The emergence of real estate investment trusts (REITs) in Asia

Real estate investment trusts (REITs) are still at an infancy stage in Asia and for it to be successful, there must be a paradigm shift among property owners´ and investors´ mindset towards a yield-driven market rather than relying heavily on capital growth returns, according to Jones Lang LaSalle in a special research paper released recently.

The paper titled 'The Emergence of Real Estate Investment Trusts (REITs) in Asia' is part of a series of quarterly special papers published by Jones Lang LaSalle in Asia Pacific.

The REITs research paper reported that it was only about a decade after REITs were created by Congress in the United States in the 1960s that the Asia Pacific region launched its first REIT (also known as a listed property trust or LPT) - the General Property Trust (GPT) in 1971 in Australia. It took another 30 years before the first 'true' Asian REIT, probably triggered by the Asian economic crisis in 1997/1998, was finally launched in Japan in 2001.

While the first REITs and LPTs in the US and Australia have been around for some time, their growth was most impressive after the 1987 'Black October' market crash. The capitalisation of US-listed REITs rose by nearly 13 times to US$155 billion between 1991 and 2001. In Australia, the capitalisation of LPTs rose from A$5 billion to about A$45 billion between 1992 and late-2002, a rise of nine times. Starting with the first LPT in 1971, there are now about 30 LPTs in Australia, accounting for some 8% of the total worth of listed stocks. The LPT sector has been one of the strongest performing sectors of the Australian Stock Exchange (ASX) since 1994. It continued to outperform the broader All Ordinaries for the year ending 31 December 2001 with LPTs achieving a total return of 15.2% compared to the All Ordinaries return of 10.2%.

In Japan, the revision of the Investment Trust Law in May 2000 (which became effective in November 2000) opened the door for the creation of REITs in that country. About a year later, Japan became the first country in Asia to launch REITs when two property trusts, the Office Building Fund of Japan and the Japan Real Estate Investment Corporation began trading on the Tokyo Stock Exchange (TSE) in September 2001.

Currently, there are six Japan REITs or J-REITs trading on the TSE, with more in the making. Almost all participants in J-REITs so far are Japanese conglomerates from the banking, insurance, corporate and real estate sectors, with the exception of UBS Asset Management, which has been the most active in promoting REITs in East Asia.

The issue in Japan is that while J-REITs have been aggressively competing to buy quality properties, there are not many on the market; prime real estate in Tokyo is owned by property and insurance companies, which rarely put these on sale.

J-REIT share prices have so far been patchy. The two J-REITs listed in 2001 are currently traded at a slight discount to their offer price, while Nihon Retail Funds, listed in March 2002 has appreciated by 1.1%.

Following Japan´s footsteps, South Korea introduced the Real Estate Investment Trust Act in July 2001 to allow for the establishment of REITs in order to aid the corporate restructuring process. Earlier in 2002, enabling legislature was also passed to form asset management companies (AMCs), which in turn can launch REITs.

Since the REITs Act, three K-REITs have been listed on the Korea Stock Exchange - the Kyobo-Meritz CR-REIT, the KOCREF 1 and KOCREF 2 CR-REITs, with more at the approval stage. As the Korean property market is currently healthy with long leases, low occupancies and strong yields, K-REITs are expected to be strong performers.

Singapore is the latest to jump on the REIT bandwagon. Its first REIT, the CapitaMall Trust (CMT), a mixture of suburban retail malls and a specialised IT retail centre began trading on the stock exchange in July 2002. The second, the Ascendas REIT (A-REIT) consisting of a pool of industrial and business park buildings, made its debut on November 19, 2002.

Both th

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