Hong Kong REITs given green signal to invest in development properties

Revised code becomes effective after being gazetted.

The Securities and Futures Commission has released the Consultation Conclusions to its January 2014 proposal to give real estate investment trusts the flexibility to invest in (i) property development activities and (ii) financial instruments.

According to a research note from Barclays, the revised REIT code will become effective after it is gazetted.

Based on the revised text as stated in the Consultation Conclusions, some of the key changes include:

The scheme shall invest primarily in real estate (change from only in real estate).

At least 75% of the gross asset value of the scheme shall be in real estate that generates recurrent rental income.

Here's more from Barclays:

Hong Kong REITs are now allowed to invest in property development activities provided that the aggregate contract value of the uncompleted units does not exceed 10% of the gross asset value of the REIT (previously not allowed).

Hong Kong REITs may invest in the following financial instruments:

(i) securities listed on the Hong Kong Stock Exchange or other international recognized stock exchange

(ii) unlisted debt securities

(iii) government or other public securities

and (iv) local or overseas property funds.

This is subject to at least 75% of the gross asset value of the scheme being invested in real estate that generates a recurrent rental income at all times.