Last month's launch of Hong Kong's first yuan-denominated real estate investment trust made headlines for its part in the steady globalisation of China's currency, but the Hui Xian Real Estate Investment Trust listing otherwise failed to excite the market.
The offer's public tranche was oversubscribed a mere 1.3 times, which suggests that average retail investors remain unconvinced of the benefits of reits, whatever the basic pitch in terms of stable dividend yield, currency play or long-term asset appreciation.
That's a genuine puzzle to reit managers and sector analysts. The usual explanation is that Hong Kong retail investors, conditioned to prefer growth equities over yield stocks, still see reits as 'kind of boring'. But that ignores an option that gives defensive solidity to a portfolio and reliable dividend income, a combination that institutional and overseas investors don't readily understand.
Indeed, Christina Ngai, associate director with BOCI (Bank of China International) Research, is prepared to say that 'reits are getting hot'. She points to regular payouts, stable organic growth and the chance to benefit from a property market seeing rental increases and soaring demand for retail and office space. Occupancy of hotel rooms and serviced apartments is also on the rise, buoying income for those sectors, too.
With Securities and Futures Commission regulations requiring the current nine Hong Kong-listed reits to pay at least 90 per cent of net income after tax to investors, prospective returns look healthy, Average yields, or distribution per unit, this year are forecast to range from 4.5 per cent for The Link Reit to 6.9 per cent for GZI Reit, whose holdings are mainly in Guangzhou.
The unit price appreciation in a bull market may not match that of property developers or other more exciting stocks, but last year still saw an average gain of about 20 per cent for locally listed reits.