Two decades after the listing of its first REIT, Hong Kong's market has plateaued at 11 listed REITs — a figure that falls short of the numbers seen in Singapore with its 40 listed S-REITs.
On Dec 12, Deloitte China and the Hong Kong REITS Association (HKREITA) jointly released Unlocking Future Growth through Reform: A Vision for Hong Kong REIT Market, a market research report drawing on insights from REIT industry leaders and comparative analysis of major REIT jurisdictions to examine how regulatory enhancements, tax optimisation and market development measures can strengthen Hong Kong's REIT (H-REIT) ecosystem.
Beyond cyclical market factors, industry leaders interviewed in the report highlighted regulatory requirements and tax considerations as ongoing factors impacting governance flexibility and sector development.
They believe that enhancing the current H-REIT framework could create a more dynamic market environment, attracting both sponsors and global investors seeking portfolio diversification and stable returns.
Hong Kong was the fourth economy in Asia to establish a REIT regime (2003) and the third to list a REIT on its stock exchange (2005). During its nascent stage, H-REIT market demonstrated impressive growth, catalysed by expanding property markets in both Hong Kong and mainland China, alongside first-mover listings by major institutions, the report says.
Link REIT's debut as the city's first listed REIT set a global benchmark as the world's largest REIT IPO at the time.
Similarly, Yuexiu REIT, another early entrant, maintains an active presence in the market today.
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Hong Kong is implementing measures to revitalise its REIT market, including the expansion of the Stock Connect scheme to encompass H-REITs — a move that will boost scale, liquidity and investment options while attracting fresh capital.
The Hong Kong government's extension of subsidies to REIT issuers until 2027, covering up to 70% of eligible listing expenses, further demonstrates its commitment.
“Strategically, Hong Kong's unparalleled position as China's capital and investment gateway presents a wealth of opportunities. These efforts and structural advantages, combined with shifting interest rate trends, signal a potential leap forward for H-REIT prospects,” the report says.
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To further strengthen the sector, the report recommends key reforms across regulatory and tax dimensions. Priority areas include introducing corporate REIT structures, providing greater flexibility in property holding and development rules, and implementing tax transparency to match international practices.
These calibrated measures would complement Hong Kong's existing strengths and recent policy initiatives to boost Hong Kong's appeal as a premier REIT destination.
Unlike major markets such as the US and Japan that accommodate multiple legal forms, H-REITs operate under a unit trust structure that leads to capital raising challenges. Although they can use debt or equity for funding, equity issuance approval and leverage limits especially restrict smaller REITs' growth.
H-REITs are also required by the REIT Code to retain properties for at least two years, impacting divestment timing based on investment strategy.
George Hongchoy, honorary founding pesident and chairman of HKREITA; executive director and group CEO of Link Asset Management, says: “To address current structural limitations and attract more market entrants, we advocate for the introduction of corporate structures for H-REITs that maintain asset protection through independent custodians. This flexibility would enable participation from institutional investors who may face restrictions on trust investments. Meanwhile, relaxing the two-year property holding rule would allow H-REITs to respond quickly to market changes and optimise portfolio management without sacrificing long-term stability.”
H-REITs have a borrowing ceiling of 50% of gross asset value (GAV) compared to Japan, Australia, the US and the UK, where borrowing is essentially unlimited but subject to various financial restrictions or tax implications. Additionally, H-REITs can only engage in property development activities up to 10% of their GAV (with a possible increase to 25% with unitholder consent). These limitations may hinder H-REITs’ ability to leverage debt to enhance investor returns, and reduce the competitiveness of H-REITs in fast-moving markets.
The Hong Kong Government's REIT subsidy scheme, introduced in May 2021 with a HKD8 million funding cap per listing, extended until 2027.
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The programme provides a 70% subsidy for eligible professional services expenses, covering legal, accounting and other listing related costs. This incentive is particularly significant for smaller REITs, as it helps reduce the proportionally higher burden of professional service fees that might otherwise deter smaller property portfolios from listing.
On Dec 11, the Legislative Council passed a government bill to waive the stamp duty on the transfers of REIT shares or units. The measure will come into effect on Dec 21.
Currently, both buyers and sellers pay 0.1% stamp duty on H-REIT transactions, whereas most international markets, including Japan, Singapore and the US, generally do not impose such duties. This waiver would align with the Government's commitment to support H-REIT market development.
