More instability expected in REIT market before it picks up

UBS said more instability is expected in the relatively cool real estate investment trust (REIT) market before it picks up, and this turnaround could happen as early as the last quarter this year.

Although REITs have been under pressure in the current volatile market, some other market-watchers said they expect to see new REITs being launched within the next six to 12 months.

Retail and healthcare REITs, along with the lowly geared and plain vanilla ones, will be among the first to pick up, before the others do.

Mark Ebbinghaus, MD, Head of Real Estate, Lodging & Leisure, UBS, said: “The market will look increasingly for strong sponsorship. Independents will find it tougher whereas a large, well-sponsored vehicle with a sound management will probably come out first.”

UBS thinks it will take at least another six months before things get better.

“In terms of the broader global market where we’re a little of two-thirds of the way down, there’s still some instability to come through. It may take another six months. It’s still very uncertain that we would be gearing up for more significant activity in 2009, but that could be brought back a quarter to the last quarter of this year,” he said.

Other market-watchers noted that the general easing of liquidity once the sub-prime issue works its way through the system will also give REITs a boost.

Justin Chiu, Executive Director of Cheung Kong Holdings, said: “Right now, because of higher liquidity problems, REIT operators do have problems with borrowing. REIT unit prices have dropped quite a bit so expected yield is higher for investors. But as market consolidates, yield will compress once more, making it easier to make further acquisitions. I expect new REITs will come into the Singapore market in the next six to 12 months.”

REITs have enjoyed a honeymoon period in Asia since the first one was launched in 2001. But they have sold off more than 15 percent in value since last year.

Still, most market-watchers are positive that fundamentals continue to be relatively good for most real estate companies around the world.

Source : Channel NewsAsia – 1 Jul 2008

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