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Asian REIT (ex-Japan) market cap to surpass US$75 billion by 2010
Asia is home to half the world's population but with real estate space per capita pegged at one of the lowest levels in the world, prospects for growth in Asian real estate developments are bright after years of economic shocks due to the Asian financial crisis and SARS.
Strong factors for this growth trend are rising middle income in India, China and overall good Asian GDP growth, UBS Investment Research analyst Charles NEO said.
Rising prosperity in general, growth in the tourism industry as well as urbanization, are driving capital value growth in Asian real estate, he said adding Singapore and Hong Kong are expected to compete as Asian real estate investment trusts (REIT) hubs in the near future.
UBS's proprietary data on US$500 billion worth of real estate ownership structure has enabled it to develop a growth model for Asian REITs; results of this study were compiled in a recent UBS report entitled Q- Series: REITs in Asia.
"REITs in Asia are set to grow at an impressive rate due to pent-up demand for new real estate investment opportunities in the region," Neo said. He estimates market capitalization of this sector in Asia (ex-Japan) to grow from the current US$7 billion to US$75 billion by 2010 which is about 15 percent of the current real estate in Asia estimated to be worth about US$500 billion.
"The cross-border REIT market capitalization is also estimated to grow from US$700 million to US$25 billion by 2010," Neo added. "There is so much hidden value, yet to be unlocked. For instance, we surveyed 108 listed non-real estate companies in Asia with a combined market cap of US$452 billion that own or control US$81 billion worth of real estate," he said.
Neo said these stocks could be re-rated upwards if the companies concerned divest non-core real estate into a REIT.
The demand for REITs is expected to come from three main sources - ageing population and high savings rate, untapped opportunities in wealth and property fund management and retail investors.
"More than 35 percent of the population in the four wealthiest regions of Asia is already more than 40 years old. An ageing population and high savings rate in Asia can support sustainable demand for REIT-type investments." "We also expect the proliferation of wealth and property fund managers to manage funds for high-net worth individual investors and retailers," Neo said. High growth potential for REITs in Asia also means that the industry is aggressively replicating best practices from its US and Australian counterparts, which bodes well for the industry's ability to attract global investors.
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Kuala Lumpur, 22 March 2006
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