THE UNIVERSITY OF HONG KONG
AN EMPIRICAL STUDY ON RISK AND RETURN
CHARACTERISTICS OF LISTED REAL ESTATE
INVESTMENT TRUSTS (REITS) IN ASIA PACIFIC
(APAC) MARKET AND DETERMINE THE
OPTIMAL MIXED-ASSET PORTFOLIO WITH
APAC REITS
Submitted by
Chiu Pak Yin
For the degree of Bachelor of Science in Surveying
April 2023
Declaration
I declare that this dissertation represents my own work, except
where due acknowledgment is made, and that it has not been
previously included in a thesis, dissertation or report submitted
to this University or to any other institution for a degree,
diploma or other qualification.
Signed:
Name:
Chiu Pak Yin
Date:
11 / 04 / 2023
1
Acknowledgement
I would like to take this opportunity to express my heartfelt gratitude to my thesis supervisor, Dr. Alex
Shi, for his invaluable guidance, support, and encouragement throughout my research. His deep
knowledge and expertise in the field of real estate investment have been an inspiration to me, and I feel
incredibly fortunate to have had him as my mentor.
I would like to acknowledge the support of my family, who have been a constant source of love and
encouragement throughout my academic journey. Their unwavering belief in me has kept me motivated
and driven to succeed.
I would also like to thank my friends and colleagues for their support and encouragement. Their
willingness to listen to my ideas and provide constructive feedback has been invaluable.
Thank you all for your support and guidance.
Cyrus Chiu
April 2022
2
Abstract
Asia Pacific Real Estate Investment Trusts (APAC REITs) have become an increasingly popular
investment asset for investors seeking to diversify their investment portfolios and gain exposure to the
Asia real estate market. This study aims to determine the risk and return characteristics of APAC REITs
and the optimal investment allocation of APAC REITs in an investment portfolio. The study covers eight
APAC REIT markets, namely Japan, Australia, Singapore, Hong Kong, Malaysia, India, China, and the
Philippines.
The analysis is divided into different parts. First, risk-adjusted performance is analyzed using riskadjusted return ratios. Second, the optimal allocation of APAC REITs in domestic, regional, and
international portfolios is determined using mean variance analysis. Finally, the correlation and spillover
effect between APAC REITs regimes are determined.
The results of the risk-adjusted return analysis show that APAC REITs markets exhibit similar riskadjusted performance compared to their domestic stock markets. Among the APAC REITs markets
covered in this study, the Australia REITs market exhibits the best long-term risk-adjusted performance,
while the Philippines REIT market exhibits the best short-term risk-adjusted performance.
The analysis of the allocation of REITs indicates that REITs can play a significant role in domestic,
regional, and international portfolio construction due to their high risk-adjusted performance. Among the
APAC REITs markets, the Philippines, Malaysia, and Australia markets exhibit the most substantial
allocation in mixed asset portfolios.
The study also discovers that developed REITs markets, such as Japan, Australia, and Malaysia, are less
vulnerable to volatility shocks originating from other markets. This information can be used by investors
to develop investment plans that capture diversification benefits.
Based on these results and findings, an investment strategy is suggested at the end of the paper for four
types of investors. The suggested investment strategy emphasizes the role of APAC REITs, with up to
50% allocated in the suggested strategy. It is believed that with the continuous growth of the markets,
investment can place more emphasis on the market.
It is hoped that the findings of this study can provide insight and guidance to investors on investing in
APAC REITs and stimulate further research on related topics.
3
Table of Content
DECLARATION
1
ACKNOWLEDGEMENT
2
ABSTRACT
3
TABLE OF CONTENT
4
1
INTRODUCTION
10
1.1
BACKGROUND OF STUDY
10
1.1.1
IMPORTANCE OF REAL ESTATE INVESTMENT
10
1.1.2
FORM OF PROPERTY INVESTMENT VEHICLE
11
1.1.3
OVERVIEW OF LISTED REITS MARKET
12
1.1.4
DEVELOPMENT AND SIGNIFICANCE OF REITS MARKET IN ASIA
13
1.2
RESEARCH GAP AND THE RESEARCH PROBLEM
16
1.3
SCOPE OF THE STUDIES
17
1.4
KEY RESEARCH QUESTIONS
18
1.5
KEY RESEARCH OBJECTIVES
18
1.6
IMPORTANCE OF STUDY
19
1.7
THESIS OUTLINE OF THE RESEARCH
20
2
FUNDAMENTALS OF REITS MARKET
22
2.1
DEFINITION OF THE CONCEPT OF REITS
22
2.2
KEY PLAYER IN APAC REITS MARKET
24
2.2.1
JAPAN
25
2.2.1.1
BACKGROUND
25
2.2.1.2
REGULATORY FRAMEWORK
31
2.2.1.3
TAXATION TREATMENT ON REIT’S LEVEL
32
2.2.2
AUSTRALIA
33
2.2.2.1
BACKGROUND
33
2.2.2.2
REGULATORY FRAMEWORK
38
4
2.2.2.3
2.2.3
TAXATION TREATMENT ON REIT’S LEVEL
39
SINGAPORE
40
2.2.3.1
BACKGROUND
40
2.2.3.2
REGULATORY FRAMEWORK
45
2.2.3.3
TAXATION TREATMENT ON REIT’S LEVEL
46
2.2.4
HONG KONG
47
2.2.4.1
BACKGROUND
47
2.2.4.2
REGULATORY FRAMEWORK
50
2.2.4.3
TAXATION TREATMENT ON REIT’S LEVEL
51
2.2.5
MALAYSIA
52
2.2.5.1
BACKGROUND
52
2.2.5.2
REGULATORY FRAMEWORK
56
2.2.5.3
TAXATION TREATMENT ON REIT’S LEVEL
57
2.2.6
INDIA
58
2.2.6.1
BACKGROUND
58
2.2.6.2
REGULATORY FRAMEWORK
62
2.2.6.3
TAXATION TREATMENT ON REIT’S LEVEL
63
2.2.7
CHINA
64
2.2.7.1
BACKGROUND
64
2.2.7.2
REGULATORY FRAMEWORK
69
2.2.7.3
TAXATION TREATMENT ON REIT’S LEVEL
71
2.2.8
PHILIPPINES
72
2.2.8.1
BACKGROUND
72
2.2.8.2
REGULATORY FRAMEWORK
74
2.2.8.3
TAXATION TREATMENT ON REIT’S LEVEL
77
2.2.9
CHAPTER SUMMARY
3
77
LITERATURE REVIEW
79
3.1
RISK AND RETURN CHARACTERISTIC OF INTERNATIONAL AND APAC REITS
79
3.1.1
PERFORMANCE AND CHARACTERISTIC OF REITS OUTSIDE APAC REGION
79
3.1.2
PERFORMANCE AND CHARACTERISTIC OF APAC REITS
81
3.1.3
RISK OF INVESTING IN REITS
82
3.2
BENEFIT OF DIVERSIFICATION WITH REITS INVESTMENTS
82
3.2.1
BENEFIT OF DIVERSIFICATION WITH US AND APAC REITS
82
3.2.2
BENEFIT OF DIVERSIFICATION WITH SECTOR SPECIFIC REITS
83
3.3
OPTIMAL ALLOCATION OF REITS IN A MIXED-ASSET PORTFOLIO
84
5
3.4
RELATIONSHIP AND DYNAMIC BETWEEN DIFFERENT APAC REITS MARKET
85
3.4.1
CORRELATION BETWEEN VARIOUS ASIAN REITS MARKET AND REITS SUBSECTORS
85
3.4.2
VOLATILITY SPILLOVER EFFECT BETWEEN REITS MARKET
86
3.5
INVESTMENT STRATEGY RELATED TO REITS INVESTMENT
88
3.6
CONCLUSION
89
4
DATA AND METHODOLOGY
90
4.1
DATA SOURCES
90
4.2
INDEX CONSTRUCTION
92
4.3
PERFORMANCE ANALYSIS
93
