Introduction

Globally, 2024 has thus far been marked by political uncertainty and an uneven economic recovery from a bearish 2023. Nonetheless, Singapore has displayed significant resilience, posting relatively robust growth figures in the first half of 2024, growing an estimated 3.0% year-on-year.

The widely anticipated United States Federal Reserve (“US Fed”) interest rate cuts have, unfortunately, failed to materialise yet, and similarly most major central banks have refrained from any significant easing of monetary policy. Consequently, the continuing high interest rate environment has had a dampening effect on financing transactions, with many would-be borrowers electing to taking up financings in the short-term. However, with the US Fed signalling in August 2024 that it may be cutting interest rates as early as September 2024, it is expected that other global central banks may follow suit, thereby enabling access to cheaper financing later in 2024.

Notable trends and developments in Singapore (which will be elaborated on below) include the rising prominence of alternative financiers, such as private credit firms, transition financing and alternative financing structures (eg, blended finance). As ever, increasing emphasis on green financing has also led to the continued popularity of green and sustainability-linked loans.

Development and Real Estate Financing

2023 was not as robust a year for the Singapore property markets, and financing needs were relatively muted. Despite State land sales reaching an 11-year peak of SGD7.7 billion in 2023, total investment sales still fell by 31.8% compared to 2022. By comparison, property sales activity increased significantly in the first half of 2024. By the end of the second quarter of 2024, total investment sales rose by 41.2% compared to the previous quarter and by 63.3% year-on-year, reaching SGD6.4 billion. This improvement was largely boosted by Government Land Sales tenders, which accounted for half of the total in the second quarter. Nonetheless, while lacklustre, Singapore’s property market has remained relatively stable, and developers continue to require financing.

The ongoing sluggishness in property markets can be traced to global macroeconomic conditions, notably the persistently high interest rates that have hindered investment and financing. Furthermore, lenders have adopted a more cautious approach in 2023 and 2024, likely owing to the elevated costs of lending associated with these high rates. This is in spite of the relatively low credit exposure of the three local banks (DBS Bank Ltd, Oversea-Chinese Banking Corporation Limited (OCBC) and United Overseas Bank Limited), which have all reported a healthy loan-to-value ratio of 50–60% for corporate real estate loans.

Demand for commercial property appears to be mixed. Commercial retail properties, which enjoyed relatively high occupier demand in light of Singapore’s strong recovery in the tourism space, appear to have been an attractive asset to investors. Commercial property sales as a whole also increased by 21.1% quarter-on-quarter to SGD1.8 billion in the second quarter of 2024. However, strata office sales activity slowed in the first half of 2024, with volume declining 15.6% from the second half of 2023 to SGD437.3 million.

Thus far, much of the publicised financing activity has been focused on the refinancing of existing loans. In December 2023, property developer 9PR (known then as Park Mall) accepted a SGD750 million loan for refinancing borrowings in relation to a Grade A office property, while Frasers Property secured a dual-tranche SGD904 million loan in July 2024 for refinancing and general corporate purposes.

On the whole, the real estate market continues to be subdued, with both retail and commercial buyers holding back. Nonetheless, there remains cause for optimism. While cross-border activity across the Asia Pacific (APAC) in the first quarter of 2024 declined by 29% quarter-on-quarter, Singapore managed to capture the largest share of overseas investment (45.6%) among APAC markets. In light of the strong tourism recovery in Singapore, the hospitality and retail sectors have performed strongly over the past year, with significant interest in related assets. For example, in February 2024, Hong Kong-based Weave Living partnered with US asset manager Blackrock to purchase the Citadines Mount Sophia, a serviced apartment residence.

Other bright spots include the data centre sector, which recently (in September 2024) saw a consortium led by private equity firm Blackstone purchase Air Trunk, the largest data centre company in APAC (and which operates data centres in Singapore, Australia, Japan, Malaysia and Hong Kong), for an impressive AUD24 billion. Telecommunications company Singtel’s first green loan valued at SGD535 million, taken up in connection with its two data centres in Singapore, is another prominent local example. Further, improvements in the interest rate environment may kickstart significant real estate and developer financing activity later in the year. 

REIT Financing

Singapore REITS (“S-REITS”) have been notably impacted by the high interest rate environment owing to their dependence on borrowing. As of March 2024, six of the 40 S-REITS had either partially or fully suspended distributions to unitholders. Since the beginning of 2024, at least eight S-REITS and property trusts have announced plans to secure debt financing or raise funds via the secondary market.

