Champion Reit eyes easing of MPF investment curbs on trusts

A leading Hong Kong real estate investment trust (reit) is urging authorities to ease restrictions on Mandatory Provident Fund investments in the trusts.

Champion Real Estate Investment Trust is calling for the change as the next step to boost the development of reits, following a move by the Securities and Futures Commission to allow the trusts to invest 10 per cent of their local assets in "design and build" properties.

Previously, reits had been excluded from property development as managers of income-generating properties.

Adrian Lee Ching-ming, the chief executive of Eagle Asset Management, which manages Champion Reit, believes that while the rule amendment in July is positive, greater benefits would come from moves that boost the sector's exposure to the retirement savings in the city.

"We are moving in the right direction for the development of reits. In the short run, however, the impact is limited," said Lee, referring to the 10 per cent investment allowance for property development.

"Under the regulations, at least 90 per cent of the income of reits has to be distributed to unit-holders. So reits cannot invest in illiquid assets or assets with longer investment periods."

These constraints suggested property development would not prove a popular investment choice for reits, he said.

"Not every reit can buy a property for redevelopment. Most trusts would adopt a conservative approach," said Lee, who saw the amendment as providing flexibility for trusts to redevelop an ageing property.

In contrast, an easing of rules governing MPF investments would prove a more promising initiative for the sector.

"An important step we should do is to amend the regulations of the MPF scheme," Lee said, noting that reits had been classified as "other investments" under the pension scheme's rules.

"MPF funds cannot invest more than 10 per cent of their assets in other investments with higher investment risk, including reits. This was reasonable when Hong Kong began to develop the reit market in 2003. But now, they have a track record and have proven that the returns are resilient when property prices fall."

Moreover, he said property trusts should no longer be classified as high-risk investments.

The development of Hong Kong's reit market has lagged that of other cities despite the city's status as a major financial hub.

Lee said the control scheme governing reits had made life difficult for trust managers. Owners prefer to sell their properties on the open market rather than to reits because of the requirement that a property must offer a yield of at least 5 per cent, resulting in a lower sale price. Investment yields in the market were only 2 per cent now, he said.

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