1. Singapore is currently leading the trading of REITs in Southeast Asia,as the country has established itself as a hub for these companies for two decades with over 42 listed REITs.
2. Although the Singaporean REITs market suffered an initial blow because of the effects of the Covid-19 outbreak, it has recently reopened to resume global expansion.
3. Another Southeast Asian country with an established REIT market is Indonesia, which currently has three listed REITs. Its REIT industry is obviously still very young compared to Singapore’s, as Indonesian legislators have yet to attract more entities by offering attractive investments.
4. Although the Singaporean REITs market suffered an initial blow because of the effects of the Covid-19 outbreak, it has recently reopened to resume global expansion. Another Southeast Asian country with an established REIT market is Indonesia, which currently has three listed REITs. Its REIT industry is obviously still very young compared to Singapore’s, as Indonesian legislators have yet to attract more entities by offering attractive investments.
REIT IN PHILIPPINES
1. Philippines has just established its REITs market even though the government has approved the REIT law over a decade ago. When the law was approved, companies were hesitant to dabble in the REITs industry due to high friction costs, minimum public ownership requirements and high taxes.
2. In an attempt to revitalize the market, the current administration amended the implementing rules and tax laws to help companies in their REIT formation and consequently, to boost the REITs sector.
3. For a company to qualify as an REIT in the Philippines, at least 75 percent of deposited property must be income-generating and at least 90 percent of distributable income must be paid out as cash dividends to investors.
4. The company must also be listed in the Philippine Stock Exchange. This new regulatory framework was created to fit current realities at the Philippine property industry and to attract capable real estate companies.
5. Infusing fresh stimulus to the old framework led to companies becoming more confident in rolling out investments. The first REIT under Ayala Land was listed in 2020, while the second REIT under Double Dragon debuted at the Philippine Stock Exchange.
6. Subsequently, there are reports of other leading real estate companies planning to list their REITs on the Philippine Stock Exchange. These REIT listings give business experts hope, as REITs are seen as one of the catalysts for recovery and growth of the Philippine economy.
REIT DEBUTS IN CHINA
1. In 21st June, Shenzhen, the Bosera CMSK Industrial Park Closed-end Infrastructure Securities Investment Fund jumped 14.7% while the AVIC Shougang Biomass Close-end Infrastructure Securities Investment Fund climbed 9.5%. Ping An Guangzhou Communications Investment Guangzhou-Heyuan Expressway Closed-end Infrastructure Fund made the weakest start, eking out a gain of just 0.7%.
2. In Shanghai, the Zheshang Securities Shanghai-Hangzhou-Ningbo Expressway Closed-end Infrastructure Securities Investment Fund closed up 5% after paring early gains while the CICC GLP Warehousing Logistics Closed-end Infrastructure Fund finished up 2%. Soochow Suzhou Industrial Park Closed-end Infrastructure Securities Investment Fund trailed with a 0.6% increase.
3. Together, the nine REITs that debuted -- five in Shanghai and four in Shenzhen -- own assets ranging from sewage treatment plants and toll roads to industrial parks and raised about 30 billion yuan ($4.65 billion) in well-subscribed offerings.
4. This approach to securitization ought to open the window for further liberalization of assets that can adopt the REIT structure. Given the size of China's infrastructure, the inaugural launch of the nine REITs is a precursor to a market that should eventually rival the U.S. in terms of size.
5. Beijing had been hesitant about REITs, fearing they could further push up home prices that are already among the world's highest as compared to local incomes.
6. Instead, China's nine new REITs are providing relief for financially stretched local governments to pay for new infrastructure. Regional and local governments together had some 25.6 trillion yuan in outstanding debt at the end of 2020, with many owing more than their annual revenue, raising concerns.
7. Infrastructure managers wanting to join the pilot REIT program, more than a decade in development, must have assets located in one of six designated economic regions, including the Yangtze River Delta and the Guangdong-Hong Kong-Macao Greater Bay Area.
8. The trial is quite small but a step in the right direction with local government finances stretched. It is also a good time to tap investors for funds as market conditions are quite conducive and funds for retail investors are looking for a stable source of returns.
9. The National Development and Reform Commission (NDRC), the country's top economic planning agency, will recommend shortlisted projects to the China Securities Regulatory Commission (CSRC) for packaging into REITs.
