REITs the new gold for investors in Asia

HONG KONG: As central banks print cash to boost moribund
economies, investors in Asia wanting to hedge against rising prices are
dumping gold and doubling down on properties.

They are driven
by the search for yields as surprisingly benign inflation dims the
appeal of bullion, but it is a risky play given lofty valuations for
real estate.

The trend is most visible in the frenzy around
real estate investment trusts (REITs) in Asia, where issuance ex-Japan
more than quadrupled to US$4.33 billion (RM13 billion) through early
this month from the same period last year and valuations are at their
highest since before the 2008 financial crisis.

"I have been
saying for the last two years that REITs are a good inflation hedge,"
said Charlie Chan, one of the best-known hedge fund managers in Asia,
who made a killing by betting on them last year.


"They are easier to value, you get what you see and
you own the building and if there is inflation, the building price will
just go up," added Chan.

His US$200 million hedge fund returned 63 per cent last year and is up
a further 35 per cent this year. Asia hedge funds, by comparison,
returned 10 per cent last year and are up about nine per cent this
year, according to Eurekahedge figures.

REITs such as Cambridge Industrial Trust made up more than half his portfolio at one point last year, Chan said.

Since REITs hold various kinds of properties, from factories to
shopping malls and hotels, they benefit from higher rents when
economies boom and prices rise.

Unlike gold, which doesn't
pay any dividend, REITs also provide a steady flow of income. Yields
for REITs in Asia stand at 4.4 per cent on average, according to data
from StarMine. Spot gold fell 13 per cent this year to May 7. By
comparison, the MSCI Asia Pacific REITs index rose 14 per cent,
according to data from Thomson Reuters Datastream.

David
Baran, co-founder of hedge fund Symphony Financial Partners in Tokyo,
said: "REITs are an increasingly compelling asset class."

REIT
indices in Singapore and Hong Kong rose 13 and 17 per cent,
respectively, year-to-date, with both reaching all-time highs in the
past two weeks.

In response to the red-hot demand, companies are flooding the market with new offerings.

Mapletree Greater China Commercial Trust is a prime example, raising
US$2.06 billion in Singapore's largest ever REIT initial public
offering (IPO) in February.

There is no sign of a slowdown given a US$4 billion pipeline in the coming two to three months from IPOs alone.

Assets under management at real estate funds investing in Asia and
Japan rose to a record US$55 billion and US$20 billion, respectively,
at end-March, data from Lipper showed.

With billions more expected from follow-on deals, 2013 looks to be the biggest year for REIT issuance since at least 2007. Reuters