Asian REITs outperformed Asian equities, says APREA
TOP PERFORMERS: Most Asian REIT markets achieved higher returns, lower risk and superior risk-adjusted performance than their respective stock markets, especially since the Global Financial Crisis (GFC), according to a recent report by the Asia Pacific Real Estate Association (APREA), which was authored by Professor Graeme Newell, University of Western Sydney.
Analysing the seven REIT markets of Asia (Japan, Singapore, Hong Kong, Malaysia, Thailand, Taiwan and South Korea) established up to April 2012, the report noted that all the developed markets (Japan, Singapore and Hong Kong) and one of the emerging markets (Taiwan) achieved higher returns than their respective stock market.
All of the emerging Asian REIT markets had lower risk than their respective stock market, illustrating the defensive characteristics of REITs as an investment with a strong yield focus. All of the developed Asian markets plus Taiwan and Malaysia showed superior risk-adjusted performance compared to their respective stock markets.
“This is a very important finding, as the most mature and sophisticated REIT markets in Asia reflect the potential performance upside opportunities that the emerging REIT markets could achieve as they grow and mature,” said Newell.
The report also analysed the specific period of June 2009–April 2012 to examine the performance of REITs post-GFC. It showed that average annual returns for Asian REITs have increased significantly in all markets except South Korea. In most cases, the Asian REIT returns exceeded their respective stock market returns, and often by significant amounts.
Likewise, risk levels for Asian REITs have significantly reduced during this period and their risk levels were generally below their respective stock market risk. This saw superior risk-adjusted returns for REITS in every Asian REIT market except South Korea.
See Table 1.
Pan-Asia REIT strategy
“With this strong investment performance by the various Asian REIT markets, retail investors will do well by considering a pan-Asia REIT strategy,” said Newell. “Investors can then receive the best of both worlds: liquidity from being listed and access to high quality real estate investment portfolios.”
He continued: “Challenges and opportunities still remain for REITs in Asia. Ensuring sufficient investment-grade commercial real estate is available will be an initial challenge, but will be addressed with increased maturity and transparency over time. Improving levels of corporate governance, transparency and depth will also need to be addressed.”
Newell said: “REITs have traditionally been viewed as a defensive asset class, underpinned by high distribution yields and low volatility. Also, in a low interest rate, high inflation environment, the attractiveness of real estate stands out.
That is why REITs have constantly generated excess returns and should therefore continue to form an integral component of an investment portfolio. However, there is still a lot of investor education to be done.”
There are currently 138 Asian REITs with a total market capitalisation of over US$118 billion (RM354 billion) which accounts for 12 per cent of the global REIT market. REITs have a long and successful history in the US and Australia but were only established in Asia since 2001, starting in Japan, followed by Singapore in 2002 and Hong Kong in 2005.
The leading REIT markets are the US with 55 per cent market share, Australia with 10 per cent and Japan with 6 per cent. Globally, REITs now account for 45 per cent of listed real estate exposure.