Singapore Financials and Property: Growth, Yield and Missed Opportunities

Singapore’s financial and property sectors highlight a common tension facing investors today: the balance between growth and yield, and how capital is deployed to sustain both.

Local Banks: Structural Growth Supports Sustainable Yield

Singapore’s local banks have evolved into hybrid investments, offering attractive dividends while retaining meaningful growth optionality. With minimum payout ratios of 50% of net profit, dividends are well supported, but their durability depends on earnings growth and capital usage.

Crucially, the banks’ growth drivers appear increasingly structural rather than cyclical. Management commentary and independent research point to three long-term pillars:

• Wealth management, which drives fee income

• Growth in the Financial Institutions Group (FIG), closely linked to asset and fund flows

• Digital assets, supported by improving regulatory clarity

Morgan Stanley reinforces this view, identifying wealth management in Asia as a structural growth market, underpinned by rising affluence rather than interest-rate cycles.

Asia ex-China as the Growth Engine

Economic momentum is shifting toward Asia ex-China, particularly India and Asean, driven by supply-chain diversification and changing FDI flows. India is entering a multi-year structural growth phase supported by demographics and digitalisation, while Asean continues to benefit from corporate relocation.

Local banks are capturing this growth through deposit gathering and relationship manager hiring. CASA ratios across DBS, OCBC and UOB now exceed 50% of deposits, reflecting strong franchise strength and low-cost funding.

As deposits grow, banks are deploying capital across loans, bonds, securitisation and capital markets activities, accelerating the financialisation of Asian economies. Asia remains predominantly bank-funded, but gradual diversification toward capital markets benefits banks’ corporate and investment banking franchises.

Singapore banks also enjoy a regional advantage, capturing intra-Asian FDI flows as foreign banks retreat. UOB’s acquisition of Citi’s Southeast Asian consumer banking operations exemplifies this trend.

Capital Returns Remain Intact

Despite lower interest rates, banks like DBS have offset pressure on net interest income with strong wealth and treasury income. Capital ratios remain healthy, allowing for sustainable dividends and ongoing capital returns. Morgan Stanley expects excess capital generation to continue over the next two to three years, supporting an overweight stance on the sector.

Hongkong Land: Growth Chosen Over Yield

A similar growth-versus-yield trade-off is evident in Hongkong Land’s decision to launch the Singapore Central Private Real Estate Fund (SCPREF) instead of a Singapore-listed Reit. The S$8 billion private fund will house prime CBD assets including One Raffles Quay, MBFC Towers 1 and 2, and One Raffles Link.

While this accelerates Hongkong Land’s fund management ambitions, it arguably represents a missed opportunity. A Singapore-listed Reit would have provided a permanent capital platform, appealed to yield-seeking investors, and strengthened the local bourse. With prudent leverage and portfolio construction, such a Reit could have delivered an estimated 4.3% distribution yield, an attractive spread over government bonds.

Singapore’s Reit market has shown that scale, asset enhancement and capital market access can generate long-term value, as illustrated by CapitaLand Integrated Commercial Trust. Minority shareholders and the broader market may have benefited from access to Hongkong Land’s high-quality Singapore assets through a public vehicle.

Bottom Line

Across both banking and property, the message is consistent:

• Structural growth, not short-term cycles, is driving value

• Capital deployment choices shape long-term returns

• Singapore banks have struck a strong balance between growth and yield

• Hongkong Land’s private fund strategy prioritises control and flexibility but sacrifices broader market participation

For investors, Singapore financials remain attractive for sustainable income backed by structural growth, while the property sector highlights how strategic choices can either broaden—or limit—value creation.

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