ASEAN opens for REITs business
Real Estate Investment Trusts (REITs) in the ASEAN region are becoming increasingly interesting for foreign investors who cast an eye on the booming property sector in the region.
While REITs have already become a common investment vehicle in Singapore and Malaysia, other countries are now starting to put regulations in place for REITs to tap the growing business. For example, Thailand has allowed the establishment of REITs in the country in June 2012, as reported by Inside Investor.
Vietnam has started a REITs pilot programme for properties in Ho Chi Minh city last year. However, the legal framework by the Ministry of Finance and the State Bank has yet to follow.
The Vietnamese Ministry of Construction has estimated that the domestic real estate market would need $20 billion each year to finance the housing development plan over the 2011-2015 period. Capital poured into the property market was roughly $10 billion as of the end of 2010, indicating that there would be a $10 billion capital shortage every year, investment firm Coldwell Banker Vietnam wrote in a recent analysis.
Indonesia, the most populous Muslim country, has the potential to have a very large REIT market, according to Abas A. Jalil, chief executive officer at Malaysia-based Amanah Capital Group Ltd. He added that “clear regulations” are needed to develop the market.
Fakhri Hilmi, director of the investment management bureau at the Capital Market and Financial Institution Supervisory Agency in Jakarta confirmed that regulators are considering an application for a REIT in 2012, according to the Jakarta Globe.
In the Philippines, there also have been talks about developing a REITs market. The Philippine property scene may experience the inflow of as much as $500 million in fresh foreign capital within one year if a REIT system was implemented in the local financial market, said Simon Treacy, CEO of Europe and Asia-focused property investment fund MGPA.
He added that investments into a Philipines REITs market could easily hit $2.5 billion in two years if regulations would be put in place, as he considers the sector “the most overlooked, undervalued real estate market in Asia.”
The REIT market in Asia has a current capitalisation of around $100 billion, making it the second largest in the world after North America. REITs in Asia have delivered a cumulative total return of 47 per cent since April 2006, against 8 per cent globally, according to Bloomberg data.
It is clear that large economies such as China, India and Indonesia will have huge demand in the coming years for housing, shopping malls and hotels, as well as commercial buildings, offices and hospitals, with urbanisation and growing incomes of middle-class populations being the major drivers of property demand.
Risks of REITs
However, there is no such thing as a guaranteed return. Investment into REITs also bears risks as all capital investment instruments do.
Basically, REITs are subject to two particular risks no matter how well managed they are. The first risk is overcapacity – when developers in a boom cycle are building too many properties which exceed the market demand. Even in such promising markets such as the emerging ASEAN countries it is difficult to know when enough is enough. If there are too many apartment, houses and offices on the market, sales stall and rents go down, putting REITs returns under pressure.
The second risk is a rise in interest rates. When common bonds are paying higher coupons at a comparably lower risk, REIT money might get shifted. At the same time, it gets more expensive for property trusts to get loans for expanding their business.
Such a risk scenario is building up in China. On the back of a cooling property market, $39,3 billion of redemptions from REITs are due over the next two years, Ke Kasheng, head of the nonbank financial institution under the China Banking Regulatory Commission, was quoted as saying by China Daily on August 10. However, the situation was “under control” as strict regulation of the sector has helped to rein in risks, Kasheng added.
[caption id="attachment_4252" align="alignleft" width="300"] Vietnam's property market is booming, with regulations on REITs currently in the making.[/caption] Real Estate Investment Trusts (REITs) in the ASEAN region are becoming increasingly interesting for foreign investors who cast an eye on the booming property sector in the region. While REITs have already become a common investment vehicle in Singapore and Malaysia, other countries are now starting to put regulations in place for REITs to tap the growing business. For example, Thailand has allowed the establishment of REITs in the country in June 2012, as reported by Inside Investor. Vietnam has started a REITs...
Real Estate Investment Trusts (REITs) in the ASEAN region are becoming increasingly interesting for foreign investors who cast an eye on the booming property sector in the region.
While REITs have already become a common investment vehicle in Singapore and Malaysia, other countries are now starting to put regulations in place for REITs to tap the growing business. For example, Thailand has allowed the establishment of REITs in the country in June 2012, as reported by Inside Investor.
Vietnam has started a REITs pilot programme for properties in Ho Chi Minh city last year. However, the legal framework by the Ministry of Finance and the State Bank has yet to follow.
The Vietnamese Ministry of Construction has estimated that the domestic real estate market would need $20 billion each year to finance the housing development plan over the 2011-2015 period. Capital poured into the property market was roughly $10 billion as of the end of 2010, indicating that there would be a $10 billion capital shortage every year, investment firm Coldwell Banker Vietnam wrote in a recent analysis.
Indonesia, the most populous Muslim country, has the potential to have a very large REIT market, according to Abas A. Jalil, chief executive officer at Malaysia-based Amanah Capital Group Ltd. He added that “clear regulations” are needed to develop the market.
Fakhri Hilmi, director of the investment management bureau at the Capital Market and Financial Institution Supervisory Agency in Jakarta confirmed that regulators are considering an application for a REIT in 2012, according to the Jakarta Globe.
In the Philippines, there also have been talks about developing a REITs market. The Philippine property scene may experience the inflow of as much as $500 million in fresh foreign capital within one year if a REIT system was implemented in the local financial market, said Simon Treacy, CEO of Europe and Asia-focused property investment fund MGPA.
He added that investments into a Philipines REITs market could easily hit $2.5 billion in two years if regulations would be put in place, as he considers the sector “the most overlooked, undervalued real estate market in Asia.”
The REIT market in Asia has a current capitalisation of around $100 billion, making it the second largest in the world after North America. REITs in Asia have delivered a cumulative total return of 47 per cent since April 2006, against 8 per cent globally, according to Bloomberg data.
It is clear that large economies such as China, India and Indonesia will have huge demand in the coming years for housing, shopping malls and hotels, as well as commercial buildings, offices and hospitals, with urbanisation and growing incomes of middle-class populations being the major drivers of property demand.
Risks of REITs
However, there is no such thing as a guaranteed return. Investment into REITs also bears risks as all capital investment instruments do.
Basically, REITs are subject to two particular risks no matter how well managed they are. The first risk is overcapacity – when developers in a boom cycle are building too many properties which exceed the market demand. Even in such promising markets such as the emerging ASEAN countries it is difficult to know when enough is enough. If there are too many apartment, houses and offices on the market, sales stall and rents go down, putting REITs returns under pressure.
The second risk is a rise in interest rates. When common bonds are paying higher coupons at a comparably lower risk, REIT money might get shifted. At the same time, it gets more expensive for property trusts to get loans for expanding their business.
Such a risk scenario is building up in China. On the back of a cooling property market, $39,3 billion of redemptions from REITs are due over the next two years, Ke Kasheng, head of the nonbank financial institution under the China Banking Regulatory Commission, was quoted as saying by China Daily on August 10. However, the situation was “under control” as strict regulation of the sector has helped to rein in risks, Kasheng added.
