Thanks to its zero-COVID policy, Hong Kong has seen good recovery among some of its REITs as the government manages to keep the pandemic under control. The average daily number of new COVID-19 cases in Hong Kong hovered in the single digits in 2021.
But with the government adopting a compulsory quarantine of 14 days for inbound travelers, Hong Kong saw very few tourists in 2021. As a result, REITs in retail and office sectors have not fully recovered and their share prices have not returned to pre-pandemic levels.
Despite the pandemic, are Hong Kong REITs still a great long-term investment? 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.
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 more 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 Fortune REIT during its IPO, his initial investment of HK$10,000 would’ve grown to HK$15,100 (+51% in capital gains) by 15 February 2021. If we include the dividends he’s received over the years, his initial investment of HK$10,000 would have grown to $29,300 (+193% in capital gains and dividends). Overall, his total annualised return in Prosperity REIT from 2003 to 2021 is 6.2%.
If David invested HK$100,000, then his investment would’ve grown to HK$293,000. 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 10 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. Fortune REIT (annualised return: +6.24%)
Since 2003, every HK$10,000 investment in Fortune REIT would’ve turned into HK$16,900. Including dividends, every HK$10,000 would cumulatively become HK$31,600.
2. Sunlight REIT (annualised return: +6.85%)
Since 2006, every HK$10,000 investment in Sunlight REIT would’ve turned into HK$16,300. Including dividends, every HK$10,000 would cumulatively become HK$28,900.
1. Link REIT (annualised return: +13.92%)
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$64,800. Including dividends, every HK$10,000 invested would cumulatively become HK$91,700!
In summary, here is David’s overall performance:
Similar to many Singapore and Malaysian REITs, Hong Kong REITs have also delivered decent annualised returns except for Hui Xian REIT. David didn’t need come up with any additional capital to subscribe to any right issues; the table above is his actual score. His loss in Hui Xian can be easily offset from the gains of his other REIT investments. However, if he had subscribed to their rights, he would have made more money since rights are usually sold at a discount. Most importantly, David continues to receive regular 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.
Finally, just a quick reminder: Applications for Dividend Machines are closing on Sunday, 6 Mar 2022, at 23:59 hours. If you’re looking for a way to learn how to invest in dividend stocks and REITs and build multiple streams of passive dividend income, then we urge to check out Dividend Machines before it closes. Once the deadline has passed, Dividend Machines will only reopen in 2023. So if you miss this round, you’ll have to wait till next year before we open it to the public again. We hope to see you on the inside! 🙂
