Will Lippo concretise the $5 Billion REITS plan in Singapore?

Lippo Group plans to set up real estate investment trusts that will buy as much as $5 billion of its Asian assets, freeing up capital to invest in higher- yielding projects including Singapore residential developments. The Jakarta-based company, which set up its first property fund in Singapore last year, plans to sell shares of trusts backed by shopping malls and office buildings, Chief Executive Officer James Riady said in an interview.

“We like the concept of a REIT,” Riady said at the World Economic Forum conference in Singapore. “That's a powerful tool for investors to invest in quality assets, and allows developers to tap into the REIT and enable them to do much more things than they would otherwise be able to do.”

What are the benefits of the property trusts? They will help Lippo tap funds from Singapore's five-year-old REIT market, where developers have sold shares in 16 trusts with a combined market value of $19.2 billion. Residential developments offer higher returns than office and retail properties because homes are usually sold within two to three years.

“The Singapore property market is still fairly hot,” said Jay Moghe, who oversees $150 million at Opes Prime Asset Management Pte in Singapore. “Within the Asian REIT story, Singapore has played an important part. These trusts offer relatively good yields and as that market develops, we'll see more players wanting to set up REITs.”

Lippo Group sold shares in its first real estate investment trust in Singapore in December. Its shopping mall REIT will sell shares within the next 18 months, while its commercial trust will be created within two years.

The real estate market has also been tapped into. The developer sold at least two apartment projects in Singapore's downtown in the past year, and is planning to start selling homes at a residential development on the city's resort island of Sentosa, Riady said. Shares of Lippo's First Real Estate Investment Trust, which owns seven health-care properties in the region, have gained 13 percent in the past six months. Still, it lagged behind other REITs traded in Singapore, which have risen by an average of 29 percent, according to data compiled by Bloomberg.

Malls remain Lippo’s greatest projects. The company owns Indonesia's biggest publicly traded developer and controls as many as 40 malls through its units, Riady said. The group also owns stakes in publicly traded companies including PT Matahari Putra Prima, Indonesia's largest department-store operator, and Robinson & Co., Singapore's oldest retailer. “We would like to see a mall REIT because at the end of the day, the middle-class and the affluent like to go to the malls,” he said “They like to go shopping, encouraging bigger and better-quality malls.”

The company intends to sell shares of its property trusts in Singapore because of government efforts to encourage investment and its low tax-rate for REITS, Riady said. Local corporate investors pay a 20 percent tax on dividends paid by trusts, while individual investors don't pay any taxes.

An important investor like Lippo is likely to take the property market of Singapore to new horizons. However, even if Singapore remains a stable market, what challenges remain in front of Lippo? Will it be able to tap into the Singaporean market without problems?