Asian REITs' porky returns

THE Lunar Year of the Pig has delivered Asian REITs with the best returns in the world and Australians investors should be focusing on the region, according to MacarthurCook's head of property securities Craig Turnbull.

Turnbull said Singapore REITs have produced stunning returns in the past year, more than two and a half times the global average, as Asian property continues to outperform the rest of the world.

Turnbull quoted UBS statistics, which showed that in the 12 months to March 30, 2007 S-REITs produced 75% returns, compared to a world average 29%.

Returns in Australia LPTs were 30%, while the US-REITs were 25% and the UK-REITs were 19%.

Turnbull said that the stellar investment performance of several REITs was largely due to the buoyant property market in the region.

“Across the region the property market fundamentals are strong although there is some variables that are putting greater upward pressure on property values in some markets.

“For example, demand is being fuelled in Japan by the economic recovery in Tokyo with employment up and lending to business up,” Turnbull said. “In China, Singapore and Hong Kong, there is tremendous demand for quality office space from financial services, banks, fund managers, accountants and lawyers all expanding their operations.”

Turnbull said in China, many companies are listing on stock exchanges for the first time and the investment banks that are helping to bring them to market are expanding rapidly.

“At the same time, the unprecedented urbanisation process in India and China requires a lot of new real estate in terms of houses, shopping centres and so on.

“The bottom line is that the underlying real estate market is very good. For example, office rents in Singapore have risen 60% for A-grade space over the past year,” he added.

Turnvull said S-REITs have produced 55% returns per annum for the past three years, which attests to the underlying strength of the Asian real estate market.

“Asian real estate represents very good value for Australian investors. Yields in Asia relative to the cost of finance is a very favourable spread compared to Australia, where interest rates equal the yield you can get on property,” Turnbull said. “In Australia, the yields are higher but it costs a lot more to borrow.”

“In Japan, for instance, the 10-year bond rates are 1.7%, and 2.9% in Singapore, compared to 5.9% in Australia. In Asia, there is better value and more potential for capital gain from a re-pricing point of view.

“You can buy on 5% yield with finance at 2%, which means very good returns for Australian investors who decide to go with Asian real estate.” he added.

MacathurCook is not the only Australian investor launching into the region.

Last week, Macquarie Direct Property Fund made a further $53 million investment into the Macquarie Goodman Hong Kong Wholesale Fund – taking MDPF’s international property allocation to 22%.

MDPF’s fund manager Richard Stacker said industrial real estate in Hong Kong is supported by strong fundamentals, including high demand for logistics and warehouse space underpinned by Hong Kong being one of the major ports in the world and the gateway to China, with both markets experiencing strong growth.

“This is coupled with low vacancy rates and limited potential for new supply in the key industrial areas, as available land is scarce,” he added.

Australian Property Journal