OUTLOOK
Source : GPR , as of September 21 2021
stock markets of Shanghai and Shenzhen , will allow mainland Chinese investors to trade Hong Kong REITs .
China launched REIT market
While Hong Kong stepped up to revitalise its REIT regime , China , in June 2021 , floated the first batch of its REITs , consisting of nine REITs covering infrastructure projects , business parks and logistics assets . China ’ s REIT rules are more stringent than those in Hong Kong in terms of tighter leverage requirements and criteria for sectors and the location of the underlying assets .
Undoubtedly , the objective of Hong Kong ’ s move to enhance its REIT Code and the introduction of various other favourable government policies is to expand the investment scope of Hong Kong REITs , support local REITs ’ operations , and encourage new investment flows into the industry , especially from the mainland .
The relaxation of REIT rules for minority investments has already helped smaller Hong Kong REITs expand their portfolio to include overseas assets . One example is Champion REIT . It entered the London office market after investing a 27 % stake in London ’ s 66 Shoe Lane , which was valued at HK $ 2.75 billion , in April 2021 .
We believe the proposal to include Hong Kong REITs under the
Stock Connect schemes will also spur fund flows from mainland Chinese investors . We have already started seeing IPOs with China-based assets , such as SF REIT ’ s IPO in 2021 , and we expect more to come in the future .
It is clear from the Hong Kong government ’ s recent policy changes that it wants the Hong Kong REIT market to increase its depth in terms of asset types and geography while tapping fund flows from mainland Chinese investors . While the Hong Kong REIT market had a relatively early start compared to other Asia Pacific REIT markets , it lagged in terms of its expansion of its free-float market capitalisation . Hong Kong and China REITs have a combined free-float market value of US $ 26 billion , compared to Japan ’ s US $ 142 billion , Australia ’ s US $ 96 billion and Singapore ’ s US $ 53 billion . Hong Kong and China REITs have a combined 7.6 % share of the global REIT free-float market cap , and that share has been falling since 2019 .
We believe that the Hong Kong government is keen to promote its REIT market as part of its strategy to maintain the territory as an international financial centre as well as a credible alternative for southbound mainland Chinese investments . Moreover , a solid and robust Hong Kong REIT market will complement China ’ s plan in developing its own REIT market , especially if mainland China REITs want to tap Hong Kong ’ s capital markets in the future .
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