Untapped potential of Hong Kong’s Real Estate Investment Trust sector presents investors with enticing prospect following policy advancements
3 Sep 2021
Hong Kong is Asia’s financial services capital city, a thriving and inclusive metropolis where everyone is welcome. It’s the region’s centre for investment and opportunity with an unparalleled cultural and historical significance. Among the plethora of reasons why the city is an ideal investment location, is the reinvigoration of its Real Estate Investment Trust (REITs) sector through a dynamic and robust combination of technological, economic and policy advancements.
The untapped potential of H-REITs (Hong Kong Real Estate Investment Trust) ties into the importance of new sectors that previously weren’t in play, such as warehousing and logistic centres, data centres, hospitals as well as student accommodation, all offer the ability to generate steady incomes. With H-REITs being required to pay out at least 90% of their after-tax net income to shareholders in the form of dividends with yields ranging from 3.94% to 8.72% as of August 2021.1
A loosening of the regulatory environment adds another flavour to the mix. The 10% aggregate investment cap on H-REITs for Mandatory Provident Funds was removed last May, whilst the government’s announcement in February to offer subsidies designed to encourage listings of REITs is equally welcomed. SFC-authorised REITs listed on The Hong Kong Stock Exchange with a minimum market capitalisation of $1.5 billion, can apply for up to 70% of the eligible expenses for each application, subject to a cap of HK$8 million per REIT. Indeed, Private Equity investors will no doubt want to look at the strength of the city’s IPO market when looking for a post-investment exit strategy.
More widely, Hong Kong’s unique link with the Greater Bay Area (GBA) and close economic ties to Mainland China is ‘the great connector’. Apart from having the option to list in both HK$ and RMB, it is hoped that H-REITs will be made accessible to Mainland investors via the Stock Connect programme soon. The first batch of REITs in China (C-REITs) was launched at the end of June with a total fund raising of US$5 billion and backed by infrastructure projects. This is all good news for Hong Kong as the place where RMB has the biggest offshore liquidity. This “H/C-REIT” combination, if you will, is a dynamic mix that bolsters both markets and provides investors with incentive to invest across boundaries.
Investing in H-REITs is one of the most straightforward areas of income-generating finance out there given they are a liquid investment, allowing investors to buy or sell a within a short period of time, while physical properties take longer.
If investors need to get their hands-on capital quickly, freeing up the cash is a straightforward process as many are publicly listed and similar to buying and selling stocks throughout the day.
Whilst REITs are a popular asset type in North America and Europe, it won’t be long before Hong Kong stakes its claim as a go-to market for investors looking for big potential in what is proving to be an increasingly competitive landscape.
For more details on the development of Hong Kong's REITs market, click here to download the report: Revitalisation of Hong Kong's Real Estate Investment Trusts Market - Promoting Liquidity.
1 https://www.hkex.com.hk/Market-Data/Securities-Prices/Real-Estate-Investment-Trusts?sc_lang=en