The six success factors for REIT market development: lessons for China?

Publication Date10 Apr 2019
AuthorDavid Parker
SubjectProperty management & built environment
Guest editorial
The six success factors for REIT market development: lessons for China?
The recently published Routledge REITs Research Handbook, which I had the pleasure of
editing (Parker, 2018), included six chapters on REITs in different regions of the world, each
written by an expert author with an intimate knowledge of the region. Rather than the usual,
trite comparative analysis of market capitalisation, distribution requirements, minimum
holding levels, tax concessions and so forth, the authors surveyed the development of
REITs in their region with a focus on the structural and market features that differed
between regions.
Ascending by helicopter above the text of each of the six chapters permits a holistic view
that allows some common themes and features of six decades of international REIT
evolution to be identified and classified as the six success factors for REIT market
(1) start diversified;
(2) avoid property company domination;
(3) focus on growth catalysts;
(4) follow the trend for leverage;
(5) optimise government support; and
(6) do not bother without tax breaks.
With China being potentially the worlds largest emerging REIT market, could the six
success factors offer lessons for China?
Success factor 1: start diversified
The common approach around the world appears to be for an REIT industry to start with
diversified REITs and then see the emergence of sector-specific REITs later, with this global
trend starting in North America (Case, 2018).
The USA started with diversified REITs then broadened into industrial, retail and office
REITs before broadening further into infrastructure, data centre and timberland REITs.
Similarly, Canada started with diversified REITs and retail REITs before broadening into
residential and office REITs and then broadening further into health care, industrial and
hotel REITs. Following the pattern, Mexico started with diversified and industrial REITs
before broadening into hotel and retail REITs.
For those regions where a significant property company and unlisted fund market
already exists, an evolving REIT market may forgo the initial diversified portfolio phase
and move straight into sector-specific REITs, as happened in the UK (Moss, 2018).
Success factor 2: avoid property company domination
There is an apparent commonality around the world that, where a jurisdiction has a
well-established property company or fideicomiso market, an REIT market may have
difficulty gaining traction and becoming established.
Hong Kong had a long-standing and well-understood property company market which,
with the absence of tax transparency, provided structural challenges for the development of
a REIT market (Ooi and Wong, 2018).
Journal of Property Investment &
Vol. 37 No. 3, 2019
pp. 238-240
© Emerald PublishingLimited
DOI 10.1108/JPIF-04-2019-100

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