4.3.1
RETURN MEASUREMENT
93
4.3.2
RISK MEASUREMENT
94
4.3.3
RISK ADJUSTED RETURN MEASUREMENT
95
4.3.4
CORRELATION BETWEEN ASSETS
97
4.4
INVESTMENT PORTFOLIO DETERMINATION
98
4.5
ANALYSIS ON DYNAMICS BETWEEN MARKETS
100
4.5.1
ROLLING CORRELATION COEFFICIENT
100
4.5.2
VECTOR AUTOREGRESSIONS (VAR) MODEL
100
4.5.3
GRANGER CAUSALITY
103
4.5.4
IMPULSE RESPONSE ANALYSIS
103
4.5.5
FORECAST ERROR DECOMPOSITION
104
5
THE PERFORMANCE OF REITS IN APAC REITS MARKET
105
5.1
OVERALL AND SUB-SECTOR INDEX PERFORMANCE
106
5.1.1
JAPAN
106
5.1.2
AUSTRALIA
108
5.1.3
SINGAPORE
110
5.1.4
HONG KONG
113
5.1.5
MALAYSIA
115
5.1.6
INDIA
116
5.1.7
CHINA
118
5.1.8
PHILIPPINES
119
5.1.9
SECTION SUMMARY
120
5.2
RISK-ADJUSTED PERFORMANCE
121
6
5.2.1
JAPAN
122
5.2.2
AUSTRALIA
126
5.2.3
SINGAPORE
132
5.2.4
HONG KONG
136
5.2.5
MALAYSIA
140
5.2.6
INDIA
144
5.2.7
CHINA
146
5.2.8
PHILIPPINES
148
5.2.9
SECTION SUMMARY
150
5.3
CORRELATION BETWEEN INVESTMENTS OPTIONS
154
5.3.1
JAPAN
154
5.3.2
AUSTRALIA
155
5.3.3
SINGAPORE
157
5.3.4
HONG KONG
158
5.3.5
MALAYSIA
159
5.3.6
INDIA
160
5.3.7
CHINA
161
5.3.8
PHILIPPINES
162
5.4
SECTION SUMMARY
163
6
OPTIMAL ALLOCATION OF APAC REITS IN MIXED-ASSET PORTFOLIO
164
6.1
OPTIMAL ALLOCATION BETWEEN REITS, STOCKS, AND BONDS AT THE DOMESTIC LEVEL
165
6.1.1
JAPAN
165
6.1.2
AUSTRALIA
166
6.1.3
SINGAPORE
168
6.1.4
HONG KONG
169
6.1.5
MALAYSIA
171
6.1.6
INDIA
173
6.1.7
CHINA
174
6.1.8
PHILIPPINES
176
6.1.9
SECTION SUMMARY
177
6.2
OPTIMAL ALLOCATION BETWEEN SECTOR-SPECIFIC REITS, DIVERSIFIED REITS, STOCKS, AND BONDS AT
THE DOMESTIC LEVEL
178
6.2.1
JAPAN
178
6.2.2
AUSTRALIA
180
6.2.3
SINGAPORE
182
7
6.2.4
HONG KONG
184
6.2.5
MALAYSIA
186
6.2.6
CHINA
188
6.2.7
PHILIPPINES
190
6.2.8
SECTION SUMMARY
192
6.3
OPTIMAL ALLOCATION WITH REGIONAL AND INTERNATIONAL PORTFOLIOS
193
6.3.1
APAC REITS PORTFOLIO
193
6.3.2
INTERNATIONAL REITS PORTFOLIO
195
6.3.3
INTERNATIONAL MIXED-ASSET PORTFOLIO
197
6.3.4
SECTION SUMMARY
200
7
THE DYNAMIC OF CORRELATION AND VOLATILITY SPILLOVER EFFECT
BETWEEN DIFFERENT APAC REITS MARKETS
201
7.1
CORRELATION ANALYSIS
202
7.2
VOLATILITY SPILLOVER ANALYSIS
204
7.2.1
DATA AND PRELIMINARY ANALYSIS
204
7.2.2
STATIC SPILLOVER ANALYSIS
205
7.2.3
GRANGER-CAUSALITY TEST
212
7.2.4
IMPULSE RESPONSE FUNCTION
213
7.2.5
VARIANCE DECOMPOSITION
213
7.3
CHAPTER SUMMARY
8
215
CONCLUSION
216
8.1
DISCUSSION OF EMPIRICAL RESULT
216
8.1.1
PERFORMANCE OF APAC REITS
216
8.1.2
DIVERSIFICATION BENEFIT OF APAC REITS
218
8.1.3
OPTIMAL ALLOCATION OF APAC REITS
218
8.1.4
RELATIONSHIP BETWEEN MARKETS
220
8.2
SUGGESTION OF INVESTMENT STRATEGY
221
8.2.1
ANALYSIS ON THE RESULT OF MEAN VARIANCE ANALYSIS
222
8.2.2
SUGGESTION ON INVESTMENT STRATEGY IN CONSTRUCTING A MIXED ASSET PORTFOLIO
226
8.2.2.1
PASSIVE INVESTOR WITH HIGH RISK AVERSION LEVEL
226
8.2.2.2
ACTIVE INVESTOR WITH HIGH RISK AVERSION LEVEL
227
8.2.2.3
PASSIVE INVESTOR WITH LOW RISK AVERSION LEVEL
227
8.2.2.4
ACTIVE INVESTOR WITH LOW RISK AVERSION LEVEL
228
8
8.3
9
FINAL COMMENT
228
REFERENCE
229
10
APPENDIX
238
9
1 Introduction
1.1
Background of Study
1.1.1 Importance of Real Estate Investment
Real Estate Investment is one of the attractive approaches for investors to invest their money
into. According to the report of Morgan Stanley Capital International (MSCI) (2022), the
size of the professionally managed real estate investment market is USD 11.4 trillion in 2021.
Although the value of the real estate investment market is not comparable to other prominent
investment alternatives like a bond (USD126.90 trillion market size in 2021) and stock
(USD160.95 trillion in size in 2021). According to Kohlberg Kravis Roberts, the actual
allocation of real estate in an investment portfolio by high-net-worth individual investors
raises from 15% in 2017 to 22% in 2020 (Linkedin, 2021). Apart from increased allocation
by individual investors, the study of Hodesweill & Associates (2022) also reveals the target
allocation to real estate by institutional investors enhanced consistently from 8.9% in 2013
to 10.8% in 2022. These statistics show that the role of real estate assets become increasingly
important in an investment portfolio.
The inclusion of real estate assets in an investment portfolio can bring the benefit of
diversification to an investor. Introduced by Markowitz in 1952, the theory of diversification
stated that financial risk could be minimized by introducing different assets like bonds, stocks,
and real estate into the portfolio (Markowitz, 1952). By introducing assets with various
characteristics and natures into the portfolio, the highest risk-adjusted return on the
investment can be achieved.
Apart from low correlation with other asset classes which brings the benefit of diversification,
investment in real estate assets also brings superior returns compared with other alternative
assets. The competitive level of the risk-adjusted return of real estate assets attracts more and
more investors to the market.
10
Table 1: Comparison of return between real estate asset and other types of investment vehicle
Types of assets
Average annual Return on Investment (ROI)
Residential Real Estate
10.6%
Commercial Real Estate
9.5%
Real Estate Investment Trust (REITs)
11.8%
Stoc
10.0%
Bond
5.0% - 6.0%
Note. Adapted from https://www.bankrate.com/real-estate/roi-on-real-estate/#variables.
Copyright 2022 by Bankrate, LLC
Additionally, property investment also possesses other attributes including stable cashflow,
inflation hedged, and able to reduce tax. These features also benefit real estate investors and
potentially enhance the attractiveness of investing in real estate.
1.1.2 Form of Property Investment Vehicle
Generally, an investor can invest in the real estate market by two means, either directly or
indirectly. Direct property investment refers to the process of purchasing, owning, renting,
managing, and sale of a property to obtain a profit. However, owning properties directly is
capital intensive. Therefore, some direct property investor relies on bank mortgages heavily
to fulfill the capital requirement of direct property investment. Examples of direct property
investment include residential property, commercial property, and undeveloped land.
On the contrary, an investor can also involve in real estate investment by owning a stake in
a company that owns real estate assets. Indirect property investment can be listed or unlisted
on the stock exchange.
