Real estate green financing booms in Singapore
Real estate green financing is catching on in Singapore, driven by a rise in ESG investing and sustainability consciousness.
Real estate green financing is catching on in Singapore. Developers, asset owners and investors seeking to demonstrate sustainability in their corporate values, are driving the trend. They aim to carve stronger value propositions for their investors and uphold resiliency against risks.
Such financing rose 84% year-on-year to SGD 2.98 billion in the first five months of 2020. In the previous three years, the surge was more than seven-fold, from SGD 785 million in 2017 to SGD 5.98 billion in 2019.
Figure 1. Real estate green finance volume in Singapore
Source: JLL Research
What is green financing?
Green finance is essentially sustainability-focused financing. In the context of real estate, these are investments in green projects that deliver environmental benefits.
In Singapore, the first type of green financing in the real estate sphere was the green bond. In 2017, a local developer, City Developments Limited, launched a SGD 100 million two-year green bond. At a fixed rate of 1.98%, the bond was to refinance the retrofitting work of its flagship office, Republic Plaza. Later, their BCA Green Mark Platinum development further achieved the BCA Green Mark Pearl Award, which evaluates both the core and interior tenanted spaces of a building on environmental sustainability.
The most popular form of green financing in Singapore’s real estate industry has been the green loans, with more than SGD 8 billion accumulated to-date. The largest of these was the five-year syndicated loan of SGD 1.2 billion that Frasers Property had raised in 2018 to refinance existing loans for the development of its 38-storey Frasers Tower office development. As a recipient of the BCA’s Green Mark Platinum Award, the development features four community zones for tenants to connect and collaborate, a three-storey cascading retail podium, smart building systems, and end-of-trip facilities.
Sustainability-linked loans (SLLs) are also gaining traction, ballooning to SGD 810 million in the first five months of 2020, from just SGD 300 million in 2018. The largest SLL secured was the SGD 500 million raised by CapitaLand in May 2020. Unlike green bonds and loans whose proceeds target specified green projects or capital expenditure, SLL financing is used for general corporate purpose and their interest rates are pegged to a company’s environmental, social and governance (ESG) performance.
Table 1. Real estate green finance issued for assets or organisations based in Singapore, in 2020
|Type of financing||Issue date||Purpose|
|CapitaLand||500||SLL||May-20||General corporate purposes|
|National University of Singapore (NUS)||300||Green bond||May-20||Green projects including green buildings or precincts at NUS' campuses|
|GuocoLand||730||Green loan||May-20||Development of luxury residential and commercial project on Tan Quee Lan Street in Bugis|
|CapitaLand||400||Green loan||Apr-20||Development, investment and acquisition of certified green buildings|
|City Developments Limited||500||Green loan||Apr-20||Finance new green developments in Singapore and abroad|
|Mapletree Investments||310||SLL||Mar-20||General corporate purposes|
|Park Hotel Group||237||Green loan||Feb-20||Refinance Grand Park City Hall hotel|
Source : JLL Research
Benefits of green finance and ESG investing
Research points to investors’ growing appetite for companies that are compliant with ESG standards. For example, BNP Paribas’ ESG Global Survey 2019, found that about 68% of asset owners and asset managers allocated above 25% of funds towards ESG investments, up from 51% in 2017. More than 90% are targeting similar allocation levels by 2021.
Empirical studies from MSCI analysed how ESG affects the financial profile of companies over a ten-year period. They suggested that high ESG-rated companies achieve higher profitability and valuations, lower borrowing costs and better risk management.
Developers, asset investors and owners who align themselves to the ESG theme, for instance, pursuing sustainable projects and integrating ESG into corporate governance using green financing, will be better positioned to gain investor confidence and manage risks.