REIT ASIAPAC
developers and landlords have also fallen
although the drop may also be attributable
to investors switching to US dollar assets,
says White.
Henry Chin,
CBRE’s Head of Research, Asia Pacific
relaxed restrictions imposed on foreign
investment in its free trade zones by
shortening the number of items on a so-
called negative list that sets out industries
where foreign investment is limited or
prohibited. Locally, export rebate rates
for 397 goods were raised in September,
effectively cutting the amount of value-
added tax payable by companies affected
by the U.S. tariffs. It has also sped up its
Belt & Road initiative to enhance trade
partnerships and geopolitical ties with
emerging markets, particularly those with
ASEAN.
In other areas, it has pledged to remove
ownership limits on industries such as
insurance and autos within the next three
to five years. The gradual liberalisation of
its markets has also come amid criticism
from the U.S. and Europe that Chinese
firms have been largely allowed to invest
freely in their markets while Beijing limits
foreign firms’ ability to enter the world’s
second-largest economy.
CHINA’S MARKET
M AY W E A K E N
John White, Senior Managing Director
at Public Real Estate Securities in Asia,
however, remained cautious. He projected
a weakening market in the second half due
to China’s continuing restrictive policy
environment in the property market.
In Hong Kong, the escalating trade war
has affected the broader equity market
with the Hang Seng Index (HSI) trending
lower since June. Shares of Hong Kong
Technically, the U.S. tariff imposed on
China does not apply to Hong Kong. The
United States-Hong Kong Policy Act
allows the U.S. to deal with Hong Kong
directly on trade and economic issues.
However Hong Kong has served as the
re-export hub between the two nations
for decades, and its biggest trade partner
is China. Taking into account the series of
tariff announcements until September,
as much 48.5 per cent of Chinese goods
shipped via Hong Kong to the U.S. would
be affected, Hong Kong’s Secretary for
Kay Van-Petersen,
Global Macro Strategist at
Saxo Capital Markets
Commerce and Economic Development
Edward Yau Tang-wah was quoted as
saying in the SCMP. The city has already
introduced measures to help businesses
cope, and these included easier credit
terms. Standard Chartered Bank in
October downgraded Hong Kong’s
economic growth forecast for the full
year to 3.6% from 3.8%, citing the trade
dispute and the likelihood of continued
rising interest rates.
“Hong Kong developers face pressure
mostly through a rising interest rate
environment, with the Hong Kong
Interbank Offered Rate (HIBOR), a
measure for the short-term lending rate
between banks, rising from less than
22
70 basis points in March to over 200
basis points (2%) in June,” says White. A
tightening policy introduced in the form
of a new vacancy tax has also weighed on
shares, he adds.
SHARE PRICE FALL
SIGNALS BUYING
OPPORTUNITY IN
HONG KONG
However, the fall also presented
opportunities to buy Hong Kong property
shares. “We see opportunities in selected
developers which are both cheap,
cashed up and have identifiable catalysts
including Wheelock and Sino Land. We
also continue to prefer selected retail
names which have become cheaper in
the correction,” says White, who expects
retail sales growth and infrastructure
improvements, including the recent
opening of the high-speed rail connecting
Hong Kong with mainland China, to boost
tourism.
In the physical market, deal flows have
remained largely intact. In the three
months to June, transaction volumes
for commercial real estate registered
HK$50.3 billion (US$6.8 billion), the
second-highest quarterly total on record,”
according to Chin. Residential property
prices are still 14% higher than the end of
2017, says White.
Despite the fall in the HSI, the Hang Seng
REIT index has remained relatively stable.
With the logistics and industrial sector
seen likely to be the first to bear the brunt
of the trade war, the 11 listed HK REITs,
whose investment portfolio covers mainly
office buildings and retail properties, have
not been adversely impacted.
“Nevertheless, we believe investors are
likely to adopt a wait-and-see approach
in the coming months and closely monitor
any escalation in the trade standoff,” says
Chin. Van-Petersen, however, expects
the market “to go through more pain in
terms of a higher USD and higher U.S.
rates before things get any better from a
structural perspective.”
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