ASIA HAS THE makings of a new investment favourite in REITs (real estate investment trusts). The launch of two recent REIT IPOs – one in Singapore, one in Hong Kong – have proved immensely popular and could herald the start of a new asset class for the region's yield-hungry investors.
As the name suggests, a REIT is an investment vehicle created specifically to hold a portfolio of properties, typically of the same class, the income from which is paid out to investors, normally in its entirety.
REITs are designed to yield a steady and predictable revenue stream. "REITs are simply the best way of owning mature, income-producing real estate," says Matthew Whittell, director of equity capital markets at Citigroup in Singapore. "It's the closest thing you can get to owning the property itself."
Specialist companies, often owned by the original sellers of the properties, manage the portfolio according to strict guidelines that enable a REIT to benefit from tax breaks, essentially relief from corporation tax. REITs offer property companies a chance to offload mature investment properties and release valuable capital that can then be recycled into new projects that offer a higher potential return.