In light of its recent rally, some investors feel the Japanese market is now too pricey. But Pralle believes it will hold up. "Time will tell if those REITs are overvalued," he says. "It depends on whether or not the cash flows from the underlying properties that the REITs hold will improve. My view is they will, because we’re seeing an improvement in fundamentals in Japanese real estate."

Hong Kong listed its first REIT, the Link REIT, last November. It now manages 180 formerly government-owned properties, mainly shopping malls and parking lots, and is the world’s largest REIT, with assets of around $3.3 billion. PricewaterhouseCoopers expects its dividend yield this year to be 5.53 percent. The Hong Kong market as a whole is still in the early stages of development, but investors hope that it will provide a gateway to one of the largest emerging property markets in the world. "There are people talking about or working on REITs who will buy properties in China," Blank says.

There’s not always a clear rules-of-law policy pursued in China.

GE Real Estate is already making direct investments in Chinese property, announcing in late March that it was putting $20 million into a residential development fund. Pralle warns that one of the biggest risks is the legal uncertainty. "There’s not always a clear rules-of-law policy pursued, particularly by some of the municipal governments, and that makes investing in the Chinese real estate market more risky than investing in a developed market," he notes.

GE Real Estate is also making direct investments in India; it has taken strategic stakes in IT parks in Bangalore and Hyderabad. India’s real estate market is booming, but to date there have been no REITs listed, although there are rumors they will debut in the near future. Some experts warn that the Indian market is overheated. Peter Hobbs, Deutsche Bank’s London-based global head of real estate and infrastructure research, warns: "In certain emerging markets, such as India, you have many private individuals buying real estate, and as these don’t tend to be the most rational investors, pricing has become very aggressive, such that the risk premium has become too narrow for such markets."

Australia has a highly developed REITs market, although the instruments are known there as Listed Property Trusts (LPTs). Hobbs says the fundamentals of the Australian property market look good, but it is difficult to get a single-country exposure to that market because Australian REIT managers often assemble international portfolios. "Australian LPTs have been very aggressive in buying in America, and now they are switching their attention to Europe," Hobbs says. "Some LPTs have up to 100 percent of their assets outside Australia, and the LPT market in aggregate has about 35 percent of its assets outside the country."

The Singapore REITs market, which debuted in 2002 with the launch of CapitalMall Trust, is also expanding rapidly. An example of a well-known REIT in the region is Ascendas, the first business and industrial property REIT to list in the country. By the end of last year, it held 59 properties valued at S$2.7 billion (US$1.7 billion).

REITs are also available in Korea, Malaysia and Taiwan.

Central and South America
These REIT markets remain less developed than other regions. The closest thing to a REIT structure in South America is Brazil’s Fundos de Investimento Imobiliário, but these are mainly funded with private capital. Costa Rica has a structure known as a real estate investment fund, which is similar to a REIT. According to an analysis by San José, Costa Rica-based Alejandro Antillon and Cristian Roberts of the Pacheco Coto law firm, Costa Rica’s solid economic growth has attracted investment in its real estate sector, which should boost the value of these funds. Meanwhile, Mexico has recently established a regulatory framework for REITs.

Art by John Webber.

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