Singapore plans to develop Islamic REITs

SINGAPORE'S central bank is seeking to develop a market in Islamic real estate investment trusts to attract funds from the wealthy in Asia and the Middle East.

"There is budding market interest to explore Syariah-compliant REIT listings and property players are looking to the Singapore REIT market," Tai Boon Leong, executive director at the Monetary Authority of Singapore, said in an e-mailed statement.

Rising wealth and economic growth in Asia will boost demand for Islamic investments, he said.

The Southeast Asian city-state, competing with neighbours Malaysia and Indonesia, is encouraging financial institutions to introduce more products that comply with Islamic law, or Syariah.

The Islamic financial market may triple in size to US$2.8 trillion by 2015, according to an estimate from the Kuala Lumpur-based Islamic Financial Services Board.

Singapore had 19 publicly traded real estate investment trusts, or REITs, and one property trust with combined market capitalisation of S$27 billion (US$19.8 billion) in 2007, the largest in Asia outside Japan, according to the central bank. Malaysia's KPJ Healthcare Bhd in August 2006 offered the world's first publicly traded Islamic REIT.

"The growing pool of liquidity in the Middle East portends well for Asia as much of it is reportedly looking for suitable investments in Asia," Tai said in prepared remarks at an Islamic finance meeting in Malaysia.

In May, Singapore's central bank said it plans to start a so-called facility that will allow it to start a bond market complying with Islamic principles. The Islamic bonds, or sukuk, will be offered in Singapore dollars and priced against conventional government securities.

With an Islamic REIT, payments to investors are based on rental income or dividends, while offering the potential for capital appreciation. Syariah, or Islamic law, bans the exchange of interest and investment in businesses such as tobacco, alcohol and gaming.

By Bloomberg