Doubts Remain On Popularity Of Hong Kong REIT Market

by Mary Swire, Tax-News.com, Hong Kong

28 July 2003

The Hong Kong Securities and Futures Commission is expected soon to announce its guidelines for REITs (Real Estate Investment Trusts) which are due to be listed in the territory, although property developers have expressed doubts about the likely investor appetite for these products.

The main reason for this, according to banking giant HSBC, is because developers would have to sell their properties at deeply discounted prices to meet a yield of at least 7%.

"If I were a developer, if I need to sell these assets at a deep discount to market price and at the same time, I don't need this money, what's the incentive for me to do that," asked Derek Cheung, head of Hong Kong Property Research at HSBC. "On the other hand," he added, "even if you get the cash from the sale through REITs, what would the cash be used for because right now the investment opportunities are so rare."

Instead of paying property taxes, the REITs will pay a profit tax, which allows them to deduct more tax on the rental income received. Also, the SFC is expected to propose that up to 90% of net rental must be distributed, although this is less than the 100% proposed originally.

However, Cheung doubts that this will ignite the market in Hong Kong REITs.

"Whatever concessions they're going to make would be positive, making the REITs market more attractive. But for those already listed, these aren't strong enough for making REITs market development much more attractive," Cheung told ChannelNewsAsia last week.

Recommended