4 MAY 2018
Real estate investment trusts (REIT) are a relatively recent phenomenon in Asia – covering, at best, the last few decades. Nevertheless, Asian markets have caught up very quickly, and possess such huge potential that they will one day leapfrog their predecessors. Group CEO of ARA Asset Management John Lim explains why.
In fact, since 2010, the REIT market in the US has grown by almost 150%, while the market capitalisation of non-US REITs has more than doubled, according to research from EY.
Although REITs were introduced to inject capital into the development industry during liquidity shortages, they are now seen as having a much broader positive impact: on the investment landscape, the property industry, capital markets, and the real economy of a country. Securitisation laws and REIT regimes reflect the evolving role of these products.
In the Asia Pacific region, the most established REIT regimes are in Australia and Japan, followed by Hong Kong and Singapore – markets that have been established since the early 2000s. There are fundamental differences in structure at times. For instance, REITs in Hong Kong must be listed, whereas there is no such requirement in Australia.
Although there is some commonality in the REIT regulatory and tax frameworks in Asia, there are marked differences, too. In general, the regulatory frameworks governing REITs in the Asia Pacific region follow a common theme. REIT vehicles typically have a "pass-through" tax profile if they meet certain requirements, although there are subtle differences in terms of how prescriptive the requirements are.
The governments of China and India see REITs as nation-building vehicles that can help deliver ambitious urbanisation goals, as well as fuel social and economic development. China is already exploring quasi-REITs in the form of asset-backed securities. But market observers believe that regulations to kickstart the REIT market will be fast-tracked soon. In India, despite the passing of laws in 2014 to allow for the creation of REITs and InvITs (infrastructure investment trusts), and other reforms since, there are other tax and regulatory impediments to be ironed out.
The more-developed REIT markets in Singapore and Hong Kong have both passed amendments to their REIT codes in recent years relating to disclosure requirements, limits on development and aggregate leverage, and other operational provisions, heralding the healthy growth of both markets.
REIT regimes must and will continue to evolve according to the market environment and societal needs. As the manager of 12 listed private REITs in Asia, we aim to participate in the development of REIT markets in this region.