An analysis of Hong Kong REIT : current and future opportunities for investors
Author(s)
Chow, King Man
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Alternative title
Analysis of Hong Kong real estate investment trust
Other Contributors
Sloan School of Management.
Advisor
David Geltner.
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Real estate investment trust (REIT) is a valuable investment alternative for investors in many markets. Being home to a handful of world-class property developers, Hong Kong, the Asia financial hub, seemed to have met all the criteria to grow a REIT market rapidly. Yet, since the enactment of the Hong Kong REIT Code in 2003, the H-REIT (acronym for Hong Kong REIT) market saw only eight H-REITs being launched, lagging the growth of other REIT markets in the region. This thesis paper seeks to uncover the present investment values in H-REITs and determine what likely would shape the future of the market hence the potential value it could bring to investors, through examining the local real estate capital markets, the regulations, and the supply and demand dynamics, and conducting comparative analysis with stocks of local property companies. The study finds that the H-REITs are significantly less risky than local property stocks and offer dividend yields that in most cases are greater than the earning yields of those stocks. H-REIT offers real estate exposure, yet provides diversification effect to a portfolio of local property stocks given its low correlations with these stocks. Hurdles to market growth persist as abundance of liquidity, low yields offered by prime properties, poor reception of yield enhancement mechanisms in REITs, agency problems and questionable corporate governance of the H-REITs all contributed to suppressing both the supply and demand for local asset-backed H-REITs. Moreover, the small size of the city seems to indicate that the H-REIT market was destined to depend on cross-border deals. Thanks to the close-tie to China, Yuan-denominated cross-border REITs backed by Mainland China assets appear to be the future of the H-REIT market. While this type of deal clears some of the hurdles to grow the market, it still remains in the hands of the sponsors to add transparencies in H-REIT management structure to gain the much needed trust from investors to build a functioning market.
Description
Thesis (S.M.)--Massachusetts Institute of Technology, Sloan School of Management, 2011. Cataloged from PDF version of thesis. Includes bibliographical references (p. 73-76).
Date issued
2011Department
Sloan School of ManagementPublisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.