A STUDY OF THE EMERGING ASIAN REIT INDUSTRY

Abstract

About 40 years after the birth of world's first Real Estate Investment Trust in the United States, Asia's REIT market is just beginning to take off. Names such as LPT, J-REIT, K-REIT, S-REIT are increasingly being sported, and similar names for other Asian countries are expected to "spring out". Albeit hearing the successful story of the Australian Listed Property Trusts, and witnessing the proliferation of the Japan, Korea, and Singapore REITs, doubts on these burgeoning markets are frequently cast. Thus this study seeks to enlighten on the emerging Asian REIT industries. Since the government is the pivot of the economy, the success of a REIT sector is dependant on the prevailing regulatory framework. The key factor that motivates the establishment of REIT markets is found to be tax transparency as the chances of avoiding double-taxation makes it a very attractive option to investors. The study adopted the Capital Asset Pricing Model to measure the systematic risks faced by REITs in their respective markets. Betas obtained by regressing REIT returns on market index returns indicate the level of exposure to market risk. The US was found to have the highest beta while Korea has the least. Evidence suggests that mortgage REITs are more sensitive to market changes compared to equity and hybrid REITs. In addition, systematic risk affects REITs, regardless of the type of property investment. Nonetheless, investing in hotels and resorts is the most risky, whereas storage facilities provide the least risk.