rates. While domestic financial institutions, particularly trust investment companies, are the major non-bank lending providers, more foreign funds are going into this space. In early 2015, InfraRed Capital Partners invested US$20 million of secured notes issued by Cheung Wo International Holdings with a guaranteed return of 20% per annum for financing development projects in China12. Investors can also structure such deals with options to convert interest into equity to capture upside potential when they invest in quality assets or projects. Notable examples include Brookfield Property Partners, which invested US$500 million of convertible perpetual debt into China Xintiandi, a wholly owned entity of Shui On, which owns the high-end Shanghai Xintiandi entertainment district in Shanghai13. The bond yield is 8.3% for the first five years and will be converted into China Xintandi shares upon being listed on the stock market. Other deals have involved real estate funds providing mezzanine finance such as bridging loans to developers to pay premiums for changing the land use or for other short-term financing needs at higher interest rates. Despite the high interest margins offered by non-bank junior financing, legal protection for offshore junior lenders remains a concern. Offshore capital takes equity risks if the underlying assets are onshore collateral. In view of the oversupply situation in many Chinese cities, foreign funds should ensure the project is well-located, preferably be in a tier I city, when utilising the offshore structure.

12 InfraRed Capital Partners press release, 27 January 2015. 13 Shui On Land Limited public announcement, 31 December 2013.

Emerging markets: Gaps in development funding


INDIA: Developers turn more active in sourcing capital from overseas

In recent years Indian developers have been increasingly proactive in searching for funding from overseas so as to fuel the development of idle land. The subdued residential market has made it difficult for developers to obtain lines of credit from domestic banks. However, recent rate cuts and improving economic environment will strengthen India’s housing market growth prospects in 2015 and beyond. Common approaches include forming partnerships with foreign funds as well as debt funding from non-banking financing companies (NBFC)14. The NBFC sector has been growing with the aggregated assets rose 16.8% y-o-y as at the end of March 2015. Insurance companies and asset management companies are the major investors in NBFCs, accounting for 63% of investments in 36 big NBFCs, according to the Reserve Bank of India. Borrowing takes the form of straight debt, mezzanine debt and preferred debt structures where IRRs are typically in a range of about 19% to 23%, depending on the quality of the developer. The lure of high returns has attracted domestic private equity players as well as a number of global real estate funds and institutional investors to provide funding for residential development in India. Examples include the Canada Pension Plan Investment Board (CPPIB), which in 2014 formed a US$500 million strategic alliance with Piramal Enterprises for residential development debt financing; and KKR, which established a real estate lending platform with GIC to provide structured debt financing to local property developers. However, the general lack of transparency in this market continues to deter many investors.

14 A financial institution established by private funds which can provide loan services but cannot accept demand deposits, issue cheques and does not provide coverage in deposit insurance facilities to depositors of NBFC.

Chart 9: China Residential Sales by Total Gross Floor Area

-30%

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Source: CBRE Research, National Bureau of Statistics of China, June 2015


Challenges for non-bank lenders

Despite the increase in non-bank lending in Asia Pacific, the stage of development of the real estate debt market varies across the region. Investors should be aware of a number of challenges related to execution, administrative and regulatory issues. • Execution – One major challenge for investors is how to source non-bank lending opportunities,

particularly when the transparency of the debt market in Asia Pacific can often be very opaque. In addition, most investors do not have the expertise required to invest in offshore real estate loans, particularly when engaging in structuring, due diligence and managing loan books at the deal level. However, these challenges can be overcome by utilising the knowledge and experience of local real estate debt and structured finance service providers.

• Licensing and regulatory – Although non-bank lenders are not subject to banking regulations, they still have to fulfill licensing requirements for lending. Regulatory and licensing requirements vary by country. For example, in Hong Kong, non-bank lenders which do not partner with a licensed loan originator may need to have a money lending license issued by the Commissioner of Police to be able to provide private lending to a third party. In Australia, non-bank lenders choose to work with origination and servicing entities licensed under the Australian Financial Services Licence (AFSL) regime.

• Administrative – Providers of mezzanine debt need to obtain approval from senior lenders. Three parties, including the senior lender, the mezzanine provider and the borrower, are required to enter into a tripartite deed to clarify how the security and default provisions work in case of a default. This lengthens the underwriting process of mezzanine financing.

https://apacnavigator.cbre.com/Marcomms/ImagesLibrary/04.0 FINANCE/fin_00003_lres.jpg


Conclusion

Banks in Asia Pacific are set to become even more selective when providing financing for real estate in the coming years. Borrowers will therefore continue to explore alternative sources of funding. Large listed real estate companies and investors will shift to securing capital from the public bond market. Borrowers which cannot access the bond market will continue to explore funding from private channels. Real estate funds and international institutional investors have already entered the debt market and are meeting demand for private real estate lending. The entry of non-bank lenders to the market is broadening the real estate capital stack from the traditional bank loan plus equity format, particularly with their flexible structures and appetite being aligned to longer tenors. These non-bank lenders are providing junior lending to boost LTVs; bridging short-term requirements; and investing in preferred equity as a hybrid between equity and debt. This is changing the format of financing for development projects and property investment and is also providing alternative ways for investors to gain exposure to real estate. Non-bank lenders in mature markets are advised to evaluate opportunities to provide long-term loans to borrowers. There is growing demand from borrowers for longer maturity debt to lock in low interest rates ahead of future interest rate hikes. Longer maturity debt can also remove unnecessary complexity caused by annual reviews, revaluation events and loan terms being classified as “short term” in the accounts of borrowers when they have less than 24 months to run. CBRE believes Australia provides the most compelling such opportunity among mature markets. In emerging markets, there will be more debt investment opportunities in development projects in China and India as many developers continue to struggle to obtain financing. However, these types of deals are more suited to opportunistic players. CBRE believes that now is the opportune time for non-bank lenders to secure attractive deals in these two markets’ residential sectors. Borrowing can take various formats including straight debt, mezzanine debt and preferred debt structure. CBRE expects that the Asia Pacific real estate debt market will continue to evolve in the coming years, with the pool of lenders set to deepen further. CBRE’s 2015 Asia Pacific Investor Intentions Survey found that more investors are displaying an interest in investing in alternative sectors (62% of all respondents) with real estate debt being the most popular alternative method of investment (22% of such respondents). The growth of the real estate debt market will provide more channels for investors to gain exposure to real estate in the region.

For more information about this regional major report, please contact:

RESEARCH Henry Chin, Ph.D Head of Research, Asia Pacific +852 2820 8160 [email protected] Nick Crockett Executive Director, Asia Pacific +65 6229 1136 [email protected] Chris Chiang Senior Director, Asia Pacific +65 6229 1135 [email protected]

Leo Chung, CFA Manager, Asia Pacific +852 2820 1527 [email protected] Junichiro Muto Senior Director, Asia Pacific +81 352889519 [email protected] Sharon Law, CFA Director, Asia Pacific +852 2820 6559 [email protected]

CBRE GLOBAL RESEARCH

This report was prepared by Asia Pacific Research, which forms part of CBRE Global Research—a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate investors and occupiers around the globe. All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without prior express written permission of CBRE. Any unauthorized publication or redistribution of CBRE research reports is prohibited. CBRE will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.

© CBRE Ltd. 2015

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the asia pacific real estate debt market - tighter regulation brings opportunities

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