Hong Kong real estate market predicted to suffer sluggish rental demand and rates

While Singapore makes a beautiful rebound.

Mixed GDP growth rates and rental supply conditions across Asia-Pacific countries will vary the prospects of rental demand and rates for the region's real estate investment trusts (REITs).

According to a release from Standard & Poor's Ratings Services, this is based on its recently published industry report titled, "Asia-Pacific REITs Rein In Debt Costs Amid A Likely Hike In Interest Rates".

The release noted that its coverage of REITs are in the fairly mature, from a life-cycle perspective, markets of Australia, Japan, Hong Kong, and Singapore.

"We expect rental demand and rates for real estate to remain flat or slightly sluggish in Australia, Hong Kong, and Singapore, while Japan's will rebound gradually," Standard & Poor's credit analyst Craig Parker said.

"Nevertheless, we project a stable credit outlook for the REITs we rate. The REITs have amassed high-quality portfolios that can withstand economic headwinds better than lesser-quality properties held by their competitors, sustaining their credit quality despite sluggish rental growth."

Here's more from Standard & Poor's Ratings Services:

A key risk to the outlook is a likely hike in interest rates. We expect the U.S. Federal Reserve to raise interest rates in the next two years, potentially triggering tighter monetary policies in Asia-Pacific.

This upward movement will have major repercussions on REITs because interest expenses are a major component of their costs.

Mr. Parker added: "Still, we expect that rated Asia-Pacific REITs can largely shoulder the higher interest burden. The REITs are attempting to cut their interest costs and extending their debt tenors.

They are also refinancing expensive debt incurred during the height of the global financial crisis at reduced rates. Furthermore, REIT managers are still holding back even though they have room to borrow substantially more."