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REITs To Stabilize In The Next Half-Year

Sep 8, 2008
REITs are a relatively new form of property investment, which enjoyed immense popularity from 2001 onwards. However, the credit crunch affected the REIT market very badly in many countries. Asian REITs lost ground in many cases in the last 24 months, however, Standard and Poors believes that only a deep recession in property values in Asia, and the wider Asian economy, will prevent Asian REITs gaining in popularity once again.

Alka Banerjee is the vice president at Standard and Poors, and he says that "The Reits market saw a tremendous run-up from 2001, but the credit crunch hit it very badly. But there are good prospects with inherent value, so how far can it fall? If the income revenue is stable, the NAV will be less important". While the second quarter of 2008 saw REITs dip in value, although slightly less than property shares overall. Asian REITs in particular lost around 10 percent, while North American REITs lost 5.3%, European trusts lost around 16.2 percent, and the index benchmark, the S&P / Citigroup Global REIT Index, fell 8.6 percent. In comparison to the UK though, Asian REITs did quite well - the UK market shed 21.1%.

Despite the relative negativity of all of these figures, they seem to indicate that a low point has been reached, and that values should increase from here on out. The low value and high yields of the trusts should pull investors back into the market, as it naturally corrects itself.

In fact, emerging property markets are looking to REITs to increase investor interest in Asian commercial real estate, as they allow even small investors to share in profits. Projects that may otherwise have gone unfunded in the global credit crunch are looking to REITs.

Governments are also looking to the trusts to prop up economies. India and Kenya, for example, have traditionally not allowed REITs to operate within their borders. However, that is set to change soon. A new stock lending and borrowing program has recently been implemented in India, and the Securities and Exchange Board of India is introducing currency futures, in conjunction with the Indian government and central bank. These measures, along with REIT introduction, should give investors a greater range of instruments at their disposal, thereby increasing their financial security.

Kenya also hopes that REITs will become a vehicle of wealth for long-time investors. They will be able to buy into prime properties at much lower risk, and reap the rewards that emerging markets can hold. Commercial real estate can sometimes be difficult to fund, especially in a climate of extreme caution when it comes to lending, globally. However, the country has been cautioned to research REITs investment goals, diversification policy and dividend policies.

It is hoped that Asian REITs will stabilize the situation for Capitaland, a Singaporean company that has suffered stock losses recently. The company is on track in preparing its first Malaysian shopping mall REIT, and has five other listed REITs.

REITs continue to be recommended as an investment tool for novice investors, as their knowledge and experience can help a small first-timer avoid hefty losses. New investors are advised to review a fund's track record and future investment strategy.
About the Author
Gregory Smyth is an independent author providing assessment and comments on leading International Property Consultants in Asia and Greater China , especially CB Richard Ellis.
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