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James Tu

Mainland players put finishing touches to portfolios worth billions for listing in Hong Kong

Up to five mainland developers are arranging  for the Hong Kong sale of China properties worth billions through real estate investment trusts (reits), following the easing of restrictions.

Prompted by tightened funding and a wave of austerity measures to cool  the overheated property sector, mainland developers were keen to securitise some of their real estate properties to raise funds.

Last month, the  Securities and Futures Commission (SFC) lifted restrictions on cross-border property investment  and increased the gearing ratio from 35 per cent to 45 per cent  of the gross total asset value of a reit.

Reits are funds that pool property assets to yield a stable rental income. Previously, reits  had been restricted to Hong Kong property.

Industry players said four to five mainland developers were making arrangements to list reits  in Hong Kong. Some of the mainland property owners had already begun preparatory work, having anticipated modifications to the reit code,  said a property consultant.

Market sources expect Hong Kong-listed Guangzhou Investment  to be the first Hong Kong-listed China reit. The developer is expected to launch a  $2 billion reit comprising  four to five shopping malls.

Since setting reit regulations in August 2003, the SFC has authorised only one reit so far - the Link Reit for the Housing Authority to sell $23 billion worth of car parks and shops. Meanwhile, a legal challenge has held up the launch that was scheduled for last year.

'Guangzhou Investment had initially planned to float its portfolio in Singapore but veered  back to Hong Kong when the SFC decided to relaxed the reits code,' said a source close to the deal.

'The firm had already done most of its preparatory work  when it was planning for a Singapore-listing. So the reit may be ready for launching very soon.'

The Singaporean government is keen to attract overseas listings of reits by offering attractive tax conditions, but Chiu Kam-kuen,  an executive director of DTZ Debenham Tie Leung,  said mainland developers  preferred to float their portfolios in Hong Kong.

'A more favourable pricing of the reit can be achieved by listing in Hong Kong,' Mr Chiu said. 'Investors here are familiar with the China properties.'

He said portfolios of China reits for listing in Hong Kong comprised mostly  office buildings, shopping malls, and logistics hubs  in major cities such as Guangzhou, Shanghai and Beijing, which  investors were  familiar with.

'The portfolio does not have to be top-notch, as long as the investment properties have potential for enhancement by asset managers. A good income flow is one of the most important factors in attracting investors,' Mr Chiu said.

Nicholas Wong Wing-chiu, principle of DBS Bank's real-estate group,  said  the lacklustre response to recent initial public offerings of mainland properties would not  affect the forthcoming launch of China reits.

'Reits are more about asset management, and how to improve the value of properties.

'Investors differentiate them from investing in mainland developers who take significant  risks amidst a wave of cooling down measures,'  Mr Wong said.

He added that the return on reits hinged largely on the local economy and players' spending power.

'The potential of China reits is greater than many imagine.  Actually, it is not limited to a portfolio of listed mainland developers. A lot of non-listed companies also have  plenty of suitable properties for listing,' Mr Wong said.



Relaxed reits rules spur China developers