The city watchdog said the proposals to be debated in its month-long public consultation would bring its REITS regime “broadly in line” with a number of other jurisdictions, noting Singapore, Malaysia, United States and Australia, in particular.
Under the proposals, REITs will be able to invest in properties under development or engage in property development activities, although these activities will be capped at a maximum of 10% of the REIT’s gross asset value.
In addition, the SFC said REITs will also be able to invest in financial instruments, including listed securities, unlisted debt securities, government and other public securities, and local or overseas property funds. This too will be subject to a cap, with REITS limited to investing no more than 5% of its gross asset value in instruments issued by any single group of companies.
The SFC said, despite the changes, REITs would maintain its profile as primarily a "recurrent rental income-generating vehicle", with a transparent structure. To achieve this, at least 75% of the gross asset value of a REIT will need to be invested in real estate that generates recurrent rental income at all times, the SFC said.
"These proposals have taken into account both the protection of investors’ interests and the long-term development of the Hong Kong REIT market which is key to Hong Kong’s continued development as an international premier asset management centre,” said Ashley Alder, SFC’s chief executive.
Describing the development of the REIT market, the SFC said in its consultation paper: “Since the first REIT was listed in 2005, the Hong Kong REIT market has seen steady and stable growth in both breadth and depth. The size of the REIT market has grown close to five times since 2005 in terms of market capitalization. The trading volume of the REIT market also saw sustained increase in average daily turnover since 2009.
“Hong Kong’s REIT portfolios have also widened to offer investors a diverse choice from retail properties to commercial and hotel properties, and properties in Mainland China. The Hong Kong REIT market further saw a major milestone by listing the world’s first RMB denominated REIT in 2011.”
The SFC said its proposals “have been formulated during the past year” following its meetings with various industry participants and the committee on REITs.
The public consultation will close on February 26.