The unlisted indirect property investment products are characterized by low liquidity and
transparency. Examples of unlisted property investment tools include direct private funds,
property syndicates, and unlisted retail funds. On the other hand, listed investment products
are regularly and continuously traded on the market, examples include investment in
stock/fund of real-estate related business, Real Estate Investment Trust (REITs), property
index derivatives, or the bonds of larger corporate property entity.
11
Traditionally, both institutional and retail investors have applied direct investment in real
estate. Owing property directly allows investors to generate substantial income from the
investment while enjoying the benefit of diversification and tax reduction simultaneously.
However, the problem of illiquidity and difficulties in the valuation of direct property
investment made this approach difficult to execute and implement. In the early 1990s, many
funds and institutional investors had reduced their exposure to direct property investment
(Holland, 2006). In the meantime, the emergence of indirect real estate investing in the 1990s
(especially the growths of REITs in the US market) offered both institutional and retail
investors another pathway to invest in the real estate market without the problem of presence
in direct investing. Among an assortment of indirect investment, REITs has grown in use
worldwide and evolved into one of the most prominent real estate investment vehicles
nowadays.
1.1.3 Overview of listed REITs Market
REITs is a company that owns and operates income-producing properties. Through the
operation of the properties, REITs generate a steady income for their investor. Most REITs
are traded publicly like stocks, which makes them are having high liquidity. The security,
low barrier of entry, and high liquidity make REITs become an attractive investment choice
for different types of investors. After the introduction of the first REITs in the US in 1960,
multiple countries followed the US approach to establish REITs in their country. As of
December 2021, the market capitalization of the global REITs market had reached the level
of 2.5 trillion and the number of listed REITs worldwide had surged from 120 in December
1990 to 865 in December 2021.
12
Figure 1: Number of Listed REITs from 1990 to 2021
Note.
From
Global
Real
Estate
Investment,
by
Nareit.
Nareit,
2023,
(https://www.reit.com/investing/global-real-estateinvestment#:~:text=Market%20capitalization%20for%20REITs%20has,to%20%241.8%20
trillion%20in%202021).
Amid the strong growth in the scale of the world REITs market, the Asian REITs market had
a particularly strong performance in recent decades. According to NaREITs (2021), the
overall scale of the Asia REITs market grew from 31 REITs in 2005 to 216 REITs in 2021.
The dramatic growth signifies the importance of Asia in the global REITs market.
1.1.4 Development and significance of REITs market in Asia
With the launch of 2 J-REITs by Japan in 2001, REITs started to flourish in Asia in the 20th
Century. According to Cushman and Wakefield (2022), there were a total of 198 REITs in
Asia at the end of 2021, with a total market capitalization of US304.1 billion. Within the
region, the most developed and mature markets are in Australia, Japan, Hong Kong, and
Singapore which are established in the early 2000s. Japan is the largest REITs market in Asia
and the second-largest global REITs market. While other REITs markets like China, the
Philippines, and India were improving consistently in recent years to catch up with the
developed markets. The table below shows the market capitalization and the number of
REITs in different REITs markets in Asia.
13
Table 2: Existing REITs market in Asia as of Jan 2023
Country
Total Market Cap (Millions USD)
Number of listed REITs
Matured/Developed Markets
Japan
118,400
61
Australia
104,633
45
Singapore
80,176
39
Hong Kong
28,214
11
Malaysia
9,491
19
South Korea
6,115
18
New Zealand
4,270 (9/2022)
6
Thailand
12,230 (9/2022)
61
China
12,139
25
India
6,832
3
Philippines
4,390
7
Taiwan
2,680
5
Emerging market
Compare with other continents, Asia is the region with the largest scale of growth in the
REITs market in recent years. Asia Pacific (APAC) REITs market only accounted for 9.2%
of the total number of REITs worldwide in 2005, but the figure has risen to nearly 25% In
2021 (Nareit, 2022). The substantial growth in recent years was attributed to the listing of
REITs taking place in emerging markets like India, China and the Philippines. Moving
forward, the compound annual growth rate (CAGR) of the APAC REITs industry is predicted
to be 4.8% in the period of 2023-2028 according to an industry report published by Mordor
Intelligence (2019). As the scale of the APAC REITs market grew dramatically, the
popularity of APAC REITs increases among investors. Both retail and institutional investors
incorporate Asia REITs into their investment portfolios to participate in the development of
the Asia real estate market. Property in different Asia countries will behave differently during
the change in the business cycle and economic conditions. Therefore, the inclusion of Asia
REITs in an investment portfolio can diversify the asset types and enhance the risk-adjusted
return.
14
Table 3: Expected CAGR of REITs markets in the period of 2023-2028
Region
CAGR
APAC
4.8%
North America
2.5%
Europe
1.5%
Gulf Cooperation Council (GCC) Countries
2.7%
Note. Author Compilation
Additionally, the increased maturity, transparency, and sophistication of the Asian real estate
markets caused the APAC REITs even more attractive to investors. For instance, some
developed REITs markets (e.g., Hong Kong and Singapore) had passed amendments to the
regulations related to the disclosure requirement, leverage limits, and other operational
provisions in recent years (RICS, 2018). These actions enhance both transparency and
maturity of the market. Owing to these recent developments, the Asia REITs market has
increased its role in the market.
Even though Asia had the largest growth in the REITs market in recent years, it is expected
that APAC REITs will still grow at an exceptional pace in the coming decades. In the coming
years, the size of emerging markets is expected to grow significantly. For example, investors
have a big opportunity in India's top seven cities thanks to the more than 220 million square
feet of inventory that qualify for REITs (Cushman and Wakefield, 2022). In China, the
market capitalization of listed REITs in March 2022 was around RMB44.1 billion, while
experts expect that China’s REITs market can be potentially worth more than RMB 12 trillion
(JLL, 2018). The untapped potential of these emerging markets reflects the growing potential
of the APAC REITs market and the importance of the REITs market in future investment
planning. The figure below shows the property market size of different nations. Plenty of
APAC nations shows up on the list of the largest real estate market in the world, which
indirectly reflect the potential of the APAC market.
15
Figure 2: Change in national real estate market sizes between 2020 and 2021
Note. Change in national market sizes between 2020 and 2021, USD Billion. From Real
Estate
Market
Size
2021/22,
by
MSCI,
2022,
(https://www.msci.com/documents/10199/8f62c2a3-8374-cbf9-a7d2-a8c2c5e63e62)
1.2
Research gap and the research problem
Although APAC REITs have taken up a more vital role in the investment horizon, there is still a
limited number of literatures to investigate their performance. Most of the literature focuses on the
investigation of performance (risk and return characteristics) of the US market (Bhargaval &
Weeks, 2021; Xiao, Lin & Li, 2014; Piao, Yao & Mei, 2022). Even though some of the literature
substantially reviewed the performance and characteristics of some APAC REITs market like Japan
(Newell, Peng, 2015; Fan, 2019) and Australia (Reddy & Wong, 2018; Graham & Moffett, 2010),
developing REITs markets like China and India in the APAC region was not sufficiently covered
by the previous literature. As investors need to understand the return and risk characteristics of
these assets before investment, the inadequacy of the literature on introducing the APAC REITs
market should be rectified.
Another aspect of the research gap is the comparison of risk-adjusted performance among various
APAC REITs markets. Although there were ample researches that compare the performance of
different APAC REITs market, those researches were either using outdated dataset (Pham, 2012)
or covering a limited number of APAC REITs market (Lin, 2021; Ooi, Newell & Sing, 2006) in
the comparison. Therefore, the previous studies could not provide an up-to-date risk-adjusted
performance between different active APAC REITs markets.
16
Moreover, there were a limited number of research that provide finding on the allocation of APAC
REITs in an investment portfolio consisting of independent assets (i.e., stock, bonds, cash, and
equivalent). Some literature had investigated the optimal portfolio with REITs in the mature market
like the US (Bhuyan et al., 2014), France (Newell, Adair & Nguyen, 2013), Japan (Newell and
Peng, 2015), and Singapore (Newell, Pham an Ooi, 2015). Nonetheless, the role of sector-specific
REITs in a mixed-asset portfolio was barely discussed in the previous literature. Lin (2021)
attempted to analyze the mixed-asset portfolio of sector-specific REITs, but this attempt was only
focused on the developed market including Japan, Australia, and Singapore. Therefore, the failure
of including emerging APAC markets and sector-specific REITs during the construction of the
optimal mixed asset portfolio was one of the significant shortfalls of previous literature.