10. Asset managers are required to retain a 20% stake in their REITs for five years. REIT borrowings are capped at 28.6% of assets, with such funds only to be used for maintenance and renovation rather than acquisitions, while 90% of income is to distributed as dividends. Retail investors, meanwhile, can only hold 16% ownership in aggregate per REIT.
US MARKET REIT SECTOR FORCAST IN Q1 2021
1. REITS are required to distribute 90% of their income back to investors, that yield is attractive. And so when rates are rising and there are other choices for reliable income, sometimes investors leave REITS to capture kind of more reliable or more at least perceived to be safe income from that standpoint.
2. However, the underperformance this time might be short lived for several factors. The reopening trade and more activity in commercial spaces such as malls and office spaces might increase demand in the space. Increased inflation, too, could boost rents and the value of real estate investments. With hotel, resort, residential and retail REITs as pockets of opportunity and office and industrial REITs as laggards.
3. As US reopen the labor mobility, the normalization of what job growth looks like, all of that’s good for people moving around and apartments will thrive again, and the other side of that coin is storage. As jobs are created and people start to settle back into a new routine, they have to move and storage and movement go together.
REIT RETURNS VS INTEREST RATES
1. During periods of economic growth, REIT prices tend to rise along with interest rates. The reason is that a growing economy increases the value of REITs because the value of their underlying real estate assets increases. In a growing economy, the demand for financing also increases, resulting in increased interest rates.
2. Conversely, in a slowing economy, when the Fed is tightening money, the relationship turns negative.For the most part, REIT returns and interest rates had a positive correlation, moving in the same direction.
3. The periods of inverse correlation, right after 2004, 2013, and 2016, all relate to Fed monetary tightening policies, reversing the actions of monetary stimulus actions that were put into place mainly after recessions. Here interest rates rose but REIT values decreased.
4. However, there are other factors and other detailed observations to consider, which may indicate positive or negative returns for REIT investments depending on the interest rate environment.
5. The biggest factor is that not all REITs are created equal. First and foremost, REITs operate in many types of industries. These include healthcare, hotel, residential, industrial, and many more. Each of these industries has different variables in play that react differently to the economic environment.
6. Another important factor is the debt profile of a REIT; how much financing they take on to grow their business. The debt profile determines a REITs ability and timeframe to pay down debt, which will be impacted by different interest rate environments.
OPPRTUNITIES FROM REIT
1. REITs are usually made up of income-generating properties such as apartments, offices, malls, warehouses and hotels. However, companies that generate income from utilities, toll roads, airports and hospitals can also establish REITs. Among the main incentives for asset owners transferring their income-generating assets to REITs is income tax benefit.
2. Investors should consider buying REITs since they offer passive income outside of conventional financial products such as time deposits or bonds. The dividend yields of REITs are also mostly higher compared to the yields of time deposits and bonds.
3. Moreover, some of the benefits REIT investors can enjoy is owning income-generating assets without the need to shell out huge capital. Some of these assets include rental escalation or tariff hikes, higher occupancy rates or growing demand, capital appreciation, leverage and diversification.
4. Because REITs are publicly listed and traded, they are liquid and are easily sold. This makes it unique from physical investments, venture capital and private investments, where there are binding contracts and guidelines that must be followed.
5. REITs are considered yield-based securities. While they can appreciate in price, a considerable portion of REIT returns is from dividends.
6. REITs offer exposure to global markets. Since the 1990s, the U.K., Singapore, Japan, Australia, the Netherlands, South Africa, and many others countries have enabled REIT listings, allowing investors to take exposure in real estate markets of foreign nations.
7. In the event of rising interest rates, not all the sub-sectors within real estate may get hit adversely. For example, residential rents may suffer, but shopping centers in prime locations may not. Careful study of the real estate market, the impacts of interest rates on a specific sub-sector, and on specific REITs based on its underlying property holdings, can make REIT investments profitable no matter the interest rate impact.
Source:
https://www.manilatimes.net/2021/03/31/business/columnists-business/the-rise-of-reits/857772
https://asia.nikkei.com/Business/Markets/New-Chinese-REITs-rise-in-market-debut
https://www.cnbc.com/2021/03/06/areas-of-the-reits-sector-that-could-thrive-in-2021.html
https://www.investopedia.com/articles/investing/091615/are-reits-beneficial-during-highinterest-era.asp
