APREA backs FSDC findings on the future of REITs in Hong Kong

20 January 2014   Category: News, Asia, Hong Kong   By Asia Asset Management

It is imperative that Hong Kong enhances its REIT regulations to align itself with market changes and international norms, thereby securing its role as an international asset management centre and capital formation centre for REIT listings, according to the Asia Pacific Real Estate Association (APREA), which promotes and represents the real estate asset class in Asia Pacific.

In his policy address on January 15, Hong Kong Chief Executive C Y Leung referred to the Financial Services Development Council (FSDC), which was established last year to provide a high-level, cross-sectoral platform to advise the government on ways to further develop Hong Kong’s financial services industry.

According to him, “The FSDC has submitted its first set of reports to the government which analyse the opportunities and challenges for Hong Kong’s financial services industry. The reports discuss in detail Hong Kong’s future positioning and strategic development as an international financial centre, and put forward proposals in respect of renminbi business, asset and wealth management, and real estate investment trusts. The government will examine and follow up on these proposals in collaboration with financial regulators.”

One of these reports is titled Developing Hong Kong as a Capital Formation Centre for REITs. It details a number of proposals, which, if adopted, would increase employment in Hong Kong and assist in growing Hong Kong's economy.

Proposals in this FSDC paper, which APREA supports, include:

  • Recategorisation of Hong Kong REITs under the Mandatory Provident Fund Schemes Regulations, to remove a significant constraint that currently applies to MPF scheme investment in REITs; 

  • Giving Hong Kong REITs the same tax transparency treatment that applies in other jurisdictions;
  • Permitting REITs to undertake limited property development activities, in line with other REIT markets;
  • Improving the application of the Takeovers Code to Hong Kong REITs.

Peter Mitchell, CEO of APREA, commented: “APREA fully supports the proposals contained in the FSDC paper and the positive impact they would have on Hong Kong’s future positioning and strategic development as an international financial centre. A recent independent research paper APREA has commissioned on the impact that REITs have had on Asian economies clearly shows that the impact that REITs have had in Hong Kong has been muted relative to their impact in Australia and Singapore, because of the issues raised in the FSDC paper.”

Lim Swe Guan, chairman of APREA, added: "Back-testing of various REIT markets has shown that Asian REITs have generally outperformed bonds and general equities during the last five-to-ten years. We believe the sector will continue to grow as more investors embrace the benefits of investing in this stable, high-yielding vehicle. Jurisdictions in the region are implementing proactive policies to capitalise on the demand and capture a larger share of the market and APREA encourages Hong Kong to do the same.”