Greater investor education needed to drive Asian REIT market forward

Real estate investment trusts (REITs) may have taken a battering in the wake of the global financial crisis, but according to experts, they have rebounded sharply and recovered more quickly than other equities.

Some market watchers said REITs hold great potential in the new post-financial crisis investment landscape.

Singapore’s Raffles City has undergone a major facelift since being managed by a REIT. While that translates into a better shopping experience for customers, the upgrade was mainly driven by a need to improve shareholder returns.

As REITs grow in popularity as an investment vehicle, experts said transparency and liquidity are key. This is especially so because of the ageing populations in the region.

Susan Wachter, Wharton School, University of Pennsylvania, said: “REITs are at an early stage in Asia and it took 20 to 30 years for REITs to grow to a substantial potion of the market in the US. So this is the beginning of what is probably an important role of REITs going forward.

“But REITs are particularly useful as an investment vehicle for yields, and in that respect, perfect for pension funds and retirement funds more generally. Thus as the needs for this grows in Asia, this will be an important vehicle.”

Japan, Australia, Singapore and Hong Kong are seen as leading the REIT market in Asia. Quality assets aside, market watchers said education is important for further growth.

Christopher Gee, executive director, J.P. Morgan Securities, Singapore, said: “We certainly need a lot more education, not just for the investors, but also the REIT managers need to know what is the right thing in the right formula.

“We had a big discussion about cost appropriate or the expenses are appropriate for the REIT project so there are a whole heap of things that need to be sorted. It’s not a perfect vehicle – regulators certainly need to understand a little more about this particular vehicle as well.”

With the booming property markets in China and India, market watchers said they could become the next big growth markets for REITs.

Source : Channel NewsAsia – 23 Nov 2009

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