【REITs Hong Kong 2024】Real Estate Trust Fund Investment Guide

Views 12612024.06.06
Having a flat hand, a carefree life? Buying property, in addition to housing, can also be rented, generating a stable passive income for yourself. But everyone wants to own a building, don't they all have the money to buy a house? No properties are available now, all are available for rent! That is, through an investment product — REITs (real estate trusts).

What are REITs?

REITs are called “Real Estate Investment Trusts” in Chinese, which is an abbreviation for Real Estate Investment Trusts. REITs are a special type of investment vehicle that primarily invests in real estate related assets such as commercial, residential, hospital, etc., and are generally managed by real estate management companies.

Advantages and disadvantages of investing in REITs

Each investment product has its advantages and risks. Remember to assess your needs and tolerable risks before investing.

Advantages of REITs

  1. Stable and strong returns: REITs perform well and earnings are generally very stable. Since income comes from rent and housing management fees, cash flow is basically stable as long as there are no large-scale defaults by tenants and businesses. In addition, according to the Hong Kong Securities and Exchange Commission regulations, real estate investment trusts have a dividend ratio of at least 90%, which means that the income earned is usually higher than that of ordinary shares. In addition, because REITs themselves are exempt from corporate income tax, it benefits investors with higher returns.

  2. Diversified Risk: REITs typically have many different types of real estate assets that can effectively diversify investment risk. In addition, REITs can be used as part of a stock portfolio and also help diversify investment risks and improve overall returns.

  3. Low Investment Threshold, Strong Liquidity: REITs are traded on stock exchanges and investors can buy and sell at any time and are highly liquid. And the purchase amount is much lower than the purchase of real estate, with general admission fees ranging from thousands to thousands of dollars.

  4. Anti-inflation: Real estate assets are generally more resilient to inflation, as REITs increase in price and dividend increases with inflation.

Risks of REITs

  1. Low potential for growth: REITs primarily use rent as income, so it is unlikely that rents for a group of properties would normally skyrocket, as this is likely to directly affect the rental rates of those REITs.

  2. Interest Rate Risk: Interest rates have a significant impact on the price of a home loan fund, and when there is an opportunity to affect mortgage costs, affecting real estate transactions and unfavorable investments; in addition, REITs generally rely on borrowing, and rising interest rates may increase borrowing costs and affect earnings.

  3. Managing Risk: Investment and operating decisions in REITs depend on management expertise, and poor management can lead to losses.

  4. Tenant Risk: Because REITs' income comes from rent, it may affect REITs' income if tenants are unable to renew or contract terminations occur. In addition, the decline in tenant demand can also affect the operating performance of REITs.

What is the difference between REITs stocks and real estate stocks?

We can distinguish between REITs stocks and real estate stocks in 6 main ways:

  1. How to invest

  • REITs primarily earn income by purchasing and managing various types of real estate assets and are direct investments in real estate.

  • Real estate stocks can also engage in activities other than real estate investment and development activities, such as shares in real estate developers, construction companies, etc., which are indirect investments in real estate.

  1. Source of income

  • The main gains for REITs come from rental income and real estate appreciation.

  • The gains in real estate stocks come mainly from the rise in stock prices and dividends.

  1. Assignment Policy

  • REITs are legally required to distribute at least 90% of the proceeds to shareholders as dividends.

  • Dividend policy for real estate stocks is determined by the company itself, and distribution ratio uncertainty is higher.

  1. Regulator REITs are regulated by third parties. Appoint an independent trustee to oversee the operation of the Fund and safeguard the assets on behalf of the Fund's unit holders. Property shares are monitored by the board of directors and executives, manage the operation of the company, or there is a conflict of interest.

  2. Tax Benefit

  • REITs themselves are exempt from the dividend tax and no dividend tax is payable by REITs who invest in Hong Kong.

  • Property shares are subject to profit tax, while investors are also liable for personal income tax.

  1. Investment Risk

  • REITs primarily invest in real estate assets with a relative concentration of industry risk.

  • Real estate stocks are affected by the market and are also highly volatile. When local real estate companies finance borrowing money, the lending rate is decided by the market.

Overall, REITs are more focused on direct investment in real estate assets and obtaining stable rental income, that is, investing in not just one property, but a group of properties that are rented and rented; while real estate stocks are focused on indirect investment in real estate businesses and falling share prices.

Which REITs can I invest in in Hong Kong?

Wanted in Hong KongInvesting in REITs, you can choose to invest in REITs in Hong Kong stocks and US stocks or invest in REITs ETFs. Currently, there are 11 listed REITs in Hong Kong, the highest in market capitalization and the only blue-chip REITs; while there are 62 listed REITs in the United States, the largest of which is the Vanguard Real Estate ETF.

Top 5 Active REITs in Hong Kong and America

Hong Kong Stock REITs*

US Stock REITs ETF^

Leading Property Fund (0823)

Investment Property Type: Hong Kong Mall, Estate Mall, Parking Lot Properties: Stanley Square, Wong Tai Sin Centre, etc.

Vanguard Real Estate ETF (VNQ)

Size: $314.5 million

Fee Rate: 0.12%

Crown Industrial Trust (2778)

Investment Property Type: Office Buildings, Shopping Mall Properties: Langham Place Mall, Langham Place Office Building, etc.

Schwab U.S. REIT ETF (SCHH)

Size: $62.09 million

Fee Rate: 0.07%

Wealth Industry Trust (0778)

Investment Property Type: Mall Properties: Metro Station, Wealth First City, etc.

Real Estate Select Sector SPDR Fund (XLRE)

Size: $57.8 million

Fee Rate: 0.09%

Yuexiu Property Trust Fund (0405)

INVESTMENT PROPERTY TYPE: MAINLAND OFFICE BUILDING, SHOPPING MALL PROPERTY: GUANGZHOU INTERNATIONAL FINANCIAL CENTER, GUANGZHOU YUXIU BUILDING, ETC

iShares Global REIT ETF (REET)

Size: $34.7 million

Fee Rate: 0.14%

HUI YIN INDUSTRIAL TRUST (87001)

Investment property type: Mainland office buildings, shopping malls, hotels Properties under the banner: Beijing Oriental Plaza, Chengdu Tianfu Lido Sheraton Hotel, etc.

Vanguard Global Ex-U.S. Real Estate ETF (VNQI)

Size: $34.6 million

Fee Rate: 0.12%

Note: * Hong Kong stock REITs ranked by highest 5 stocks by market capitalization, data as of May 30, 2024^US equity REITs ETF sorted by highest 5 stocks by asset size, data as of May 30, 2024

How to invest in REITs in Hong Kong?

You can buy REITs now just by opening a stock account with Futu:

  1. Go toFutu Internet, and register a new account.(Register now)

  2. Open a securities account with a Futu account, click below to open it instantly and enjoy the opening bonus of up to USD.(How to open an account)

  3. Deposit funds via EdDA Quick Deposit, Fast Transfer (FPS), Bank Transfer.(How to deposit funds)

  4. Download the Futubull App and log in.(Download now)

  5. Enter your preferred REITs name or code in the search bar and click “Trade”.

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