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Hong Kong SFC Chief Sees 'Huge Potential' In REIT Market

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

22 September 2006


Hong Kong's nascent market for real estate investment trusts (REITs) has "huge potential" for growth, with potent sources of growth located in mainland China and the other parts of Asia, according to Martin Wheatley, Chief Executive Officer of the Securities and Futures Commission.

Wheatley said that the REIT market was relatively new in Hong Kong, but the capitalisation of the four REITs launched so far had reached US$6.5 billion, with average daily turnover of US$38 million in the first seven months of this year.

Giving the keynote address at the Asia Pacific Real Estate Securitisation Summit 2006, Mr Wheatley said the opportunities presented by the sheer size of the Mainland and its rapidly growing economy were a major driving force of the Hong Kong REIT market.

“The size of Hong Kong is limited and Hong Kong has already got a substantial universe of listed real estate assets in the form of listed property companies," Wheatley observed.

"A significant part of the growth of our market will be through the process of overseas investments by REITs in Hong Kong. In the process, it is only natural that issuers of REITs will look to the Mainland for assets. It is physically close to Hong Kong; market practitioners and Hong Kong investors are familiar with the languages, culture, business practices and systems in the Mainland,” he added.

Wheatley also noted the geographical advantage of Hong Kong as being in the heart of Asia; home to half the world’s population and where real estate per capita is among the lowest globally.

“As Asian real estate markets are opened up in the coming years due to rapid urbanisation, strong economic growth and the increasing presence of foreign institutional investors, the Asian market will constitute a potent force in the development of REITs in Hong Kong. In the process, large scale funding has to be obtained and REITs offer an attractive means to property owners to liquidate their holdings to fund further development projects,” he noted.

The SFC is committed to facilitating the development of REITs with Asian real estate exposure, said Wheatley.

“While we are encouraged to see the development of local expertise in REIT management, we very much like to see and welcome international professional asset managers to package their real estate investments into REITs for listing in Hong Kong. Our aspiration is for the Hong Kong REIT market to attract not just assets already listed in the portfolio of Hong Kong listed companies, but a new universe of quality listing grade real estate assets in the region, managed by internationally renowned houses, as in the case of the more developed REIT markets of Australia and the US," he stated.

According to the regulatory chief, the SFC’s role was to maintain a regulatory framework of international standards and market integrity. This would attract investors and quality issuers, and preserve an environment conducive to product development and market growth.

“In this regard, the Commission has to uphold a fine balance between market facilitation on the one hand, and investor protection and reputation of Hong Kong as an international financial centre on the other,” he concluded.


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