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UBS forecasts exponential growth in Asian REIT market, 50% rise in Hong Kong property prices.

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An uptick in the use of Real Estate Investment Trusts (REITs) by integrated property companies seeking to recycle capital has the potential to push the capitalisation of REIT markets in Asia to US$100 billion by 2010, according to Charles NEO, Co-Head of Asia Property Research at UBS Investment Bank. At the same time, Eric WONG, Co- Head of Asia Property Research, forecasts that Hong Kong residential and commercial property prices will rise by 50% over the next two years.

"Half the world's population reside in Asia, and China, India, Vietnam, Thailand and Indonesia, all offer significant development opportunities for integrated property companies to use REITs to recycle capital and develop real estate projects. Our proprietary models indicate that the capitalisation of the Asian REIT market has the potential to increase from US$11 billion today to US$100 billion by 2010. Clearly, this will lead to a substantial change in the competitive landscape of Asia's property market," noted Neo.

"Property developers are the major beneficiaries. Our model included around 108 non-real estate companies in Asia that could recycle US$81 billion worth of non-core properties into REITs. In addition, we believe that Hong Kong and Singapore could evolve to become Asian REIT hubs and command premium valuations relative to other markets in Asia," added Neo.

Commenting on the Hong Kong property market, Eric Wong said that the UBS's property forecasts had been extended from the end of 2006 to end of 2007.

"We expect the price of office and residential property to rise by 50% over the next two years. Over the same period, we expect residential rents to increase by 25%, office rents by 70% and retail rents by15%, he added."

While the forecast implies an aggregate increase in the price of residential property over 2004 to 2007 of 113%, prices remain 23% below the record figure in 1997. Yields in the residential sector should decline from 4.4% at the end of 2005 to 3.6% by end of 2007; over the same period in the office sector, yields should also rise from 5.2% to 5.9%; while retail yield remained steady at 5.5%.

"The levels of pay, inflation and savings rates should all contribute to an increase in confidence in Hong Kong and demand for housing, both for own use and for investment. Furthermore, with three consecutive years of record low completions in 2006-8 of 16,000 units, housing supply is below its previous low of 18,000 units in 1997, and 40% short of historic average of 28,000 units. In addition, government policies and rail project delays could extend the shortfall in to 2009."


Mark Panday

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Angel Yeung

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Hong Kong, 16 February 2006