Devising a conducive regulatory framework for Hong Kong real estate investment trusts

The first Hong Kong Real Estate Investment Trust (HK-REIT), the Link REIT, was successfully launched in late 2005. The retail tranche of its initial public offering (IPO) was 19 times oversubscribed, and the IPO is the largest of its kind in the world until now. Despite the initial phenomenon success, there have been only three others to follow and get listed. Indeed, it took Hong Kong over two years to have her first Link REIT listed after the legislation for REIT products had come into force. The development of REIT market in Hong Kong has been slow compared to its counterparts in some other Asian countries. This paper aims to explain the somewhat sluggish growth of the HK-REIT market. Its development is compared with some emerging Asian markets as well as the more mature markets in the USA and Australia. The study is focused on the legislations that govern REITs in different jurisdictions, their different REIT market envi-ronments and the rationale from the respective governments to introduce their REITs. It is concluded that the sluggish development of HK-REITs is mainly due to its market environment and industry structure. There is not enough incentive for developers to dispose their assets in the form of REITs. Besides, the HK-REIT Code was initially criticized by the industry as being too restrictive. Though subsequent amendments on the HK-REIT Code have been made to make it more conducive to the development of REIT market, further sustainable success will however hinge on the willingness from sponsors, particularly large developers, to offer their portfolios of properties for sale through REITs.