Cheung Kong reit chairman opposes 'element of risk' in government plan

The Real Estate Investment Trust controlled by developer Cheung Kong (Holdings) is opposed to a government proposal to give Hong Kong-listed reits greater flexibility to undertake development projects.

"As the chairman of Fortune Reit, I oppose the proposal," Justin Chiu Kwok-hung said in an interview with the South China Morning Post.

Chiu said Fortune Reit had made a written submission to the government to express its opposition to the proposal, which was raised by the Financial Services Development Council in November.

Allowing Hong Kong-listed reits to undertake development projects would add an element of risk to their investment status, said Chiu, since their incomes would fluctuate. "When the trusts were launched in 2008 they were created with the aim of seeking stable returns. Therefore, the idea of allowing them to invest directly in developing properties is wrong," said Chiu.

In a report released in November, the Financial Services Development Council raised the possibility that reits might be allowed to allocate up to 10 per cent of their total assets to property development projects.

They would be required to hold any development project for a period of two years from the date of completion before disposing of the project.

Other recommendations included granting Hong Kong-listed reits exemption from the 16.5 per cent corporate profits tax on rental income. They might also be exempt from paying stamp duty on the transfer of commercial property.

Chiu, who is also executive director of Cheung Kong (Holdings), stressed that the group's objection was not based on concerns that the proposal might lead more competitors into the development market.

"Hong Kong is a free market. Anyone can come in to develop properties. Now we see mainland developers are coming," he said.

But his objection to the change contrasts with the reaction of other industry players.

Victor Yeung, founder and managing director of a newly formed real estate fund management firm, Admiral Investment, said: "The development of Hong Kong reits has been slow when compared with other Asian countries such as Singapore and Japan." Yeung , whose company is set to launch a fund to invest in reits in the Asia Pacific region, said allowing Hong Kong property trusts to develop projects would help to activate the investment product.

Property consultancy CBRE noted in a research report released last month that as of November, Hong Kong-listed reits accounted for just 5 per cent of the total listed real estate market capitalisation in Hong Kong compared to shares of over 30 per cent held by trusts listed in both Singapore and Japan.

CBRE said that if the proposal to allow Hong Kong reits to undertake development projects was implemented, it would provide a major boost to the long-term growth of the market.

By investing in the project cycle, Hong Kong-listed reits would be able to enjoy lower purchase costs compared to the costs of buying completed assets.

"Although this would involve increased risk, this could be mitigated by imposing proper regulations to avoid overexposure to development projects," it said.