Last but not least, the relationship between different APAC REITs markets had yet to be sufficiently
explored by experts. There was literature previously covered on the topics of the correlation
between different APAC REITs market (Pham, 2013), the return spillover effect and its impact on
REITs return (Hestiwan & Prijadi, 2020), and volatility spillover in the Asian REITs market (Lin,
2013). However, as the APAC REITs market has become more mature and complicated, the
spillover effect and the correlation between different markets have changed continuously.
Therefore, this research also targeted to examine this change by using more updated data.
1.3
Scope of the Studies
To avoid confusion, the scope of this study will first be clarified in this part. As the APAC REITs
market includes many markets, only some of the markets will be covered in the following section.
These REITs markets include Japan, Australia, Hong Kong, Singapore, Malaysia, China,
Philippine, and India.
The countries above are selected based on the data availability, the coverage of previous literature
and the strategic importance of the country’s REITs market.
17
1.4
Key research questions
Based on the identified research gaps, the following research questions are developed. The list of
questions is as follow:
-
What is the risk and return characteristic of APAC REITs?
-
Which APAC markets have the highest risk-adjusted performance? Which type of sub-sector
specific REITs provided the highest risk-adjusted return?
-
The extent of diversification benefits gains from including APAC REITs in a mixed-asset
portfolio in a global context.
-
What are the optimum level of allocation of APAC REITs in mixed-asset portfolio in Local,
Asia and Global context?
-
What are the correlation and the extent of spillover effect between different APAC REITs
market?
-
What is the optimal investment strategy that investor should adopted in the coming decade
in order to participate in the APAC REITs market?
1.5
Key research objectives
This research aims to evaluate and understand the risk factors and the risk-adjusted performance
on investing in APAC REITs market. By comparing the performances and risk between both
diversified and sector specific REITs in different APAC markets, investors can be more informed
when making investment decision in APAC REITs market. Additionally, based on the performance
data of the different APAC REITs, the study also targeted to calculate the optimal weighting of
including APAC REITs in a REITs-based portfolio and a mixed-asset portfolio. The following is
the list of research objectives which targeted to address both the research gaps and research
questions.
-
To provide holistic comparison of the risk-adjusted performance between different APAC
REITs market
-
To provide holistic comparison of the risk-adjusted performance between different types of
sector-specific REITs
-
To analysis and quantify the degree of diversification benefit brought by adding APAC REITs
into a mixed-asset portfolio
-
To determine the optimal level of allocation of APAC REITs in mixed-asset portfolio in
Local, Asia and Global context
-
To investigate the effect of correlation and volatility spillover on the investment strategy of
the APAC REITs market
-
To devise an investment strategy for participating into the APAC REITs market in the coming
decade based on the forecast of the overall APAC REITs market
18
1.6
Importance of study
The study is significant due to the following reason. Firstly, this study provides a comprehensive
review of the performance and the structure of those prominent REITs markets in the APAC region.
As mentioned in the previous section, the APAC REITs market was growing at a remarkable speed
in recent years. However, the number of literatures focused on the discussion was not
proportionally fit with the scale of APAC REITs. This phenomenon was especially serious for
emerging markets like India, China, and Philippine. This thesis will offer a comparison and
summary with the updated empirical evidence for those important APAC REITs markets, including
those emerging markets. The analysis can reflect the pros and cons of investing in REITs with
different property types in different countries, and also provide more evaluation on emerging
markets that were not covered by previous papers.
Also, the study attempts to provide insight into the investment dynamic of the APAC REITs market.
As APAC REITs are improving their role within the investment portfolio of both retail and
institutional investors, the study provides an in-depth analysis of the potential role of both sectorspecific and diversified APAC REITs in a mixed-asset portfolio. By considering the risk and return
characteristics, the result allows the reader to diversify and construct their portfolio by different
types of APAC REITs in the context of the APAC region and globally. The implication and the
applicability of the empirical result to investors with different natures and backgrounds will also
be discussed. Therefore, the optimal investment portfolio for investors can be devised and the result
is vital to investment decisions made by the potential readers.
Additionally, the dynamic between individual APACs markets will also be accessed thoroughly
using the VAR model. Understanding the linkage between markets allows investors to manage their
risk exposure and the degree of diversification. Although the spillover effect (Pham, 2013) and
time-varying correlation (Liu, Loudon & Millunovich, 2011) of the APAC REITs market had been
studied by various literature, the inclusion of emerging markets and the analysis of the source of
correlation is the first of its kinds. Therefore, the result can contribute to a deeper understanding of
the inter-market linkage and fundamental to the investment decision procedure.
Finally, the result of the correlation between markets and the result of the allocation of APAC
REITs in a mixed-asset portfolio will be combined to formulate an appropriate investment strategy
for investors in the APAC REITs market in the coming decade. Consequently, an investor can make
an informed decision regarding the investment in APAC REITs.
19
1.7
Thesis outline of the research
This research has been divided into 5 parts, which comprises an Introduction (Chapter 1), a Review
of Fundamentals of research and Literature (Chapter 2-3), Data Source and Methodology (Chapter
4), Analysis and Finding (Chapter 5-7), and Conclusion (Chapter 8).
Chapter 1 aims to introduce and provide the background information for the study. A brief
introduction of the global and Asia REITs market, statement of research gaps, key research
questions and objectives, and the importance of this research are provided in this Chapter.
Chapter 2 introduces the current condition of the APAC REITs market within the scope of this
research respectively. An overview of the Asia REITs market is provided. This section also lay out
the market size, features, regulatory structure, key players, and the developing trend of each REITs
regime covered in the research.
Chapter 3 reviews the literature related to the topics of risk included in REITs investment, the
diversification theory, the role of APAC REITs in a mixed-asset portfolio, and dynamics between
different REITs markets. This chapter aims to extend the knowledge base and understanding of
topics by the reader and to bring clarity and focus to the research problem of this paper.
Chapter 4 set out the source of data and research methodology utilized in the study. A details
description of the data sources and the method of performance measurement, risk measurement,
and regression analysis are introduced in this section.
Chapter 5 provided a comparison between the overall performance of different REITs markets and
subsector REITs in the APAC region. REITs market and subsector REITs of different countries is
compared based on the risk-adjusted performance. The benefit of diversification by the APAC
market REITs is also accessed in this chapter by the use of a correlation matrix. APAC markets
REITs sub-index are also constructed and analyzed in this Chapter.
Chapter 6 and 7 reports the empirical result of the optimal allocation of APAC REITs into a mixed
asset portfolio and the interaction between those APAC REITs markets. The mean-variance
analysis is applied to evaluate the optimal allocation for the following portfolio, (1) Domestic
Portfolio with APAC REITs, (2) Regional and International REITs Portfolio with APAC REITs, (3)
Portfolio comprise global asset and APAC REITs. The efficient frontier of the assumed portfolio is
also being constructed for comparison purposes. While the VAR regression model are rolling
correlation analysis are adopted for the examination of the correlation and spillover effects between
markets. The nature and characteristics of interaction are evaluated and explained in this section.
20
Finally, Chapter 8 concludes all the results and analysis in the thesis. Then, based on the empirical
result in the previous chapter, different investment strategy will be devised for different types of
investors to invest in the APAC REITs market.
21
2 Fundamentals of REITs market
2.1
Definition of the concept of REITs
v Established in 1960 by the US Congress, Real Estate Investment Trust, or REITs was established
to allow individual investors to invest in the real estate market with lower capital requirements. In
general, a REITs is a company that owns and operates income-producing real estate assets.
According to the US Security and Exchange Commission (2011), a REITs must invest primarily in
real estate assets in order to qualify as a REITs, and it must distribute at least 90% of its taxable
income to shareholders in the form of dividends. Apart from the dividend requirements, other types
of requirements are listed in the table below. It should be noted that different REITs regimes have
different requirements for the listed REITs, but only with a little difference compare with the US
REITs regime.
