Why emerging markets’ REITs are struggling

Malaysia's REIT seemed on track to succeed, but couldn't attract international investors
October 08, 2017 12:31PM

“There are many investors like us who are desperate to invest in these [emerging market] cities,” said co-head at investment manager Schroders PLC. (Pedro Ribeiro Simões, front/Naim Fadil, back)

Without significant international investment, emerging markets’ real estate investment trusts are struggling, indicating that the existence of a REIT market isn’t magical solution it promised to be for these markets.

Ernst & Young found less than 5 percent of the $1.7 trillion REIT market capitalization is in emerging markets; the majority is in the U.S.

A good illustration of why REITs aren’t taking off in emerging markets is the case of Malaysia, according to the Wall Street Journal. The country’s REIT market seemed to be succeeding until two years ago when listings disappeared and profits plateaued or plummeted.

“They haven’t benefited from the wave of international capital which has been driving Hong Kong and Singapore REIT markets,” said Corrine Ng of Australia’s APN Property Group to the Journal.

The major reasons are due to the often-obligatory use of external managers and terms that benefit owners, commonly founding families and conglomerates, over shareholders.

What hasn’t changed, however, is investors’ will to invest in emerging market real estate.

“There are many investors like us who are desperate to invest in these cities,” said Tom Walker, co-head of global real-estate securities at investment manager Schroders PLC to the Journal.

[WSJ] — E.K. Hudson