HSBC sees booming Asia REIT market

HONG KONG: HSBC expects the number of real estate investment trusts (REITs) in Asia to surge over the next three to four years due to demand for more risk-averse property investments, a senior executive said.

Asia is seeing increased activity in the REIT IPO market this year, with the successful listing of Cache Logistics Trust in Singapore, while Sunway City plans to list its REIT in Malaysia in July.

"I see proliferation of REITs, absolutely. I think we'll have twice as many REITs in Asia as we do today in the next three or four years," Jason Kern, managing director and head of real estate advisory for Asia Pacific at HSBC, said at the Reuters Global Real Estate and Infrastructure Summit on Thursday, June 17.

Kern expects Singapore to see the most activity, with around 20 more likely to be listed there in the next three to four years from companies all around Asia.

The tiny Southeast Asian country has more than 20 listed REITs, including several from foreign companies, such as Saizen, Fortune from Hong Kong and Ascendas India.

Australia could see a few more, while Malaysia is showing signs of growth, he added.

REITs invest in mainly commercial property and pay rent collected from their properties to shareholders as dividend and hence, some investors see them as safer investments than property stocks.

REITs also usually offer returns that are higher than yields of government bonds.

"What I find in my space is that investors are more risk-averse for sure. They are more defensive," Kern said. "We actually still find very strong demand at the most defensive end of the spectrum, which are the REITS."

China and India
In terms of opportunities in Asia, Kern said emerging markets, such as China and India offered huge potential, though both needed to.

"I think it (China) has been a frustrating market for people to invest in just because it is more opaque. There are much bigger hurdles in terms of tax, friction, in terms of getting capital in and out of the country."

"I find the capital going into India has dried up quite a bit for the moment but it will come back when the overall market improves," said Kern, a 17-year industry veteran who joined HSBC late last year.

As for Japan, currently Asia's largest real estate sector and the world's second-biggest economy, it is a different story with tens of billions of dollars worth of maturing debt coming up in the next year or so.

"For those there salivating over the potential distressed opportunities, it's been less than people expected," Kern said. "The firesales haven't really happened to a large extent."

Kern said he expected more debt to be rolled over rather than lenders taking over assets when the time came.

"At the end of the day, it's a fairly powerful negotiating technique to sit there at the table and say, here are the keys, do you really want to try to manage this retail mall and work on the tenant mix?" — Reuters