The Development and Performance of Reits in Hong Kong

THE DEVELOPMENT AND PERFORMANCE OF REITs IN HONG KONG

GRAEME NEWELL and WU YUE University of Western Sydney and CHAU KWONG WING and WONG SIU KEI University of Hong Kong ABSTRACT

Hong Kong is one of the most dynamic commercial property markets in Asia. With the recent development of REITs in Asia, HK-REITs have become an important property investment vehicle in Hong Kong since 2005. This paper assesses the significance, risk-adjusted performance and portfolio diversification benefits of HK-REITs in a mixed-asset portfolio in Hong Kong over 2005-2008. The impact of the global financial crisis on HK-REITs and the ongoing strategic development of HK-REITs are also assessed. HK-REITs are seen to deliver strong risk-adjusted returns and to have been robust during the GFC with superior risk-adjusted returns to other listed asset classes, but some loss of diversification benefits was also evident in the GFC. Keywords: Hong Kong, Asia REITs, HK-REITs, risk-adjusted returns, portfolio diversification, global financial crisis.

INTRODUCTION

International property investment has taken on increased importance in recent years. In particular, this has seen the property markets in Asia take on a more significant role in portfolios, given the strong economic growth and improved property market maturity and transparency in the Asian property markets in recent years (Chin et al, 2006; JLL, 2008a). A number of the major global property fund managers now have significant Asia property portfolios in their global property mandates. This includes ING, RREEF, UBS, LaSalle and Pramerica. In particular, Hong Kong is a major developed property market in Asia, with a sophisticated commercial property market and financial market. This has been characterised by Hong Kong’s integration with the China economy, a focus on a services-oriented economy and an increased role by Chinese companies on the Hong

190 Pacific Rim Property Research Journal, Vol 16, No 2, 2010

Kong stockmarket. This...