This article is from the Australian Property Journal archive
ASIAN REITs have delivered superior returns and lower risk when compared to Asian equities, according to the Asia Pacific Real Estate Association (APREA).
The report, authored by University of Western Sydney professor Graeme Newell, evaluated seven REIT markets of Japan, Singapore, Hong Kong, Malaysia, Thailand, Taiwan and South Korea.
The report noted that all the developed markets (Japan, Singapore, and Hong Kong) and one of the emerging markets (Taiwan) achieved higher returns than their respective stock market.
Japan REITs delivered an average annual return of 5.6% compared to equities’ 0.2%; Singapore REITs posted 14.2% versus equities 11.5%; Hong Kong REITs 13.6% compared 11.7%; and Taiwan REITs 11.1% compared to equities 5.8%.
In the emerging markets, Malaysia REITs posted 9.0% returns versus 13% in equities; Thailand 3.5% compared to 13.5% equities and South Korea REITs 1.5% versus 10.5% in equities.
Newell said all of the emerging Asian REIT markets had lower risk than their respective stock market, as did Hong Kong, and Japan’s and Singapore’s were comparable, illustrating the defensive characteristics of REITs as an investment with a strong yield focus. All of the developed Asian markets showed superior risk-adjusted performance compared to their respective stock markets, as did Taiwan, and Malaysia was comparable.
“The report also demonstrates the diversification benefits of REITs versus stocks and bonds as well as specifically versus real estate listed equities. Moderate correlation with stocks was most evident in Hong Kong (0.66) and Japan (0.70), with lesser diversification benefit in Singapore (0.88).
“Diversification benefits were seen across all the emerging markets, in particular South Korean REITs (0.44) and Taiwan REITs (0.58). Similar strong diversification benefits were seen across all REIT markets versus bonds,” he added.
The report also analyzed the specific period of June 2009 – April 2012 to scrutinize the performance of REITs post-GFC and found average annual returns for Asian REITs have increased significantly in all markets bar South Korea.
In most cases, the Asian REIT returns exceeded their respective stock market returns, and often by significant amounts. Likewise, risk levels for Asian REITs have significantly reduced during this period and their risk levels were generally below their respective stock market risk. This saw superior risk-adjusted returns for REITS in every Asian REIT market except South Korea.
Post GFC, J-REITS returned 8.4% p.a. vs 3.7% equities; S-REITs returned 28.5% p.a. vs 24.6% equities; HK-REITs delivered 30.2% vs 19.5% equities; and Taiwan REITs 25.2% vs 17% equities.
Newell said challenges and opportunities still remain for REITs in Asia.
“This includes the development of REIT markets for China and India as well as the emerging markets of Indonesia, Vietnam and the Philippines. Ensuring sufficient investment-grade commercial real estate is available for quality portfolios will be an initial challenge, but will be addressed with increased maturity and transparency over time.
“Improving levels of corporate governance, transparency and depth across both the developed and emerging REIT markets in Asia will also need to be addressed to ensure international best practice for the ongoing effective operation of these Asian REIT markets,” he continued.
There are currently 138 Asian REITs with a total market capitalization of over $US118 billion which accounts for 12% of the global REIT market. REITs have a long and successful history in the US and Australia but were only established in Asia since 2001, starting in Japan, with Singapore following in 2002 and Hong Kong in 2005.
Globally, there are over 500 REITs with a total market capitalization of over $US850 billion across 22 countries, 13 of which are developed and nine emerging real estate markets. The leading REIT markets are the US with 55% market share, Australia with 10% and Japan with 6%. Globally REITs now account for 45% of listed real estate exposure.
“Traditionally, real estate exposure for investors in Asia was via the major listed real estate companies, but this has changed significantly with the establishment of REIT markets in Asia over the past 10 years. However, there is still a lot of investor education to be done regarding the benefits of Asian REITs.
“Many general investors still consider REITs as growth stocks and are not fully aware of their strong income returns. Similarly, the regulators in several emerging markets need a greater understanding of the REIT product and their benefits. We hope this research will help to highlight these compelling facts,” Newell concluded.
Property Review