The pandemic-driven structural shift to remote or hybrid work models has reduced demand for commercial real estate, especially for office buildings located in central business districts. In the United States (USA), hybrid work arrangements have led to lower office occupancy and higher default rates among property owners, affecting S-REITS that have substantial US property holdings. S-REITS with significant investments in Chinese property have also been affected by the ongoing challenges faced by the Chinese real estate sector.

However, S-REITS in certain sectors such as hospitality and retail are expected to fare better in the light of positive tourism growth. As mentioned above, demand in the data centre sector is also expected to increase in light of the rise of artificial intelligence and the adoption of digital transformation initiatives. In its financial numbers for the first half of 2024, Keppel DC REIT, which was the first data centre REIT to have listed in Asia, saw its gross revenue rise 11.9% year-on-year to SGD157.2 million.

Singapore capitalisation rates have been comparatively low, and its mature economy means that there is little room to grow organically through acquisitions. As such, pursuing overseas opportunities at this juncture may be more attractive. For instance, Parkway Life REIT relied on yen-denominated debt financing to acquire a nursing home property in Osaka, Japan in July 2024. In light of anticipated interest rates adjustments later this year, it is hoped that more favourable financing conditions will encourage S-REITS and increase demand for financing.

Islamic Finance

The global Islamic finance sector is experiencing significant expansion, driven by rising demand for Shariah-compliant financial products and advancements in digital technology. The sector’s growth trajectory remains robust, with expectations for a continued increase in total assets through 2024 and into 2025.

In Singapore, advancements in Islamic finance are similarly noteworthy. In December 2023, Deutsche Bank introduced Shariah-compliant custody services in Singapore. In the same month, Maybank Singapore announced that it had extended a USD100 million Islamic sustainability-linked revolving credit facility to AET, one of the global leaders in maritime transport services, setting a precedent as the first such facility in South-East Asia’s shipping sector. Maybank Singapore also launched the Islamic Wealth Management hub in November 2023, becoming the first bank to offer comprehensive end-to-end Islamic wealth solutions in the region.

The sukuk market had a strong start in 2024, with global issuance reaching USD91.9 billion in the first six months of 2024, compared to USD91.3 billion by the same date the previous year. It is projected to achieve steady and moderate growth throughout the year, with issuance volumes predicted to range between USD160 billion and USD170 billion in 2024. However, there is still a shortage of liquidity management tools across the sector. On 1 July 2024, Brunei’s BIBD Securities Sdn Bhd and Lion Global Investors launched the Lion-BIBDS Islamic Enhanced Liquidity Fund, Singapore’s first Shariah-compliant enhanced liquidity mutual fund, which aims to address this liquidity gap by investing in a diversified portfolio of global Shariah-compliant short-term fixed-income instruments.

The integration of financial technology (“fintech”) into Islamic finance will further broaden the reach of Islamic financial services. One local example is Kapital Boost, a local fintech company founded in 2015 specialising in Shariah-compliant peer-to-peer (P2P) lending. The firm connects small and medium-sized enterprises (SMEs) in need of financing with investors while adhering to Islamic finance principles. The Islamic fintech market is projected to grow to USD179 billion (in transaction volume) by 2026 at a compound annual growth rate (CAGR) of 17.9%, highlighting the sector’s potential for digital growth.

Singapore is strategically positioned to become a leading global centre for offshore Islamic wealth over the next five years. Growing interest in Islamic finance products presents Singapore with an opportunity to expand its Islamic finance sector and achieve prominence comparable to regional markets such as Malaysia, Indonesia and Brunei.

Private Credit and Private Equity

Current economic conditions, characterised by elevated base rates and strained balance sheets, are driving demand for customised financing solutions. Private credit funds are uniquely positioned to address the needs of borrowers who do not meet traditional bank lending criteria, such as rapidly expanding but relatively unprofitable companies. Borrowers that are not able to borrow from conventional lenders are able to tap into private credit to meet their funding needs. Global private credit sector assets are projected to grow at a CAGR of 11.1% from 2022 to 2028, to reach USD2.8 trillion.

Meanwhile, in the APAC region, private credit assets have increased dramatically, growing from USD3.2 billion in 2000 to more than USD90 billion by early 2024. The private credit sector in APAC is projected to reach a record high of USD115.9 billion by the end of 2027, with a CAGR of 8.0% from 2021 to 2027. In Singapore, MAS has shown strong support for private credit through initiatives such as the MAS Private Markets Programme, which involved a SGD1 billion investment in global private credit fund managers in 2022.

