ARE CURRENT REGULATIONS ON S-REITS ENOUGH TO PROTECT SHAREHOLDERS � INTEREST?

Abstract

Despite being marketed as stable investment products, real estate investment trusts (REITs) are susceptible to agency problem risks. This study will examine whether current REIT regulations in Singapore are sufficient to protect shareholders from various underlying risks, which have been exacerbated by a climate of compressed yields amidst domestic preference for an external management model.

Firstly, a curated metric of key variables – presence of income support, sponsorship, free float size, independence of board of directors, and management fees paid in units – was identified to carry out a multivariate regression analysis on whether S-REITs tweak their corporate governance strategies in line with market performance. Results were statistically insignificant but a downward trend of management fees payable in units was observed from visual analysis. This suggests that agency problem risks in Singapore REITs are concealed from unsuspecting investors, necessitating greater protection through regulatory reform.

Next, a comparative study of Japanese and Singaporean REIT regimes revealed differences that could be usefully adopted in the Singapore REIT market. These include the imposition of free float exposure for tax treatment and the usage of tests in presenting legislation.

Key proposed changes to the REIT rulings under the Monetary Authority of Singapore’s Code on Collective Investment Schemes (CIS) were also evaluated based on their ability to preserve shareholders’ interest. Ideas and principles for a better regulatory system were subsequently put forward for further studies. Overall, these findings highlight the importance of corporate governance reform in Singapore’s REIT market, prompting specific recommendations that deliver urgent improvements without compromising market growth.