REITs in Asia are a diverse bunch. These funds invest in a wide range of property from multibillion dollar commercial malls in city center locations, to logistics warehouses in emerging markets.
There’s an old investing maxim that the American author Mark Twain penned: “Buy land, they’re not making it anymore.”
It’s perfectly sensible advice. If the supply is scarce and the demand keeps growing, the price is going up. But why stop there? You can considerably enhance the value of land by building things on top of it, and then managing the valuable properties that come into existence.
The problem is that while you might have the money and business acumen to potentially pull this off, you might not be an expert in an area or have access to the most interesting deals. Fortunately, you can become an investor in companies that specialize in the housing market.
Real Estate Investment Trusts (REITs) are basically companies that pool investor funds and use them to develop, manage, and sell real estate It’s like becoming a landlord of dozens of properties simultaneously, but without the headaches that come along with it.
In short, a winning investment strategy is to go where there is a scarce resource and a growing amount of affluent customers.
Few places in the world match this descriptor better than Asia – it has one of the densest population habitation rates in the world and a growing middle class that is looking to upscale their lives.
Furthermore, REITs in Asia also have very attractive factors when compared to their Western counterparts, such as higher than average dividend yields. They also often have access to markets that expats might not have the direct ability to invest in due to regulation.
While there are many opportunities to be found, and there are REITs for any genre of real estate that you could possibly imagine (offices, commercial real estate, private residences, etc), we would like to explore the most promising REITs in Asia.
CapitaLand’s real estate holdings include, among other assets, several of the largest malls in Singapore and Malaysia.
1. CapitaLand Integrated Commercial Trust (CICT)
CICT was the first REIT listed on the Singapore Exchange. Since then, it has grown to be the largest of its kind in the nation, with a market cap above S$13 billion.
It is comparatively undervalued against its Western counterparts. In the US, the median REIT has a P/E ratio of 19.73, while CICT has a P/E ratio of 11.63.
Put simply, you’re paying almost half as much per dollar of revenue if you invest in CICT, than if you were to buy their comparative US counterpart. Besides that, you also have the stability of a first world country.
CICT primarily invests in commercial real estate (retail & office space) located in Singapore, but it is expanding as it has two properties in Frankfurt, Germany.
2. Link REIT
If you want “too big to fail” this is the company to choose! With a market cap exceeding HK$130 billion, this Hong Kong-based REIT is the largest in Asia.
As its size implies, it has a wide range of areas that it operates under, including commercial spaces (retail & offices), car parks, and logistic centers. Most of the properties are located in China, though they do have some in London and Sydney.
Despite their gigantic size, they still have a low P/E ratio of 12.08, compared to the aforementioned US median REIT ratio of 19.73.
The one caveat that stands out about Link REIT is that it does have list of controversies related to environmental concerns and occasionally unsavoury business ethics. Though perhaps it’s a bit naive to assume this isn’t somewhat inevitable once companies get past a certain size.
More broadly though, there’s been severe uncertainty regarding Chinese real estate, so perhaps some caution is warranted given the broader sino-macroeconomic perspective.
3. Ascendas India Trust
If you’re interested in the Indian real estate boom but have found that you can’t directly get properties there as a foreigner, this is a good way around it. Domiciled in Singapore, the Ascendas India Trust is one of few REITs that focuses on India.
The company primarily focuses on IT and logistics properties throughout the Indian subcontinent, particularly in Hyderabad and Mumbai.
Ascendas India Trust owns seven IT parks, one logistics hub and one data center development with a vast developed area of 15 million square feet, all of which are located in some of the major urban centers in India.
In principle, this is a dual REIT/IT investment, as while the company does focus on managing property, its heavy emphasis on the IT industry and data centers, makes it very reliant on this growing sector. Although it also has offices and logistics centers.
Their emphasis on conservative management and adequate liquidity reserves makes Ascendas India an interesting choice.
From a financial angle, Ascendas India Trust’s P/E is actually the best one on the list with 7.79 and the dividend yield by itself can already almost match the S&P 500 benchmarks to which investments are typically compared.
Put bluntly, this is a means of indirectly investing in the technological expansion of India as well as their growing demand for real estate, while not having to pay the usual premium associated with tech stocks.
Mapletree is a REIT which focuses on logistics warehouses – a unique and profitable niche. The fund buys real estate in frontier markets like Vietnam.
4. Mapletree Logistics Trust
If you’re looking for a means of investing in the general development of many markets in Asia, but want something more focused than a broad ETF, then Mapletree Logistics Trust is a good choice.
Headquartered in Singapore, Mapletree also operates logistics centers in many Asian markets, such as Hong Kong, Japan, China, Australia, South Korea, Malaysia, Vietnam and India.
In other words, you get a good mix of both exporters and importers in the form of developing and developed countries. Some of these nations are also difficult to invest in as an independent investor, such as Vietnam.
It’s somewhat unremarkable in regards to the business, it has good, conservative management, average P/E of 15.64, occupancy of 97.5% with long weighted lease term to expiry of over three years.
Perhaps being “unremarkable” is the most remarkable thing about this business. In an era when companies are usually overleveraged, or subject to the whims of changing consumer demand, it’s refreshing to buy shares in a more consistent enterprise.
5. Nippon Building Fund (NBF)
An issue that REITs sometimes have is that they’re at the mercy of rapacious developers. That is not the case with the Japanese REIT Nippon Building Fund, as it’s managed by developer Mitsui Fudosan.
The company specializes in office buildings in the central Tokyo area. As such, this is a concentrated investment into the future potential of the capital of Japan.
Occupancy typically hovers around 95%-99% and some of its major clients are rather stable and well known, such as Sony, which leases 6.3% of their available office space.
From an investment standpoint, this would be the most overweight on the list, as it has a P/E ratio of 26.34, which even by US standards is above the mean.
Overall, this company is good if you want a known quantity that is unlikely to cause unexpected surprises.
Are REITs in Asia a Good Investment?
Asia is one of the most diverse continents on the planet, where you can simultaneously find some of the most underdeveloped as well as most advanced markets in the world. Best of all is that they are often uncorrelated to the wider ebbs and flows present in Western economies.
Therefore, while not a guarantee in regards to avoiding any global catastrophe, you can certainly be more insulated from economic shocks than your average western investor and benefit from a booming economy by investing in Asia REITs.
By making strategic purchases of REITs in Asia, you can build a well-diversified portfolio that is likely to perform well for many decades to come!
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