Table 4: Common aspects of requirement exists in different REITs regime
Common type of requirements on REITs
Legal
Form
of
the
Capital Requirement
Listing Requirement
Asset/Income/Activities
Distribution Requirement
REITs
Restriction on Investors
Requirements
Method
on
Tax
Restriction of foreign asset
Leverage Requirement
Treatment
Note. Author’s compilation from PWC, Worldwide Real Estate Investment Trust Regime (2019)
For REITs listed on the public stock exchange, it can be classified into two major categories. The
first type is equity REITs, which own and operate real estate properties that are leased to the tenant
(Nareit, n.d.). In the current market, most REITs are operated as equity REITs. Another major
category is Mortgage REITs (mREITs). MREITs, which buy or create mortgages and mortgagebacked securities, provide funding for real estate that generates income by collecting interest on
these assets (Nareit, n.d.).
As equity REITs will invest in different types of real estate, some equity REITs are specifically
focusing on the investment of a particular property type. Therefore, the following table listed the
definition of different types of equity REITs.
22
Table 5: Definition of common types of equity REITs
Property
Definition
Sector
Diversified
Own and manage property portfolio with different types of property and
collect rent from the tenant
Office
Own and manage office type properties and lease out space to tenants. These
properties might include everything from office parks to towers
Industrial
Own, operate, and provide tenants with space in industrial property. Several
industrial REITs concentrate on particular property categories, like
warehouses and distribution facilities
Retail
Own and operate retail locations and lease out space to businesses. Large
regional malls, outlet centers, grocery-anchored shopping centers, and power
centers are the example of the properties that Retail REITs commonly held
Hotel/Lodging
Own and operate hotels and resort and rent those accommodation to guests.
Potential customers of hotel properties include business travelers,
vacationers and local customer
Residential
Own, oversee, and lease to tenants’ space in a variety of dwellings.
Residential REITs include those with a focus on manufactured homes, singlefamily houses, apartment buildings, and student housing.
Infrastructure
Own, manage, and collect rent from tenants that occupy infrastructure real
estate. Fiber optic cables, wireless infrastructure, telecommunications
towers, and energy pipelines are examples of the types of properties that
infrastructure REITs own.
Health Care
Qwn, manage, and collect rent from tenants on a range of real properties
associated to the healthcare industry. Senior living complexes, hospitals,
medical office buildings, and skilled nursing facilities are among the property
types owned by health care REITs.
Note. Author’s compilation from NAREITs’s websites
Apart from the equity REITs listed in the table above, some uncommon REITs types including,
Timberlands REITs, Self-Storage REITs, Data Centre REITs, and Specialty REITs are also present
in some REITs regimes.
23
2.2
Key Player in APAC REITs market
As APAC REITs have enhanced their role in an investor’s portfolio, it is meaningful to study the
REITs regimes in the APAC market. As of Jan 2023, REITs were established in a total of 14
jurisdictions in the APAC region. The following figures show the launching timeline of different
REITs regime in APAC.
Figure 3: Launching Timeline of APAC REITs regime
Before 2000
•Australia (1971)
2000s
•Japan (2001)
•Singapore (2002)
•South Korea (2004)
•Taiwan (2004)
•Hong Kong (2005)
•Malaysia (2005)
•New Zealand (2007)
•Indonesia (2007)
•Phillippines (2009)
After 2010
•Thailand (2013)
•Pakistan (2015)
•India (2019)
•China (2021)
Note. Author Compilation
The above figure reflects the APAC REITs market was flourishing in the past decades with multiple
countries establishing REITs structures in their investment market. Although the APAC REITs
market recorded unprecedented growth in the past two decades with the contribution of the growth
of leading markets like Japan, Australia, and Hong Kong. The spectacular performance is expected
to continue due to the rapid development of those emerging markets.
Led by Goodman Group in Australia, individual REITs in APAC play a significant role in the global
context. The following table listed the largest APAC REITs ranked by the total asset. It can be seen
that the size of APAC REITs is still crucial at the global level. The top three APAC REITs ranked
#9, #19, and #32 at the global level respectively. This statistic once again verifies the strategic
importance of APAC REITs in the investment aspect.
24
Table 6: Top 10 Leading REITs in APAC by market capitalization at Jan 2023
APAC
REITs
Market
Rank
Global
Rank
1
Goodman Group (ASX: GMG)
Australia
9
2
Link Real Estate Investment Trust (SEHK:823)
Hong
19
Kong
3
Scentre Group (ASX: SCG)
4
CapitaLand
Integrated
Commercial
Trust
Australia
32
Singapore
36
(SGX:C38U)
5
CapitaLand Ascendas REITs (SGX: A17U)
Singapore
38
6
Nippon Building Fund Incorporation (TSE:8951)
Japan
47
7
Mapletree Pan Asia Commercial Trust (SGX:
Singapore
49
N2IU)
8
Vicinity Centres (ASX: VCX)
Australia
54
9
Stockland (ASX: SGP)
Australia
56
10
Mirvac Group (ASX: MGR)
Australia
59
Note. Author compilation from the ranking of S&P Global REITs Index
2.2.1 Japan
2.2.1.1 Background
Based on the revision of the Act on Investment Trusts in 2000, the Japan REITs (JREITs) market was established in 2001 by the Tokyo Stock Exchange (The Association
of Real Estate Securitization, 2012). After the first two J-REITs were listed on the
Tokyo Stock Exchange, the number of J-REITs gradually increase until 2007. Due to
the occurrence of the international financial crisis in 2007 and the Great East Japan
Earthquake in 2011, the J-REITs market shrank in size until the second half of 2012.
After the first J-REITs initial public offering since the international financial crisis in
2012 (made by Kenedix Residential Investment Corporation), the J-REITs market
rebounded from the trough in 2007-2011 and reach a new peak. At the end of 2022,
there were a total of 61 listed J-REITs with a total asset size of 21.239 trillion yen
according to J-REITs.jp (n.d.), which makes Japan as the largest APAC REITs market.
To date, nearly all J-REITs have focused on domestic asset.
Figure 4 below illustrates the change in market capitalization and the number of listed
REITs in Japan market since 2001. From the graph, the strongest growth of the J-REITs
market occurred in the period of 2012 to 2018, which could be attributed to the
recovery after the international financial crisis. In early 2018, the burst of the tech stock
bubbles caused a significant drop in the board market. As a part of the stock market,
25
the J-REITs return was impacted by the burst of market bubbles, and both the return
and market capitalization dipped significantly. While the growth of the J-REITs market
became stagnated since 2020, and this phenomenon could be attributed to the
turbulence caused by the overbreak of the COVID-19 pandemic.
Figure 4: Growth in Market Capitalization of J-REITs Market: From Oct 2001 to Jan
2023
Growth in Market Capitalization of J-REIT Market
¥20,000.00
70
60
50
40
30
20
10
0
¥15,000.00
¥10,000.00
¥5,000.00
¥0.00
Total Market Capitalization (Billion ¥)
Number of REITs
Note. Author’s compilation from S&P Capital IQ database and Japanreit.com
Figure 5 and 6 below shows the property segmentation of J-REITs. From the data, JREITs mainly focused on diversified, office, and logistic REITs. The three types of
REITs possess nearly 70% of the total number and over 75% of the total market
capitalization of the J-REITs market.
Figure 5 & 6: Property segmentation of J-REITs by number and market capitalization
SEGMENTATION BY NUMBER OF REIT
Healthcare
2%
Office
16%
Residential
10%
Diversified
42%
Retail
5%
Hotel
10%
Industrial
15%
26
SEGMENTATION BY MARKET CAP
Healthcare
0%
Office
20%
Diversified
41%
Residential
9%
Retail
5%
Hotel
7%
Industrial
18%
Note. Author’s compilation/analysis from Japanreit.com
Table 7: Profile of Listed J-REITs in Jan 2023
Stock
Name
Code
Market Cap
Sector
(Million) (JPY)
8951
Nippon Building Fund Inc.
962,761
Office
3283
Nippon Prologis REITs, Inc.
804,228
Industrial
8952
Japan Real Estate
775,718
Office
722,369
Diversified
699,608
Diversified
Investment Corporation
3462
Nomura Real Estate Master
Fund, Inc.
8953
Japan Metropolitan Fund
Investment Corporation
3281
GLP J-REITs
679,491
Industrial
8984
Daiwa House REITs
649,832
Diversified
Investment Corporation
8954
ORIX JREITs Inc.
