The report, Asia Pacific Real Estate Debt Market – Tighter Regulation Brings Opportunities, highlighted that following the global financial crisis, real estate bank lending in the Asia-Pacific (APAC) region significantly moderated due to international regulators implementing stricter capital requirements and cooling measures imposed by domestic authorities to curb rapidly rising property prices.
It noted that these actions have subsequently reduced the accessibility of bank lending in the majority of major APAC markets, prompting investors and property companies to seek out alternative options in the form of non-bank lending.
“The reduction of real estate lending by banks and limitations inherent to public bond issuance have created the undeniable demand for a dynamic non-bank lending market in the region,” CBRE Research Asia Pacific senior director Ada Choi said.
“Given the recent volatility in the Asian stock markets, it can be argued that debt investments can, at opportune moments, provide higher returns than equity in property, and hence has its merits as an alternative long-term investment vehicle.”
Within Australia, the report noted strong demand from borrowers looking to lock down long-term, low-interest loans in anticipation of impending rate hikes.
“Australia stands out amongst regional mature markets as institutional investors can maximise the significant pool of long-tenor commercial borrowers in a low-risk and transparent environment, matching lenders’ long-term liability periods and providing a hedge against equity price volatility,” said Nick Crockett, CBRE Capital Advisors director for the Asia Pacific.
While the non-bank lending environment in the APAC region is “profitable and poised to grow”, the report noted that it still holds significant challenges in managing execution and administrative inefficiencies in emerging markets.
“New entrants into the debt market would be best to seek the knowledge and market expertise of real estate debt and structured finance service providers,” Mr Crockett said.
“Apart from advising on varying licensing requirements across domestic markets, qualified service providers can likewise provide guidance in navigating country-specific challenges.”