Asia’s real estate investment trust (Reit) market are poised for renewed growth as the rally in global real estate stocks and a raft of regional government measures are seen boosting the market, according to local market experts.Tokenisation of real estate assets is also likely to increase their appeal.
As emerging Reit markets in the region gain maturity and conventional Reits are getting the green light in China, the market is set for expansion, according to Sigrid Zialcita, chief executive of the Asia Pacific Real Assets Association (APREA)
“The size of Asia Pacific’s Reit market – currently APAC’s Reit free-float market capitalisation (end of June 2021) is over US$340 billion – could rival that of the US, at over US$1.3 trillion, by the end of the decade,” she told AsianInvestor.
“In addition to the three IPOs that have featured in the first half of 2021, we can expect another 8-10 listings that can debut for the rest of the year. And with the nine infrastructure Reits successfully rolled out under China’s Reit pilot programme, this brings total new listings this year to more than 20.”
With their ability to recycle capital, Reits have also emerged as a vital tool in reviving economic growth in the wake of the pandemic. Governments are prioritising support to the sector and this has led to a surge in the number of Reit IPOs in the Philippines, for example.
India’s Reit market is also primed for an extended growth cycle, said Zialcita. “With a target for India’s economy to be valued at US$5 trillion by the middle of the decade, its Reit sector can conservatively be expected to grow in tandem to close to US$200 billion.”
While Singapore remains the regional Reit listing hub, Hong Kong’s Reit market has never really taken off. There are only 10 Reits listed on the HKEx and there have been no new listings for several years. The Hong Kong Government has recently tried a few new measures to kick-start the market. In May this year they announced a subsidy of just over US$1m for professional services fees spent on the establishment of Reits.
David Ellis, Mayer Brown
“The thinking is that for the Reit market to be more successful it needs greater liquidity,” David Ellis, Partner at Mayer Brown in Hong Kong told AsianInvestor.
“This combined with the easing of investment restrictions should encourage more sponsors to list REITs in Hong Kong.”
In December 2020, Hong Kong’s Securities and Futures Commission (SFC) eased the restrictions on Reits, allowing them to take on greater leverage, own minority stakes in buildings and take on more development risk.
According to Ellis, while this greater flexibility is good for managers and investors, “it does move the Reit concept closer to that of a regular listed real estate developer and away from the original concept of a bond-like instrument with a steady real estate-based income stream. If they become too similar to regular real estate developer stocks they kind of lose their raison d’etre.”
While investing institutions might look at Reits as a longer-term income-producing investment, Ellis said family offices tend not to invest in Reits, but look instead at non-listed real estate investments. But their attitude looks set to change with the potential tokenisation of real estate assets.
Ellis believes digital tokens will give investors a purer real estate play than Reits or property developer stocks.
“Issuing ownership rights in a building in the form of digital tokens creates the possibility of fractional ownership in a building. It is a more focused asset than an interest in a Reit, which may be a share of ownership in several buildings and also a share of the debt taken on by the Reit.”
Timothy Tsui, Arbutus FO
Tokenisation also offers the prospect of using technology to lower transaction costs, he added. “Direct fractional ownership and lower transaction costs will, if it becomes popular, improve liquidity and therefore asset values. There is value to be created by tokens.”
The concept is similar to the Reit market, but because of the cost-efficiency of the blockchain, tokenisation allows for much greater flexibility and accessibility for private investors, according to Timothy Tsui, chief investment officer of Arbutus, a Hong Kong-based single-family office.
“Real Estate Tokens (RETs) will become more widespread as crypto investors look for other tokens to invest in,” Tsui told AsianInvestor.
“Instead of only having the sole option of listed Reits, smaller real estate projects can use security tokens to be split up into many smaller units. These units can be easily electronically traded, transferred and all transactions will be captured on the blockchain.
“Real estate projects with niche appeal – such as agriculture land or data centers or senior living projects – can now crowdfund or exit their projects via security tokens.”
The real estate sector slumped in 2020 as the pandemic closed shops and restaurants and prompted a shift to working from home, which undermined the outlook for office buildings. The broader market has rallied since then and Morgan Stanley predicts a strong rebound in the real estate sector for the remainder of this year.