Fuelled by buoyant equity markets and robust economies, Asia's REIT markets expanded briskly, with a total of 27 new REITs or property trust funds being floated during the first eleven months of last year, pushing the total market capitalisation to Bt2.282 trillion, compared to an estimated Bt1.376 trillion at the end of 2005.

The term "real-estate investment trust" is a tax designation

for a corporation investing in

real estate that reduces or eliminates corporate income taxes. REITs are designed to provide

a similar structure for invest-ment in real estate as mutual funds provide for investment in stocks.

In Thailand, the Samui Airport Property Fund, Quality Houses Property Fund, TU Dome Residential Complex Property Fund, and the Future Park Rangsit Property Fund were listed last year, doubling the overall market value.

But while REITs in other

markets look to a prosperous future, the industry in Thailand could be stymied by the Bank of Thailand's anti-speculation measures.

"Thailand's REITs are still limited by the restriction on borrowing money and the inclusion of property funds in transactions subject to the 30-per-cent foreign currency reserve requirement," said CB Richard Ellis Thailand managing director Aliwassa Pathnadabutr.

Elsewhere, the Japanese REIT market set new records in 2006, with the number of REITs topping 40 and average market prices reaching new highs in November.

The Singapore REIT market was also positive, with sentiment boosted by a flurry of initial public offerings and an encouraging post-listing performance by recently launched REITs, as well as sustained high levels of acquisitions both within and outside Singapore.

The report said that relatively speaking, Hong Kong and South Korea were laggards in the region, each with only one listed REIT or property trust fund coming on stream in the year to November, whereas Thailand's public listed property fund market grew significantly in 2006, doubling its size in terms of capital value.

Trends towards sectoral diversification and cross-border listings with overseas assets have become deeply entrenched in the Asian REIT market, the report said. Singapore's regulatory regime is conducive to REITs and its relatively competitive tax system has favourably positioned Singapore to draw an increasing number of cross-border REIT listings, further consolidating its status as the regional REIT hub.

Recent regional listings include the CapitaRetail China Trust (CRCT), comprised of seven retail malls in China, and First REIT, a healthcare REIT backed by Indonesian properties, both listed in early December.

CRCT's institutional tranche was 196 times subscribed and its share price surged by 59.3 per cent on its first trading day.

The report said that as the Asian REIT market evolves, investment trusts consisting of hotels, hospitals or even infrastructure projects are being offered, diversifying the asset types beyond the conventional office-, retail- and industry-focused REITs.

Most of the listed REITs in South Korea saw their unit prices rise. The outlook of the South Korean REIT market is positive, given the attractive average yield of 7.7 per cent - the region's highest - and the recent easing of regulations.

Despite a prevailing bullish mood, Hong Kong REITs have underperformed the stock market as investors have focused their attention on the busy initial public offering (IPO) market and mainland enterprises. With the exception of the Link REIT, Hong Kong's REITs ended the period one per cent to 24 per cent below their IPO offer prices, while the Hang Seng Index rose 14 per cent between May and November.

Sunlight REIT, listed on December 21, fell 11.5 per cent during its first two days of trading. The continued cool response of investors towards REITs in Hong Kong may prompt other developers to review their REIT listing plans, as well as their product and pricing strategies, in order to revive interest in this relatively new investment vehicle.

Unwilling to lag behind, Taiwan and Malaysia have both enacted new policies or in-

troduced incentives to stimu-

late development of their REIT markets.

The two markets have seen

a total of four new listings, increasing market capitalisation by 39 per cent and 11 per cent respectively, within the review period.

The report said Asian REITs are expected to follow their present expansionary trend this year, as robust economic conditions, as well as a more benign interest rate outlook, support continued demand for property.

However, investors should be cautious of volatility in the equity market and increasing divergence in REIT performance. The defensive characteristics of Asian REITs against market downturns have been somewhat undermined by investors' perception of REITs as a vehicle for speculation, as well as the use of financial engineering by some REITs.