Top 3 Hong Kong REITs that made you money if you invested from their IPOs

Owing to a scarcity of land and strong demand, Hong Kong is considered one of the world’s most expensive cities to own property. However, this also means that Hong Kong is also one of the best places to invest in property. But how much is one residential property in Hong Kong? For a one-bedroom apartment in the city center, it can easily cost US$2 million.

If you’re rich, you can probably afford to buy and own a few residential properties in Hong Kong to collect stable rental income. But if you want to invest in commercial assets like office buildings, shopping malls or hotels, it would be a lot harder. Unless you’re a rich tycoon like Li Ka-shing or Lee Shau-kee, it’d probably be out of reach for the typical investor as one commercial building can easily cost a few hundred million to few billion Hong Kong dollars.

But that doesn’t mean you can’t enjoy the benefits of sticky tenants and a prime location that a Hong Kong commercial asset can offer you. With REITs, it is possible to own a stake in multibillion-dollar commercial properties in Hong Kong and earn a slice of the rental pie. That’s why we’re such a big fan of REITs when it comes to building stable and growing passive dividend income.

Similar to Singapore and Malaysia, Hong Kong has its own REIT market that attracts investors from all over the world. At the time of writing, there are ten listed Hong Kong REITs for investors to choose from. Although the number is fewer than Singapore (33 REITs and 6 stapled trusts) and Malaysia (17 REITs and 1 stapled trust), the total market cap of Hong Kong REITs is US$35 billion – more than three times larger than the total market cap of Malaysian REITs at US$11 billion.

To get the latest daily Hong Kong REIT prices, distribution yields, and price-to-book ratios, visit Hong Kong REIT data.

Just like what we did with the calculation of investment returns for S-REITs and M-REITs since their IPOs, we are going to do the same for Hong Kong REITs that have been listed for at least 10 years and evaluate their performance.

Once again, we assume that David (a fictional character) invests HK$10,000 in each Hong Kong REIT from the day it listed. Since David is a hard-core income investor, he doesn’t want to come out with any money to subscribe to any rights (if any) and is prepared for any share dilution. Let’s also assume that he neglects to sell his nil-paid rights from which he can make a profit from.

For example, if David invested in Prosperity REIT during its IPO, his initial investment of HK$10,000 would’ve grown to HK$15,800 (+58% in capital gains) by 31 Jan 2018. If we include the dividends he’s received over the years, David would have made even more in Prosperity REIT as his initial investment of HK$10,000 would have grown to $22,600 (+126 in capital gains and dividends). Overall, his total annualised return in Prosperity REIT from 2005 to 2018 is 6.46%.

If David invested HK$100,000, then his investment would’ve grown to HK$226,000. Basically, the more money he invests, the more he makes. And the longer he holds, the more dividends he’s going to receive. So after investing for more than ten years, here are the top three best-performing Hong Kong REITs for David.

Note: We’ve excluded brokerage costs, currency exchange gains/losses and taxes that might be applicable to foreign investors.

3. Yuexiu REIT (annualised return: 7.95%)
Since 2005, every HK$10,000 investment in Yuexiu REIT would’ve turned into HK$16,800. Including dividends, every HK$10,000 would cumulatively become HK$27,000.

2. Sunlight REIT (annualised return: 9.53%)
Since 2006, every HK$10,000 investment in Sunlight REIT would’ve turned into HK$21,000. Including dividends, every HK$10,000 would cumulatively become HK$29,800.

1. Link REIT (annualised return: 17.69%)
And the most prosperous REIT in Hong Kong is not Prosperity REIT but… Link REIT. Since 2005, every HK$10,000 investment in Link REIT would’ve turned into HK$67,200. Including dividends, every HK$10,000 invested would cumulatively become HK$83,100!

In summary, here is David’s overall performance:

Similar to many Singapore and Malaysian REITs, Hong Kong REITs have also delivered decent annualised returns. It is important to remember that David didn’t need come up with any additional capital to subscribe to any right issues; the table above is his actual score. However, if he had subscribed to them (including excess rights), he would have made more money since rights are usually sold at a discount. Most importantly, David continues to receive regular quarterly dividends from his investments in Hong Kong REITs rain or shine.

As you can see, REITs remain a great option for anyone who wants to build a steady and consistent stream of passive income. However, please note that you shouldn’t buy or avoid a REIT just based on the data above as past performance is not necessarily indicative of future results. It’s highly important to have a proper investment process to help you identify and invest in the right REITs that will give you a steady stream of passive income and capital gains down the road.

Rusmin Ang is an equity investor and co-founder of The Fifth Person. His investment articles have been published on The Business Times BTInvest section and Business Insider. He has also been featured multiple times on national radio on 938LIVE for his views and opinions on how to invest successfully in the stock market. Rusmin is on the speaking circuit for CIMB Securities (Malaysia) and has spoken at events in Penang, Sibu and Kuala Lumpur and is the co-author of Value Investing in Growth Companies published by Wiley, Inc. The book can be found in all major book stores worldwide and on Amazon.com, Barnes & Noble and Apple's iBooks. Rusmin was actually a former SIAEC scholar who gave up his scholarship and a cushy career to follow his itch of learning how to be a better investor and ultimately lead a life of financial independence. He believes that anyone, even with a regular job, can achieve more financial peace-of-mind by investing intelligently and safely for the long term.

4 Comments

  1. William

    April 16, 2018 at 5:26 pm

    Hi! I read the article and went to take a quick look at the charts – All 3 mentioned here have lovely uptrending charts. Kudos on the great work!

    I have a question : at what rates are capital and dividend gains on HK reits taxed in Singapore ?

    • Rusmin Ang

      April 16, 2018 at 5:55 pm

      Thanks William!

      There is no capital or dividend tax for foreign-sourced income remitted to Singapore if the foreign tax burden is at least 15% and tax has actually been paid in the foreign country. In this case, there is no tax for capital gains/dividends from Hong Kong.

  2. Vincent Low

    April 23, 2018 at 12:26 pm

    How to open a Ban Account and Brokerage Account in Hong Kong ?

    • Rusmin Ang

      May 2, 2018 at 10:34 am

      Hi Vincent,

      You can try your luck by going down to HSBC branch in Hong Kong. Just remember to bring your passport, income from IRAS, and proof of mailing address (e.g. telco bill).

      Once you have successfully opened your bank account, then you can go down to Chief Securities or any other local brokerages in HK to open your brokerage account. If not, you can still buy Hong Kong stocks through your local brokerage houses like CIMB, FSMOne, Maybank or Philip Securities.

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