Hong Kong May Struggle To Develop REIT Market

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

16 June 2003

Hong Kong's desire to create a market in REITs (Real Estate Investment Trusts) may be thwarted by tax disadvantages and a more developed and favourable market in Singapore according to many observers.

The news comes as Cheung Kong Holdings, a large presence in the region in the property market, is thought likely to list a REIT in Singapore rather than Hong Kong, according to Channel News Asia.

The fact that Hong Kong still levies a property tax is cited as one of the major reasons why real estate investors will be attracted to Singapore rather than Hong Kong. Also, rules in Hong Kong stipulate a 35% ceiling on gearing to net asset value as opposed to the property's actual value.

Hong Kong is presently trying to develop an effective market for REITS, and with a consultation period recently concluded, regulations are anticipated by the end of the year. Nevertheless, regulators believe that the territory's first REIT could be listed by the third quarter of 2003.

Trevor Cheung, Head of Research at DBS Vickers commented to Channel News Asia: "For those sorts of companies, there'll be a bigger incentive to go through this path because if they're able to effectively sell their assets and yield 7 to 8 percent, that is already far better than sitting on your assets and having your share price trade at 60 percent discount so I wouldn't be surprised if one or two of these companies will be looking at this quite seriously."

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