494,040
Diversified
8960
United Urban Investment
464,169
Diversified
452,203
Residential
382,822
Hotel
356,491
Diversified
Corporation
3269
Advance Residence
Investment Corporation
8985
Japan Hotel REITs
Investment Corporation
8955
Japan Prime Realty
Investment Corporation
27
Stock
Name
Code
8963
Market Cap
Sector
(Million) (JPY)
Invincible Investment
341,423
Hotel
Corporation
3279
Activia Properties Inc.
317,713
Diversified
3309
Sekisui House Reit, Inc.
312,838
Diversified
3249
Industrial & Infrastructure
305,120
Diversified
300,946
Commercial
299,390
Office
291,510
Residential
289,941
Office
Fund Investment
Corporation
3292
AEON REITs Investment
Corporation
8976
Daiwa Office Investment
Corporation
3226
Nippon Accommodations
Fund Inc.
3234
Mori Hills REITs
Investment Corporation
8967
Japan Logistics Fund, Inc.
281,134
Industrial
3466
LaSalle LOGIPORT REITs
279,531
Industrial
8964
Frontier Real Estate
272,123
Commercial
265,134
Office
258,912
Industrial
246,437
Residential
Investment Corporation
8972
Kenedix Office Investment
Corporation
3471
Mitsui Fudosan Logistics
Park Inc.
8986
Daiwa Securities Living
Investments, Inc
3295
Hulic Reit, Inc.
222,336
Diversified
3278
Kenedix Residential Next
212,374
Diversified
210,785
Residential
203,156
Industrial
Investment Corporation
3282
Comforia Residential
REITs, Inc
Mitsubishi Estate Logistics
3481
REITs Investment
Corporation
28
Stock
Name
Code
8957
8961
3287
8956
8966
8987
3296
3453
8968
8975
8958
3468
Market Cap
Sector
(Million) (JPY)
TOKYU REITs, Inc.
MORI TRUST Sogo Reit,
Inc.
Hoshino Resorts REITs, Inc.
NTT UD REITs Investment
Corporation
HEIWA REAL ESTATE
REITs, Inc.
Japan Excellent, Inc.
NIPPON REITs Investment
Corporation
Kenedix Retail REITs
Corporation
Fukuoka REITs Corporation
Ichigo Office REITs
Investment Corporation
Global One Real Estate
Investment Corporation
Star Asia Investment
Corporation
195,422
Diversified
192,984
Diversified
191,669
Hotel
189,781
Diversified
170,178
Diversified
168,537
Office
149,827
Diversified
148,437
Commercial
132,136
Diversified
128,485
Office
110,158
Office
104,732
Diversified
3487
CRE Logistics REITs, Inc.
101,759
Industrial
8977
Hankyu Hanshin REITs, Inc
100,665
Diversified
95,521
Industrial
94,011
Industrial
93,266
Residential
78,298
Diversified
67,750
Hotel
66,151
Office
63,783
Residential
62,774
Diversified
2979
3493
3459
3476
3478
3290
8979
3492
SOSiLA Logistics REITs,
Inc.
ITOCHU Advance Logistics
Investment Corporation
Samty Residential
Investment Corporation
MIRAI Corporation
MORI TRUST Hotel Reit,
Inc.
One REITs, Inc.
Starts Proceed Investment
Corporation
Takara Leben Real Estate
Investment Corporation
29
Stock
Name
Code
3455
3451
2971
2972
3470
3488
3463
Market Cap
Sector
(Million) (JPY)
Healthcare & Medical
Investment Corporation
Tosei REITs Investment
Corporation
ESCON JAPAN REITs
Investment Corporation
Sankei Real Estate Inc.
Marimo Regional
Revitalization REITs, Inc.
XYMAX REITs Investment
Corporation
Ichigo Hotel REITs
Investment Corporation
Total Market Capitalization (Million)
(JPY) / Million (USD)
60,144
Healthcare
47,249
Diversified
42,799
Diversified
41,759
Office
29,597
Diversified
29,284
Diversified
29,169
Hotel
15,376,644
118,400
Total number of J-REITs
61
Note. Author’s compilation/analysis from Japanreit.com
30
2.2.1.2 Regulatory Framework
The term J-REITs means a Japanese REITs that was successfully listed on the Japanese
(Tokyo) Stock Exchange (PwC, 2019). The following table listed the major
requirements in a different aspect to be qualify as a J-REITs.
Table 8: Major requirement for J-REITs in different aspect
Aspect
Description
Capital
-
Minimum share capital JPY100 million
Listing
-
Listed on the Tokyo Stock Exchange (TSE) and subject to TSE
Listing Standard
Minimum
-
Number of
The leading investor should hold no less than 75% of the total
number of shares
Investor
-
At least 1,000 investors other than the lead investor
Asset
-
More than 70% of real estate asset in the fund’s managed assets
-
At least JPY 1 billion of net assets
-
At least JPY 5 billion of total assets
-
Cannot engage in business other than asset management
-
Required to outsource the asset management function to an
Activities
asset management cooperation
Distribution
-
The payout dividends should exceed 90% of its distribution
profit
Note. Author’s compilation/analysis from Japanreit.com
Despite the fact that the Investment Trust Law authorizes both investment trusts and
investment cooperation as forms of investment vehicles, to date all of the listed JREITs have been created as investment corporations. The figure below illustrates the
organization structure of a J-REITs.
31
Figure 7: Structure of J-REITs
Note. From “Japan Real Estate Investment Trusts Outlook & Opportunity”, by
H.Nakano, T.Negishi & T.Omoto, n.d., Asia Law & Practice.
Although the REITs legally own the underlying assets, the REITs only act as conduit
vehicles. The REITs is not allowed to employ any personnel and the responsibility of
asset management must be entrusted to an approved asset management company. The
external management structure of J-REITs is an important feature that distinguishes
them from the US REITs.
2.2.1.3 Taxation Treatment on REIT’s Level
The Special Taxation Measures Law of Japan enables J-REITs to exempt its corporate
taxation at the investment corporation level (Nakano et al., n.d.) In other words, JREITs is allowed to distribute its profits to its shareholders without paying corporate
tax as the income profits are treated as income from a property rental business.
Therefore, J-REITs is said to be a tax-efficient investment vehicles.
32
2.2.2 Australia
2.2.2.1 Background
As one of the most complicated and transparent markets in the world, Australia is one
of the most popular real estate markets that investors invested in. The JLL global real
estate transparency index, which accesses the real estate market in different aspects
(i.e. Investment performance, Market Fundamental, Regulatory & Legal aspects),
ranked Australia as 4th place globally (1st place in APAC) in 2022, which reflected the
strong performance and popularity of the Australia market. According to the website
of the Australian Securities Exchange (n.d.), the first Australia REITs was launched in
1971, which made Australia the first APAC country to establish the REITs market.
Australian REITs (A-REITs) are traded at the Australian Securities Exchange (ASX).
Since the first establishment of the first REITs – General Property Trusts in 1971, the
A-REITs market developed at a tremendous pace. In the 1990s, the growth of A-REITs
reached its prime, and the market exploded from a capitalization of A$7 billion in mid1990 to A$43 billion in 2002, which was a 25% CAGR. Although the growth pace
decelerate in recent years, the ASX still lists a total of 48 A-REITs in Jan 2023 with a
total market capitalization of $AU 147 billion, which is the second largest market in
APAC. Apart from providing exposure to different types of property assets including
residential, office, and industrial buildings, the A-REITs market also features one
unique structure – Stapled Securities. Some A-REITs are classified as Stapled
Securities, which expose investors to both a real estate portfolio and a real estate
development company or a funds management company at the same time.
From figure 8 below, the A-REITs market has grown in popularity since its inception,
especially from 1995 to 2006, due to its strong performance in comparison with other
countries' equity. The total number of A-REITs grew from 17 in 1988 to 71 in 2006,
which indirectly reflected the high demand for A-REITs (Wong & Reddy, 2018).
However, the global financial crisis in 2009 brought a devastating impact on the AREITs markets, which caused a substantial drop in both market capitalization and share
price of A-REITs. The recovery of the A-REITs market came along with the lowinterest rate environment in 2010-2018, with average return of 21% in the period
(Wong & Reddy, 2018). The promising return level did not continue in the 2020s, with
the impact of the COVID-19 pandemic and the increasing interest rate, the A-REITs
was subjected to turbulence in recent years, with both the market capitalization and the
share price did not substantially improve from 2018’s level.