Going forward, it is expected that private credit financing will venture beyond traditional senior bank debt/junior private credit debt structures, and include more hybridised loan structures involving private credit firms and bank lenders coming in on a pari passu basis (albeit with the bank lenders having shorter tenors and excess cash-flow sweeps). Banks may also collaborate with private credit investors to create direct lending funds, allowing banks to source customers and offload non-compliant loans, while private credit lenders gain access to new market share.

Blended Finance

Blended finance, which involves the use of catalytic capital from concessional and non-concessional sources to boost investment in sustainable development goals, has seen a resurgence. Following a ten-year low in blended finance deal volume in 2022, global blended finance deal value rose 66.7% to hit USD15 billion in 2023, marking a five-year high.

In South-East Asia, as of the end of 2023, Convergence recorded a cumulative 127 blended transactions in its historical database, representing an aggregate committed financing of USD24.2 billion. At COP28 held in December 2023, MAS announced that it would be partnering with the Asian Development Bank and the Global Energy Alliance for People and Planet to set up a blended-finance fund, which will aim to raise up to USD2 billion in concessional and commercial capital to finance Asia’s energy transition. The work on this fund is part of Financing Asia’s Transition Partnership (FAST-P), a blended-finance initiative recently launched by MAS which aims to raise up to USD5 billion.

In spite of seemingly increased regional interest in blended finance, blended finance volumes in the APAC region have not yet experienced significant growth. Climate-focused blended finance figures in APAC reached around USD3 billion annually in 2019. However, as of April 2024, this decreased to approximately USD2 billion. In South-East Asia, volumes have also remained relatively static. Further, most blended finance transactions have concentrated on renewables, and substantial financing gaps persist in other areas such as climate technology and the decarbonisation of industrial sectors.

While statistics among industry groups vary, blended finance deals have generally relied on strong public funding provided by development finance institutions and multilateral development banks, with hesitation from commercial lenders being attributable to risk concerns (such as geopolitical or operational concerns) and to the lack of scaleable projects. To address such concerns, blended financing deals have increasingly been structured at the portfolio and facility level instead of the project level. The more diversified pool of assets at these levels reduces concentration risk and incentivises institutional investors to participate.

Transition Financing and Carbon Credits

In 2019, MAS launched the Finance for Net Zero Action Plan, reinforcing Singapore’s commitment to achieving net zero emissions by 2050 and facilitating Asia’s transition by introducing the use of “transition financing”. This refers to the general use of investment, lending, insurance and other services to gradually reduce carbon emissions in high-emission sectors such as power generation, buildings and transportation.

With Asia contributing 50% of global greenhouse gas emissions, a third of which comes from coal-fired power plants (CFPPs), MAS has further focused its attention on providing transition financing for the early retirement of CFPPs. However, in developing South-East Asian nations, transition financing is often not feasible owing to inherent geopolitical, regulatory and credit risks. Additionally, other factors make the phasing out of CFPPs in the region’s developing countries particularly challenging, such as:

• the high energy demand in such countries;
• the heavy reliance on CFPPs to meet this demand; and
• the fact that many of these CFPPs are relatively new (with more being built to meet this high energy demand).

In this regard, blended finance via public-private partnerships could potentially be utilised to de-risk transition financing projects in these countries, making them more commercially viable. Notably, as mentioned above, Singapore plans to collaborate with international stakeholders to raise up to USD5 billion for the FAST-P initiative. Additionally, MAS has also introduced the use of high-intensity transition credits to fund a proportion of the shutdown costs of CFPPs and further de-risk a phase-out deal. These credits are created from emission reductions achieved through the early closure of CFPPs, with each credit representing a tonne of emissions avoided by closing a plant ahead of schedule.

Following the establishment of high-profile exchanges in Singapore such as AirCarbon Exchange and Climate Impact X, the market is increasingly looking to use carbon credits as collateral for loans and other financial transactions. However, the use of carbon credits as collateral is not without its complexities. A significant challenge lies in the legal characterisation of these credits, and different jurisdictions may classify carbon credits in different ways. For example, in common law systems, the nature of carbon credits – whether they are considered property, personal property or others – can significantly affect their viability as collateral. The volatility of carbon markets further complicates this. Carbon credits are subject to fluctuations in value based on market dynamics and regulatory changes. Consequently, financiers must adopt strategies to mitigate exposure, such as through hedging mechanisms or requiring other forms of additional collateral. Finally, carbon credits have yet to become uniformly accepted as security internationally, which may pose challenges to their use in certain cross-border transactions.

