Hong Kong property trusts can stand up to the slump
Updated: 2016-07-15 08:26
(HK Edition)
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In these uncertain times, investment analysts have been advising clients to park at least part of their money in government bonds despite the low, or even negative, yield. Apparently, many investors have heeded the advice, leading to a surge in demand that has driven bond yields even lower.
In Hong Kong, many investors can do better than that. By putting their money in property trusts, or REITs (real estate investment trusts), savvy investors can earn dividend income at rates that are significantly higher than the average bond yield. Hong Kong-listed REITs are also widely regarded as highly secured assets denominated in a stable currency that's pegged to the US dollar.
Strong buying interest from Hong Kong and overseas investors has pushed the Hang Seng REIT Index up by 2 percent in the past four trading days to a whisker below its all-time high in 2013. Leading the charge was Link REIT, which has surged some 10 percent in the past month to a record high of HK$55.65, lifting the dividend payout rate to 3.7 percent - the lowest among REIT shares.
Despite the public outcry against its aggressive redevelopment strategy, Link REIT is expected to remain the stock market darling for some time to come. Stock analysts and investors have developed a strong appetite for the company's stocks precisely because of its proven record in maximizing shareholders' value which, critics allege, was achieved by ignoring the needs of lower-income consumers in the neighborhood of Link REIT's properties.
The share prices of other REIT stocks, including ARA Asset Management, Fortune REIT, Regal REIT and Hui Xian REIT, have also surged to the highest levels in months. At current price levels, the average dividend payout rate has dropped to a still decent 5.7 percent a year from 6.3 percent at the end of 2015.
Analysts remain confident that REITs can maintain a relatively high dividend payout despite the economic downturn. Although exports have taken a hit from slowing global demand, domestic spending, which will benefit the scores of malls owned by REITs, is expected to stay strong due to the government's generous fiscal policy and the spillover effect of the infrastructure building boom.
At least for now, buying REITs seems like a no brainer.
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Residential buildings stand in Mei Foo, Hong Kong. Analysts remain confident that REITs can maintain a relatively high dividend payout despite the economic downturn. Billy H.C. Kwok / Bloomberg |
(HK Edition 07/15/2016 page9)