- Domestic residential developers continue seeking alternative funding channels as banks tighten the liquidity available for project financing and default rate is increasing. As a result, developers now prefer to engage with equity partners instead of issuing mezzanine debt.
- Since 2015, Indian-focused real estate debt funds have raised more than US$ 2.0 billion to provide development debt financing to local residential developers.
- More recently, international investors are also expanding their exposure in India via debt investment.
According to CBRE, the growing interest and activity around real estate debt in the region and the opportunities available to investors must be caveated with warnings of the various challenges.
“The inevitable maturity of Asia Pacific’s debt market comes with associated risks and challenges typically of an alternative asset class. As most current opportunities in the real estate debt space in Asia Pacific are still in mezzanine debt and development loans, it is critical that investors fully understand the assets they are underwriting,” says Dr. Henry Chin, Head of Research, Asia Pacific, CBRE.
Specifically, sourcing appropriate real estate debt opportunities is the key barrier for investors as the debt market in this region can be challenging to navigate. Investors should also be aware of currency volatility. Given the maturity of this asset class, due diligence must be rigorous and involve a thorough assessment of the borrowers’ credit risk.
Despite certain challenges, CBRE anticipates Asia Pacific real estate debt markets to deepen. CBRE Research’s 2018 Asia Pacific Investor Intentions survey published earlier this year found that real estate debt generated stronger interest among investors as the preferred alternative asset class by investors.
