'In the second phase of the formal consultation next year we will issue draft guidelines for public consultation.'

REITs are corporations or trusts that own, manage, acquire, develop or finance income-producing real estate such as apartments, shopping centres, offices and hotels. They allow retail investors to invest in commercial or residential property by purchasing and trading shares on a public stock exchange.

Rory Gallaher, a partner at Deacons law firm, said interest in offering such products to the local market had been stimulated by the recent REIT debut on the Singapore stock exchange, which had been 'reasonably successful'.

'I think [market demand will] depend very much on what structure the products are going to take [in Hong Kong],' he said.

Liquidity, disclosure and valuations are among the key issues the SFC would need to grapple with if this type of product were to be offered in Hong Kong, analysts said. The qualifications and suitability of potential providers would also need to be assessed.

REITs were first created in 1960 in the United States, with the aim of making investments in large-scale, income-producing real estate accessible to smaller investors by pooling their resources.

They played a limited role in real estate investment for more than three decades, according to the National Association of Real Estate Investment Trusts, but their popularity has grown dramatically since 1992.

Between September 1980 and September 2000 the number of equity REITs has more than tripled in the US, with their market cap increasing by 15 times in the past decade, according to the association.

Whether the products are closed or open-ended funds is a key factor in their underlying liquidity. REITs in the US and Singapore are closed-end funds meaning investors can only buy and sell them on the stock exchange, unlike mutual funds where the fund manager can buy the units back from investors at present asset value.

Mr Gallaher pointed to the example a few years ago of closed-end funds in Australia that suspended redemptions for a lengthy period in a weak market. He said this kind of issue would be a concern to the SFC.

Sally Wong, executive director of the Hong Kong Investment Funds Association, said the major challenge in launching this type of product was how to whet the appetite of local investors, especially as the local population appeared to have changed its perception of property in the recent downturn.

Ms Wong said much investor education would be needed to distinguish REITs from general home ownership as well as direct investment in property stocks or mutual funds that had a high exposure to property stocks.

Mr Gallaher said offering some tax concessions would stimulate local demand. REITs in the US are given tax advantages but unless adjustments were made to local rules, such a product would be subject to 16 per cent companies tax. Investors in Hong Kong do not pay capital gains tax on mutual funds or share investments.

Mark Konyn, director at Dresdner RCM Global Investors, said REITs would provide a more convenient way for people to get exposure to property in their portfolios.

'[But offering REITs] does not overcome any of the structural impediments that are in the [property] market,' he said.

'If you have an underlying market which is a little bit sticky - with turnover a problem and valuations therefore jumping from point to point - it won't overcome those problems.'

He said a property trust could be a useful tool for investors as they could afford to build a portfolio diversified by country or location within a country, helping to even out any trends or pricing anomalies.

Property companies would probably welcome the introduction of such products, Mr Gallaher said, as they would stimulate the market and provide greater liquidity. He added that in a market where few developers focused solely on property in their businesses, such an option would give investors concentrated exposure.

'[REITs] are more of a pure property play. Investors will have more of an idea of what the actual portfolio is - it won't be deriving income from other activities or diluting its performance through using its property income for a dotcom company or anything of that nature,' he said.

Ms Wong said REITs should be seen as a total return investment that provided dividends as well as moderate, long-term capital appreciation. They offered more liquidity than bricks-and-mortar investments as well as diversification. Risk factors included the overall economic situation and regulatory environment as well as the specific risks relating to the management of the property or occupancy and rental rates.