Hong Kong hopes inclusion of Reits in the Stock Connect scheme could help close gap with Singapore
- Japan, Singapore and Hong Kong are Asia’s three biggest Reit markets with mainland China in fourth place
- Chinese investors can now get international property exposure via Hong Kong Reits as China Reits are prohibited from holding Hong Kong or overseas properties
The inclusion of real estate investment trusts (Reits) in the China-Hong Kong Stock Connect mechanism will expand the investor base, increase the trading liquidity and attract more listings of these collective investment schemes to Hong Kong, analysts said.
The initiative, unveiled last month, aims at further expanding the mutual market access between mainland China and Hong Kong, and will also make it a more competitive market compared with rival Singapore.
“This initiative will attract sponsors from around the world to list their Reits in Hong Kong, as they can target a larger pool of investors,” said Jeremy Ong, partner and head of Baker McKenzie’s Hong Kong Reits practice. “This is important to Hong Kong as the city currently has a limited number of international Reits.”
“This in turn may result in a better performing H-Reit sector, which can then attract international Reits to list here, where they may previously have opted for Singapore and create a virtuous cycle,” said Ong.
As of January 2024, there were 41 Reits trading in Singapore, worth a combined S$100 billion (US$74 billion), making it the largest Reit market in Asia outside Japan. There are 17 S-Reits whose real estate portfolios comprise entirely of overseas properties as of January 2024, according to the Reit Association of Singapore.
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“The regulatory regime for Reits in China has become more mature, allowing for the inclusion of new asset classes, such as shopping centres, logistics, business parks, clean energy and affordable rental housing, and is likely to continue to liberalise as evidenced by Reit Connect,” Ong said.
King Au King-lun, an executive director of the Financial Services Development Council said it will not only elevate Hong Kong’s status as a capital raising centre but also boost financing channels for mainland China.
“This will enhance Hong Kong’s role as a fundraising centre for infrastructure and the Belt and Road Initiatives,” said Au. “It will also allow international investors to invest in the Reits listing in mainland China and to support the country’s infrastructure projects.”
“It shouldn’t be limited to just the criteria of market capitalisation or AUM,” he said. “This runs the risk of potentially ignoring particular asset classes where they may be smaller in size … but they equally provide the breadth and diversity to the market giving investors more choices.”
Ong said the Reit Connect mechanism should be launched in the next few months to capitalise on the interest generated by the announcement.
Chinese investors will have more options for international real estate investments through Hong Kong Reits, since China Reits are currently not permitted to hold Hong Kong or overseas properties.
In mainland China, the first batch of nine onshore Reits were listed in June 2021 and the total had grown to 36 as of end-April, with around 15 more undergoing or having completed the application process. There are 11 Reits listed on the Hong Kong exchange, and all of them have property assets in Hong Kong and China.
“Fund managers welcome the inclusion as it means that there is an expansion in the investment universe,” said Sally Wong, chief executive of Hong Kong Investment Funds Association. “From the perspectives of foreign investors, it means they can invest in Reits that invest in infrastructure in designated regions on the mainland.”
