New lending sources are emerging in Asia Pacific’s relatively nascent private debt market.

Borrowers are finding a larger pool of lending sources in Asia Pacific (APAC) as new alternative lenders enter the fray in the region’s debt market.

But finding the right lender appropriate for the type of transaction can be tricky for borrowers, according to Paul Brindley, Head of Debt Advisory, APAC, JLL.

“There’s an influx of alternative lenders who were not active a year ago but are now prepared to make loans on construction, project financing and more,” he says.

This emergence of new lenders comes amid a strong pivot to debt by investors who are after better yields compared to the less favourable risk-return profile of equity investments.

“The yields on debt can exceed where core returns were,” says Brindley.

At least three in five investors surveyed by JLL are prioritising debt as their top strategy focus in 2023, up from one in five last year.

“Investors new to debt tend to prefer deploying capital in established real estate markets that have sound legal frameworks and a clear enforceability process,” says Rachel Heng, Director, Debt Advisory, APAC, JLL.

Among the top locations preferred by new private debt investors are Australia, Hong Kong, Singapore, and Japan, Heng adds.

Navigating challenges

Globally, Europe and the U.S. still account for the lion’s share of debt activity, but APAC is playing catch-up, albeit not without challenges.

“Unlike in the U.S. or Europe, the regulatory environment in APAC markets is comparatively more diverse,” says Heng.

In South Korea, for instance, onshore borrowers obtaining offshore funding in excess of US$30 million equivalent must obtain approval from the Ministry of Economy and Finance.

“Each country’s debt market within APAC is governed by its own set of restrictions and approvals, which require greater effort to navigate and affect the ability to scale up as quickly as in other regions,” says Heng.

Regulatory friction could impact pricing, deterring borrowers and even stifling growth in Asia Pacific debt markets, says Brindley.

JLL is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion, operations in over 80 countries and a global workforce of more than 94,000 as of March 31, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.