A source told the South China Morning Post that the commission would announce modifications to its March proposals that would include making it mandatory for all REITs to be listed on the stock exchange.

Despite the mandatory listing requirement, Christfund Securities chairman Christopher Cheung Wah-fung said Reits were unlikely to attract retail investors.

'Most REITs investors are long-term buyers who expect a stable dividend. This may be suitable for fund managers or insurance companies but it will not be popular among investors who prefer to trade more speculative stocks for short-term gains,' Mr Cheung said.

Peter Wong Shiu-hoi, managing director of Tai Fook Securities Group, said property market sentiment was still gloomy and property-related fund products such as REITs may not prove popular with investors.

'Many investors carry the burden of negative equity of their own property holdings. It will be hard to ask them to put more money into property funds,' Mr Wong said.

Another difficulty for REITs, Mr Wong said, was on the supply side.

He said most of Hong Kong's good quality rental properties were held by a few property groups which limited REIT portfolios.

'These large property groups find it very easy to get cheap bank loans. They may not need to use REITs to raise funds,' Mr Wong said.

'Other smaller property owners may want to issue REITs, but it will be a question of whether the quality is good enough.'

A JP Morgan report said 84 per cent of shopping malls and 48 per cent of grade-A offices were in the hands of listed property companies.

The concentration of ownership had made these big players the only ones with the economies of scale to launch REITs. However, this also meant there would be only a few suppliers.

Edmund Ho, vice-president of JP Morgan, however said property players would want to issue REITs.

He said Cheung Kong (Holdings) had applied to list a REIT in Singapore next month, showing the major property developers would be interested in REITs to dispose of illiquid assets.

The Housing Authority also said it wanted to sell its 130 shopping centres and 100,000 car parks in a REIT-type company listed on the exchange in 2005.

Mr Ho said commercial properties with long leases would be ideal for investors as they could receive a yield of 6.5 to 7.5 per cent.

'This is very attractive when compared with bank deposit rates,' he said.

ING Financial Markets had released a report on REITs, which said the products would be welcomed by investors and property developers.

'We expect REITs would be well received in the current low interest rate environment, as they offer attractive yields at premiums to deposit rates. In addition, we expect the capital value of retail-focused REITs to remain stable with an upward bias,' the report said.

'REITs offer a new means for developers in Hong Kong to unlock value in their portfolios. The existence of a REITs market provides valuation support to their stock prices and reduces liquidity discounts.

'Meanwhile, property investors would face keeners competition with the launch of REITs.'

ING tipped Sun Hung Kai Properties to be the most likely developer to launch REITs.

'Our top pick among the property developers remains SHKP. Not only in the recent recovery in demand in the primary market clearly positive but also the fact that it has the highest commercial property exposure and has been actively looking to dispose of its non-core retail properties in this way makes it a prime beneficiary of the development of REITs in Hong Kong.'

ING also said Cheung Kong, Henderson Land and SHKP had several residential holdings, usually including shopping malls, which had potential for REITs.

Also, it said groups such as HSBC, Bank of China and Bank of East Asia might be able to use REITs to dispose of properties which once housed redundant branches.

REITs have been in Asia for only few years. Japan has six listed REITs and Singapore has two.

on demand

The Securities and Futures Commission will make it mandatory for all REITs to be listed on the stock exchange

Sun Hung Kai Properties is seen as the most likely developer to launch REITs