HK's first Reit on track

Territory''s first Reit will be offered by cash-strapped government housing provider.

The Hong Kong Housing Authority has given the clearest signal yet that its real estate investment trust, or Reit, will be listed this financial year. Victor So Hing-woh, an executive at the authority, said on Wednesday that the government body had established a company to manage the Reit and that he would be its chief executive officer.

The authority first said that it would sell off a bunch of its properties back in July 2003 and appointed a financial adviser, JPMorgan, and joint global coordinators, Goldman Sachs, HSBC and UBS, late last year. But besides a few hopeful statements there had been no clear sign that Hong Kong's debut Reit would actually materialize until job adverts started appearing in the Hong Kong press last week - yesterday's announcement represents a near-irrevocable commitment to push ahead.

Under Hong Kong's Reits regime the trust has to list on the stock exchange. It will comprise 130 shopping malls, adding up to one million square metres of retail property, and 100,000 car parking spaces that the authority is selling in a desperate bid to escape its financial woes. In the year ended March 2004 the government body reported a consolidated operating deficit of HK$300 million - mainly because the government has stopped it from selling housing but also thanks to concessions it granted during Sars.

This portfolio up for sale is vast - about 11% of Hong Kong's retail space and 16% of its parking spots - and analysts reckon it will net HK$20 billion for the authority. That ought to plug a hole but it is by no means a long-term solution to the problem. The authority's remit is to provide low-cost rental properties.

But for all the ballyhoo that will doubtless accompany this deal, as Hong Kong's first Reit, it is in fact the exception that proves the rule. Hong Kong's property developers have shown no interest in the vehicle so far because it doesn't offer the tax breaks that Singapore's system does. At the same time, investors aren't exactly clamouring for the opportunity to invest in Reits either - after all, Hong Kong's huge, listed property companies provide ample exposure to the territory's real estate market.

So the Housing Authority will face little competition in the race to become Hong Kong's first Reit. A more pertinent question might be whether anyone else will follow.