Green Loans and Sustainability-Linked Loans

Green and sustainability-linked loans continue to be on the rise in the Singapore market, with deal value growing for the sixth consecutive year from SGD25.2 billion in 2022 to SGD30.4 billion in 2023. As a whole, Singapore continues to be South-East Asia’s leading market for green, social and sustainability-linked loans and bonds, representing over half of the regional market. In December 2023, OCBC and City Developments Limited entered into the first sustainability-linked corporate loan under the OCBC 1.5°C loan initiative (launched in early 2023), with interest rates tied to annual decarbonisation performance targets. The GBP200 million loan is expected to be used for refinancing, corporate funding and working capital purposes.

Further, MAS’ introduction of the Singapore-Asia Taxonomy for Sustainable Finance (the “Singapore-Asia Taxonomy”) in December 2023 is also expected to fuel further growth in green loans and sustainability-linked loans throughout 2024. Through the Singapore-Asia Taxonomy, MAS has clarified guidelines on sustainable and transition activities across eight different sectors, categorising them under a traffic light system as green, amber or red activities. By offering clear guidance on sustainable and transition activities, the Singapore-Asia Taxonomy enables financial institutions to better identify and outline how their financial activities and products conform with the standards of the Singapore-Asia Taxonomy.

Additionally, Singapore’s regional and international collaboration has provided a further boost to the green transition. For instance, MAS has co-operated with the People’s Bank of China to roll out a series of initiatives in Singapore and China. This includes the targeted alignment of the Singapore-Asia Taxonomy with the global International Platform on Sustainable Finance’s Common Ground Taxonomy by the end of 2024, which would encourage cross-border co-operation in relation to the issuance of green financing bonds and loans.

Alternative Funding

The alternative lending market in Singapore is poised for robust growth, with a projected CAGR of 19.4% from 2023 to 2027, expanding from USD2.48 billion in 2022 to an estimated USD6.65 billion by 2027. Notably, the P2P lending sector is expanding rapidly due to increasing demand and attractive investor returns. Globally, the P2P lending market is expected to grow by USD754 billion, with a CAGR of 39% between 2023 and 2028. In Singapore, where SMEs struggle to secure conventional bank loans, P2P lending has stepped in to fill the gap and has gained significant traction, positioning the country as the third-largest P2P lending market in South-East Asia. Further, MAS oversees the P2P lending platforms with a comprehensive regulatory framework that ensures market integrity and transparency, with the goal of encouraging lender and borrower confidence.

A key trend influencing the P2P lending landscape is increased institutional investor participation, which has enhanced both the scale and credibility of P2P lending platforms. Technological advancements such as artificial intelligence and blockchain are refining the lending process by improving risk assessments and platform security. P2P lending caters to a diverse borrower base, which includes SMEs and individual clients, addressing a wide range of unmet financing needs.

Generally, the outlook for P2P lending in Singapore is promising. To further develop the P2P market, MAS has focused on improving the ease of cross-border lending, enabling micro, small and medium-sized enterprises (MSMEs) to obtain easier access to global financing. In November 2023, MAS launched the Universal Trusted Credentials initiative in partnership with the United Nations Development Programme and other partners, which aims to facilitate cross-border lending and improve the evaluation of MSMEs’ creditworthiness. This initiative is expected to enhance global financing access for SMEs (among others) by establishing a global standard. With supportive regulations and advancements in technology, the P2P lending sector has strong growth prospects and is well-positioned for further development.

Conclusion

Although global economic uncertainty is likely to persist for the remainder of 2024, Singapore’s economy is expected to remain resilient for the rest of the year, just as it weathered 2023 and the earlier part of 2024.

Amidst economic fluctuations exacerbated by geopolitical tensions and high interest rates, the emerging trends and developments explored above (such as the rise of alternative financing and innovative financing structures) indicate a shift towards more flexible and diversified funding options. They also reflect how nearly two years of relatively high inflation and interest rates have led to borrowers and lenders alike turning to unique financing solutions, alongside a continued emphasis on green and sustainability-linked loans as global economies increase focus on sustainable development.

However, as we head towards the last quarter of 2024, there is much to be optimistic about. Private-sector economists, in a quarterly survey released by MAS on 11 September 2024, indicated that they expect Singapore’s gross domestic product to expand by 2.6% in 2024 (up from a forecast of 2.4% in the June survey), and that this growth will be driven in part by the finance sector. As it stands, all eyes are on the US Fed and its keenly expected announcement of interest rate cuts, which should result in lower borrowing costs and a welcome increase in financing volumes in Singapore.