Every portfolio needs an allocation to real estate. It is an income-producing asset class with a strong built-in inflation hedge and favorable tax treatment. And at a time when paper profits can be fleeting, real property can offer a stable store of value.
What more can you ask for?
But investors who focus exclusively on U.S. REITs are missing out on a world of potential opportunities.
In my last article on international real estate investing, I gave the rundown on British REITs. Today, we’re going to move further east.
Outside of the U.S. and Britain, the largest and most liquid REITs are in Japan, Hong Kong, Singapore and Australia.*
Nippon Building Fund
If you are a believer in Abenomics — or believe that Japanese inflation is right around the corner — then the Nippon Building Fund (TYO:8951) is an attractive option. Nippon offers a respectable dividend yield at 3%, has a reasonably large market cap at nearly $8 billion, and has better liquidity that most Japanese REITs (or just “J-REITs”).
But I would tread carefully here. Given the debt and demographic issues the country faces, I can think of a lot of other assets I would prefer to own than Japanese real estate. At the risk of being overly simplistic, a shrinking Japanese population means less demand for residential, retail, and office properties in the years ahead…which should mean lower rents and higher vacancies for landlords.
Moving on to more promising countries, let’s take a look at Hong Kong and Singapore.
The Link REIT
The Link REIT (HKG:0823, OTC:LKREF) is the first Hong Kong-listed REIT and one of the largest in the world by market cap. The Link’s property empire boasts 11 million square feet of retail space and approximately 80,000 garage parking spaces.
This is a veritable Hong Kong property juggernaut.
Following most income-oriented investments, The Link has had a rough couple months. After peaking in July, the REIT shed nearly a quarter of its value in the “taper scare” that followed. But if you’re broadly bullish about Asia’s prospects and about Hong Kong as one of its premier financial and business centers, then there is a lot to like in The Link. Shares trade at book value and yield 4% in dividends. And unlike real estate investments in much of the rest of the world, The Link actually grew its dividends throughout the crisis. The REIT has raised its payout every year since 2006.
Moving to nearby Singapore, we see much the same story. Rising bond yields caused an across-the-board selloff in income stocks such as REITs, many of which now offer very attractive yields.