Power to the public

As real estate investment trusts expand throughout Asia, they're bringing more investors to the region—and more transparency. By Aaron Lovell

Over the past several months, there has been much colorful discussion about real estate investment trust legislation in Germany. As the debate rages on in the halls of the Reichstag, the law seems to be inching ever closer to reality. But while some in the German government had hoped to push through legislation by the first of the year, there is continued concern among the Social Democrats in the governing coalition about how the REITs will change property ownership in Germany.

Of course, some parts of the world aren't nearly so sentimental. The concern surrounding REITs seems to be much less—perhaps bordering on nonexistent—in Asia. In recent months, Hong Kong, Malaysia, Thailand and Korea have all amended laws to make the booming Asian property markets more attractive to REITs and, in turn, investors.

Not that the funds are new in the East. The J-REIT, for example, has been firmly established for property investment in Japan and remains a popular investment vehicle, with around 36 listed trusts.

Other markets in the region are seeing REITs sprouting up, too. Earlier this year, for example, The Wall Street Journal counted seven REITs listed in Singapore and three listed on the market in Hong Kong. By the end of the year, some predict as many as 24 trust vehicles listed between the two markets.

But Asia is more than Singapore and Hong Kong. As of June, there were 66 REITs listed on stock exchanges in seven Asian countries for a capitalization of $50 billion according to Jones Lang LaSalle. The previous March, there were only 29 REITs listed in four countries valued at $29 billion.

The interest in REITs is understandable. With low—but steady—yields, the vehicles are seen by many as a safe investment in Asia, a region with diverse markets that still baffle many Western investors. With memories of the late-1990s currency crisis not completely forgotten, many are well aware of the political, economic and currencyrelated risks that remain in certain markets.

The benefits of the new legislation appear to be multi-fold—especially in emerging property markets. In a report recently released by the research arm of Jones Lang LaSalle, the introduction of REIT vehicles throughout Asia was cited as a catalyst for increased transparency in the property markets. Along with the trusts, accounting standards have increased throughout the region, making it more open—hence more attractive—to foreign investors.

Perhaps not surprisingly the report found that both Hong Kong and Singapore were in the global “top ten” list of transparent markets, with both posting “slight” improvements in real estate transparency over the previous year. Japan and India were both billed as some of the top improvers in transparency, while China, Taiwan, Malaysia and South Korea all show some level of increased transparency. According to the report, there was no change in transparency in the property markets of the Philippines.

The introduction of REIT vehicles throughout Asia was cited as a catalyst for increased transparency in the property markets.

With increasingly sophisticated markets in the region, it is little surprise that foreign real estate investment jumped to $67.5 billion last year, a 46 percent increase over 2004. In China alone, more than 64 percent of all institutional-grade real estate was acquired by foreign groups.

While China is no doubt watching the effects of REIT laws in neighboring countries, the JLL report warns that property trusts are probably a ways off in the Middle Kingdom. India, however, could see some sort of REIT law introduced as early as 2008.

In fact, last year saw yet another sign that the burgeoning Asian REIT markets have arrived: the formation of a trade group. The Asian Public Real Estate Association has already fallen in with its counterparts in the US and Europe, forming an alliance with the European Public Real Estate Association and the National Association of Real Estate Investment Trusts.

Macquarie makes first investment in Malaysia
Malaysian property company Asia Pacific Land has sold three of its buildings to private equity real estate firm Macquarie Global Property Advisors for RM680 million (€144 million; $185 million). The acquisition, which is Macquarie's first in Malaysia, includes the 61-story Empire Tower; the 28-story, 571-room Crown Princess Hotel; and the 11-story City Square Shopping Centre. All of the assets are in the central Golden Triangle district of Kuala Lumpur. The properties are in need of refurbishment and were reportedly sold below their book value of RM708 million.

Morgan Stanley, JP Morgan target India
JP Morgan Asset Management has reportedly raised $360 million (€281 million) for its India Property Fund, which is targeting returns of 20 percent and is focusing on new developments across property sectors in large urban centers. The vehicle is focusing on regional and national cities on the subcontinent, including Mumbai, Bangalore, Chennai, Kolkata, Hyderabad, New Delhi and Pune, as well as smaller cities like Surat, Vizag and Nagpur. Morgan Stanley also announced plans to spend more than $1 billion in Indian real estate over the next five years. Over the past six months, the investment bank has already invested a combined $140 million in two realty companies, Bangalore-based Mantri Developers and Delhi-based Alpha G, and a serviced apartment project in Pune.

CDC invests in new Africa vehicle
CDC, the UK government-backed private equity investor, has committed $100 million (€78 million) to a new private equity real estate fund focused on Africa. The Actis Africa Real Estate Fund is seeking out investments in high-quality office buildings and retail space in Southern and Western Africa. The investment is CDC's first in a real estate-focused vehicle, but in the past the organization has invested $25 million in seven African property companies. A portfolio of CDC investments in Africa, including various properties and developments in Nairobi, Kampala, Dar es Salaam, Accra and Lagos, will be included in the fund's portfolio.

Starwood appoints India head
Greenwich, Connecticut-based Starwood Capital has named Balaji Rao to head its India operations. Rao was most recently the managing director at TCG Urban Infrastructure, the real estate division of The Chatterjee Group, where he oversaw 100 professionals and built a property portfolio in six of India's largest cities, including a 103-acre biotech/office park in Maharashtra, which was the country's first public/private partnership. Prior to joining TCG in 2001, Rao was head of Indian property at Anz Grindlays Bank.