China’s decision to tread Covid as endemic was largely a surprise for the world in 2022. The stock market reacted to the news positively and the country’s rebound is taking place as we speak. Prior to that, the Hong Kong stock market — largely linked to Chinese economy — had been in the doldrums for years since the political protests in 2019. The sentiment hit a new low when Xi Jinping secured his third term during the 20th National Congress in 2022.
REITs that paid a stable dividend to investors weren’t spared during the subsequent sell-down. By October 2022, the sector was down more than 50%. If you think the performances of S-REITs and M-REITs were bad, Hong Kong REITs were worse!
If you have been investing in Hong Kong market since the protests started in 2019, the last four years have not been the best; it is easy to give up especially if you’re staring at capital losses over this period. But as an investor of REITs or dividend stocks (of which Hong Kong has plenty of), you also have to take into account the dividends you received to measure your total returns. That will give you a better perspective of their overall performance.
We’ve been tracking the total returns for Singapore REITs and Malaysia REITs with at least a 10-year listing history since their IPOs. In this article, we will do the same for Hong Kong REITs to evaluate their long-term performance.
We will 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 additional 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$13,100 (+31% in capital gains) by Jan 2023. If we include the dividends he’s received over the years, David would have made a larger fortune (pun intended) as his initial investment of HK$10,000 would have grown to $28,700 (+187% in capital gains and dividends). Overall, his total annualised return in Prosperity REIT from 2003 to 2021 is 5.42%.
If David invested HK$100,000, then his investment would’ve grown to HK$287,000. Basically, the more money he invests, the more he makes. And the longer he holds, the more dividends he receives. 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: +5.42%)
Since 2003, every HK$10,000 investment in Fortune REIT would’ve turned into HK$13,100. Including dividends, every HK$10,000 would cumulatively become HK$28,700.
2. Sunlight REIT (annualised return: +5.85%)
Since 2006, every HK$10,000 investment in Sunlight REIT would’ve turned into HK$12,800. It isn’t a big deal but if we include the dividends, every HK$10,000 would have more than double to HK$26,300.
1. Link REIT (annualised return: +12.81%)
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$57,700. Including dividends, every HK$10,000 invested would cumulatively become HK$87,600!
In summary, here is David’s overall performance:
Similar to many Singapore and Malaysia REITs, Hong Kong REITs have also delivered decent annualised returns except for Hui Xian. Hui Xian was down 80% in terms of capital gain, but when we include the dividends accumulated over the years, the overall loss is reduced to 33%. Yuexiu, Champion, Regal and Spring also booked losses in capital but when we include their dividends, we get a better picture of the overall return. Overall, dividends contributed the bulk of Hong Kong REIT returns (78% of total returns).
Note 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 their rights (if any), he would have made more money since rights are usually sold at a discount.
His only investment loss in Hui Xian can be easily offset from the gains of his other REITs investments. Most importantly, David continues to receive regular quarterly dividends from his investments 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 for many years to come.
Final reminder! 2023 applications for Dividend Machines close this Sunday, 26 Feb 2023, 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 2024. So if you miss this round, you’ll have to wait a whole year before we accept new members again.
Happy investing and we hope to see you on the inside! 🙂