Residential Articles

According to a recent analysis, if Hong Kong wants to remain a property centre, it must alter its laws on listed property funds or risk losing out to regional rivals. Lands end
Since the laws for forming real estate investment trusts (REITs) were implemented in 2003, there have only been nine REIT offerings in Hong Kong. According to a report from the Hong Kong Financial Services Development Council, this is "significantly trailing the expansion of other REIT markets in the area." There have been 41 listings in Japan, 28 in Singapore, and 16 in Malaysia.
The paper states that Hong Kong's REITs "are working in a far more difficult climate than regional markets such as Singapore and Malaysia, which are more proactive in building their REIT markets."
Even local property companies that could spin off assets into Hong Kong REITs have chosen to list overseas to escape Hong Kong's tight laws on listed property funds.
"These occurrences underscored the H-unpopularity REIT's as a capital raising instrument for sponsors, as well as the H-failure REIT's as a platform to build up Hong Kong's capital market," according to the study.
Participants in the industry agree that things need to change. According to Peter Mitchell, CEO of the Asia Pacific Real Estate Association, or APREA, which represents the listed real estate sector, the influence of REITs in Hong Kong has been "muted" compared to their influence in Australia and Singapore.
For example, REITs should be allowed to develop property, something they are now prohibited from doing but are permitted to do on a limited basis in other markets. Hong Kong's REITs are currently unable to rebuild their own aging properties, causing their developments to age and become more expensive to repair.
The Link REIT, Hong Kong's first publicly traded property fund, debuted in 2005 with a portfolio of suburban retail malls and parking lots. With a market value of US$10.2 billion, it remains Asia's largest REIT.
When Huixian Real Estate Investment Trust went public in 2011, it became the first renminbi-denominated property trust to list.
The highlights, on the other hand, have been few and far between. The dearth of activity in the capital markets is palpable. So far this year, there have been 23 REIT stock issues in Singapore, including initial public offerings and secondary share sales, but none in Hong Kong. So far this year, Japan, Asia's largest REIT market, has seen 26 share transactions.
The council warns that Hong Kong must improve its competitiveness or risk losing out. For example, Hong Kong's Mandatory Provident Fund, a pension fund, may be a large source of investment. However, MPF funds can only invest a maximum of 10% of their assets in REITs for the time being, despite the fact that REITs are well-suited as a pension fund investment due to their lower investment risk and significant dividend distributions. In Singapore, the cap on pension funds is established at 35%, while in Australia, there is no maximum.
REITs in Hong Kong, unlike in other nations, do not receive any special tax treatment. They should be exempt from taxation on rental revenue, according to the Financial Services Council.
Such roadblocks, according to Bill Strong, Morgan Stanley's co-CEO for Asia Pacific and a member of the Financial Services Development Council, are holding Hong Kong back. China may soon overtake Hong Kong as a REIT market, despite the fact that Hong Kong should have far more impact as a financial center.
In an interview with the South China Morning Post, he noted, "Other markets are not standing still." "To catch up, Hong Kong must move soon."