33
Figure 8: Growth in Market Capitalization of A-REITs Market: From Jul 1990 to Jan
2023
Growth in Market Capitalization & Index Value of A-REIT Market
2000
180000.00
1800
160000.00
1600
140000.00
1400
Index Value
200000.00
120000.00
1200
100000.00
1000
80000.00
800
60000.00
600
40000.00
400
20000.00
200
Total Market Cap (Million AU $)
7/31/2022
7/31/2020
7/31/2018
7/31/2016
7/31/2014
7/31/2012
7/31/2010
7/31/2008
7/31/2006
7/31/2004
7/31/2002
7/31/2000
7/31/1998
7/31/1996
7/31/1994
7/31/1992
0
7/31/1990
0.00
A-REIT S&P Index
Note. Author compilation from S&P Capital IQ
Different from the J-REITs market which predominately focused on diversified REITs,
the A-REITs market also contains a large scale of Retail and Industrial REITs, with a
27% and 30% of the total market capitalization of A-REITs market respectively. The
following figures show the distribution of different REITs in the Australia Market.
34
Figure 9 & 10: Property segmentation of A-REITs by number and market capitalization
SEGMENTATION BY NUMBER OF
REIT
Retail
24%
Agricultural Management
2%
5%
Diversified
29%
Residential
7%
Healthcare
Office
Hotel
4%
16% Infrastructure Industrial
2%
2%
9%
SEGMENTATION BY MARKET CAP
Agricultural, Management,
1%
0%
Retail, 27%
Diversified,
30%
Residential,
1%
Healthcare,
1%
Office, 9%
Hotel , 0%
Infrastructure,
1%
Industrial ,
30%
Note. Author compilation from S&P Capital IQ
35
Table 9: Profile of Listed A-REITs in Jan 2023
Stock
Name
Code
Market
Sector
Cap
(Million)
(AUD)
GMG
Goodman Group
37,727
Industrial
SCG
Vicinity Centres
16,071
Retail
VCX
Vicinity Centres
9,514
Retail
SGP
Stockland
9,389
Diversified
MGR
Mirvac Group
9,076
Diversified
GPT
The GPT Group
8,812
Diversified
DXS
DEXUS
8,766
Office
CHC
Charter Hall Group
6,527
Diversified
CLW
Charter Hall Long Wale REITs
3,289
Diversified
RGN
Region RE Limited
3,069
Retail
HDN
HomeCo Daily Needs REITs
2,775
Retail
NSR
National Storage REITs
2,772
Industrial
BWP
BWP Trust
2,518
Retail
GOZ
Growthpoint Properties Australia
2,505
Diversified
ABP
Abacus Property Group
2,484
Diversified
CQR
Charter Hall Retail REITs
2,325
Retail
CIP
Centuria Industrial REITs
2,114
Industrial
CMW
Cromwell Property Group
1,899
Office
INA
Ingenia Communities Group
1,899
Residential
WPR
Waypoint REITs
1,874
Retail
HMC
HMC Capital Limited
1,432
Diversified
ARF
Arena REITs
1,311
Healthcare
CQE
Charter Hall Social Infrastructure
1,273
Infrastructur
REITs
e
DXI
Dexus Industria REITs
990
Industrial
COF
Centuria Office REITs
950
Office
RFF
Rural Fund Group
944
Agricultural
HPI
Hotel Property Investments
695
Hotel
HCW
Healthco Healthcare and Wellness
537
Healthcare
REITs
GDI
GDI Property Group
436
Office
DXC
Dexus Convenience Retail REITs
390
Retail
36
Stock
Name
Code
Market Cap
Sector
(Million) (AUD)
APZ
Aspen Group
336
Diversified
CDP
Carindale Property
331
Retail
ECF
Elanor Commercial Property
298
Office
Fund
GDF
Garda Property Group
290
Diverisifed
AOF
Australian Unity Office Fund
281
Office
NPR
Newmark Property REITs
268
Retail
WOT
Wotso Property
221
Diversified
URF
US Masters Residential
204
Residential
201
Asset
Property Fund
TGP
360 Capital Group Limited
Management
TOT
360 Capital Total Return Fund
119
Diverisifed
USQ
US Student Housing REITs
61
Residential
APW
AIMS Property Securities
56
Diversified
43
Real Estate
Fund
BWF
BlackWall Limited
Operating and
Management
URW
Unibail-Rodamco-Westfield
Total Market Capitalization (Million)
(AUD) / Million (USD)
Total number of A-REITs
-
Retail
147,371
104,633
44
Note. Author’s compilation/analysis from S&P Capital IQ & ASX.com
37
2.2.2.2 Regulatory Framework
Compare with lengthy rules to be listed as a REITs in Japan, Australia Market is more
flexible in terms of being qualified as a REITs. The legal form of A-REITs, they are
typically established as a trust, and the general law of trust in Australia provides the
legal principle that governs the association between investors and trustees (Ashurst,
2015). On top of the general law, another regulation that oversees the REITs
establishment is the Corporations Act 2002 (Cth). For the REITs registered under the
regulation, they are named as managed investment schemes (MIS). The MIS should
comply with the requirements of maintaining the majority of external directors,
financial reporting, and disclosure requirements under the Corporations Act (Ashurst,
2015). Additionally, listed A-REITs should also act in accordance with the listing rule
set by the ASX. Apart from the general government principles, A-REITs also
commonly contain the following features:
1.
The presence of an external management structure (The real estate asset in held
in a trust while the business is managed by separate manager)
2.
The structure of staples security
Table 10: Major requirement for J-REITs in different aspect
Aspect
Description
Capital
-
Nil
Listing
-
Listed on the Australia Stock Exchange (ASX) and subject to
ASX Listing Requirement
Investor
-
Restriction
Activities
Foreign individual must not hold greater than 10% of interest
in the REITs
-
Public unit trusts investing in land must do so for the purpose,
or primarily for the purpose, of deriving rental income
(‘eligible investment business’).
Distribution
-
May invest in a single property
-
Undistributed income of the REITs may be taxed at the Highest
Marginal Tax Rate (49%) in Australia
Note. Author’s compilation from PWC, Worldwide Real Estate Investment Trust
Regime (2019)
38
Figure 11: The structure of staple security in A-REITs market
Note. How a REITs stapled security works. From Cromwell Property Group (2016).
https://www.cromwellpropertygroup.pl/_common/news/cfm/insights/news/a-quickguide-to-REITs
2.2.2.3 Taxation Treatment on REIT’s Level
As REITs's legal form is a trust. Under the Australian general tax treatment for trust,
the trustee is exempt from taxation on the property trust's taxable income, including
capital gains, as long as the unit holders are currently entitled to the trust income
(calculated per the trust deed) at year's end (European Public Real Estate Association,
2016). Since the unit holders are the ones who must pay taxes based on their
circumstances, income received by the property trust will typically remain its character
in their hands. If there is undistributed income of the REITs, it may be taxed at the
Highest Marginal Tax Rate (49%).
39
2.2.3 Singapore
2.2.3.1 Background
As the third largest REITs market in APAC, Singapore REITs (S-REITs) is increasingly
getting more attention from investors. Since the listing of the first S-REITs Capitaland
Mall Trust in 2002, the S-REITs market had grown at an astronomical speed, with a
total of 42 REITs with a total market capitalization of S$100 billion at the end of 2022.
Since the end of the international financial crisis in 2008, the S-REITs market
capitalization had grown at a CAGR of 22% till 2018, which exemplified the strong
momentum of the market (KPMG, 2019). The strong growth of the sector can be
attributed to the government’s ambition in developing Singapore as the leading
financial sector in APAC. The S-REITs market has the following distinct features that
distinguish itself from the A-REITs and J-REITs markets introduced in the previous
section. Firstly, S-REITs plays an important role in the Country’s Stock Market.
According to the REITs Association of Singapore (REITsAS) (2023), the S-REITs
sector occupied 12% of the Singapore stock market capitalization, and the figure is
double of Australia's (6%) and sixth fold of Japan’s figure (2%). This statistic reflects
that S-REITs is a vital component of the stock market. Another feature of the S-REITs
market is the possession of overseas properties. Unlike the J-REITs and A-REITs
market which own properties inside Japan and Australia, over 90% of S-REITs own
properties outside Singapore, and there are 18 S-REITs constituted with only overseas
property. The provision of geographic diversification makes the S-REITs market
become more attractive to investors.
Figure 12 & 13: Exposure of property of S-REITs
Note. From Overview of the S-REITs
Industry, by REITsAS, 2023,
https://www.reitas.sg/singapore-REITs /overview-of-the-s-reit-industry/.
40
In terms of growth in market size, the S-REITs market has experienced exceptional
growth since its inception. By comparing its CAGR of market capitalization since
2002, it recorded a 27.4% CAGR which is significantly higher than other countries.
However, the growth rate of the S-REITs market has declined in recent years, with just
a 9.0% CAGR in recent 10 years. The following table shows the comparison of market
capitalization CAGR with other developed countries.
Table 11: CAGR of market capitalization of mature APAC REITs market
REITs Market
CAGR (01/2013 – 01/2023)
CAGR (Since Market Inception)
Japan
12.9%
27.6%
Australia
13.6%
15.3%
Singapore
9.0%
27.4%
Hong Kong
1.7%
13.1%
Note. Author compilation from S&P Capital IQ
Figure 14: Growth in Market Capitalization of S-REITs Market: From Jun 2002 to Jan
2023
Growth in Market Capitalization & Index Value of SREIT Market
120.00
900.00
800.00
100.00
600.00
500.00
60.00
400.00
40.00
300.00
Index Value
700.00
80.00
200.00
20.00
100.00
0.00
0.00
Total Market Capitalization (Billion) (SGD)
S&P S-REIT Index
Note. Author compilation from S&P Capital IQ
41
For the segmentation of property, the S-REITs market did not particularly focus on one
specific property type. In terms of the number of REITs, the Diversified (8), Hotel (5),
Industrial (8), Office (6), and Retail (8) segments have similar numbers of REITs listed
on the Singapore Exchange. Investors invested in the S-REITs market has a sufficient
number of property choice to be invested into, and the S-REITs market is said to be a
diversified REITs market as it provides abundant options for both property and country
diversification.
Figure 15 & 16: Property segmentation of S-REITs by number and market
capitalization
SEGMENTATION BY NUMBER OF
REIT
Data Centre
5%
Diversified
20%
Retail
21%
Office
15%
Healthcare
5%
Hotel
13%
Industrial
21%
SEGMENTATION BY MARKET CAP
Data Centre
4%
Retail
Office 9%
7%
Diversified
38%
Industrial
31%
Hotel
8%
Healthcare
3%
Note. Author compilation from S&P Capital IQ
42
Table 12: Profile of Listed S-REITs in Jan 2023
Stock Code
Name
Market Cap
Sector
(Million) (AUD)
C38U
CapitaLand Integrated
14,000
Commercial Trust
Diversified
REITs
A17U
CapitaLand Ascendas REITs
12,612
Industrial
N2IU
Mapletree Pan Asia
9,582
Diversified
Commercial Trust
REITs
M44U
Mapletree Logistics Trust
8,465
Industrial
ME8U
Mapletree Industrial Trust
6,564
Industrial
BUOU
Frasers Logistics &
5,048
Diversified
Commercial Trust
T82U
suntec REITs
REITs
4,157
Diversified
REITs
HMN
CapitaLand Ascott Trust
3,889
Hospitality
J69U
Frasers Centrepoint Trust
3,868
Retail
AJBU
Keppel DC REITs
3,661
Data Centre
K71U
Keppel REITs
3,649
Office
SK6U
SPH REITs
2,769
Retail
J91U
ESR-REITs
2,548
Industrial
C2PU
Parkway Life REITs
2,505
Healthcare
AU8U
CapitaLand China Trust
2,092
Diversified
REITs
TS0U
OUE Commercial REITs
1,967
Diversified
REITs
J85
CDL Hospitality Trust
1,719
Hospitality
JYEU
Lendlease Global Commercial
1,692
Diversified
REITs
CWBU
Cromwell European REITs
REITs
1,370
Diversified
REITs
Q5T
Far East Hospitality Trust
1,341
Hospitality
P40U
Starhill Global REITs
1,293
Retail
CRPU
Sasseur REITs
1,040
Retail
DCRU
Digital Core REITs
1,009
Data Centre
O5RU
AIMS APAC REITs
994
Industrial
ACV
Frasers Hospitality Trust
963
Hospitality
OXMU
Prime US REITs
836
Office
43
Stock Code
Name
Market Cap
Sector
(Million) (SGD)
CMOU
Keppel pacific oak US REITs
793
Office
BTOU
Manulife US REITs
762
Office
UD1U
IREITs Global
647
Office
AW9U
First REITs
576
Healthcare
M1GU
Sabana Industrial REITs
482
Industrial
DHLU
Daiwa House Logistics Trust
440
Industrial
MXNU
Elite Commercial REITs
403
Office
ODBU
United Hampshire US REITs
396
Retail
BWCU
EC world REITs
373
Industrial
XZL
ARA US Hospitality Trust
292
Hospitality
D5IU
Lippo Mall Indonesia Retail
277
Retail
Trust
BMGU
BHG Retail REITs
254
Retail
CEDU
Dasin Retail Trust
166
Retail
105,496
80,176
Total Market Capitalization (Million)
(SGD) / Million (USD)
Total number of S-REITs
39
Note. Author compilation from S&P Capital IQ & mystocksinvesting.com
44
2.2.3.2 Regulatory Framework
As the third largest REITs market in APAC, the S-REITs market is equipped with a
mature and transparent regulatory framework to attract REITs to list on its stock
exchange market. S-REITs were conventionally structured as a unit trust, which
invested in a variety of assets, and the beneficial interests are vested in the holders in
the unit trust. The following figure lay out the relationship between different
stakeholders under the unit trust structure.
Figure 17. Typical form of S-REITs structure
Note.
From
S-REITs
STRUCTURE,
by
REITsAS,
2023,
https://www.reitas.sg/singapore-REITs /s-reit-structure/.
Apart from the application of unit trust structure, another structure – Variable Capital
Company (VCC) is also applicable to structure REITs. Launched in January 2020,
VCC is an entity that used to contain multiple collective investment schemes including
real-estate and real estate-related assets (ZICO Law, 2022). VCC is most commonly
set up as an umbrella VCC with multiple sub-funds, each with its own distinct and
separated investment objectives, obligation, and assets. Although the VCC structure
enjoys similar tax treatment compare with the unit trust structure, there are no REITs
listed in Singapore Exchange that implement the VCC structure. The disfavor of the
VCC structure might be a result of the statutory presence of a licensed manager in the
VCC system.
The S-REITs also subjected to other additional requirements in order to be listed. The
following table list the major types of requirements in S-REITs regime.
45
Table 13: Major requirement for S-REITs in different aspect
Aspect
Description
Capital
-
Minimum market capitalization of SGD 300 million
Listing
-
Can be both Listed and Unlisted
-
Need to be Listed to qualify for tax concession
-
A minimum of 500 public shareholders must possess at
Minimum
Number
of
least 25% of the share capital or units.
Investor
Asset
S-REITs are only allowed to invest in the following asset types
-
Real estate in or outside Singapore
-
Real estate-related assets
-
Debt securities and listed shares of non-property
corporations
Activities
-
Securities issued by a government
-
At least 75% of the property should be invested in
income-producing real estate
-
Should not engage in property development activities or
invest in unlisted property development companies
Distribution
-
Should not invest in vacant land or mortgage
-
Nil
Note. Author’s compilation/analysis from PWC, Worldwide Real Estate Investment
Trust Regime (2019)
2.2.3.3 Taxation Treatment on REIT’s Level
With the approval from the Inland Revenue Authority of Singapore (IRAS), S-REITs
can enjoy ‘special’ tax treatment for their taxable income distributed to its shareholder.
The distributed income will not be taxed on the cooperate level under the treatment
and tax will only be collected at the shareholder level (Pwc, 2019). However, A SREITs will need to distribute at least 90% of its 'Taxable Income' in a fiscal year in
order to permit tax transparency treatment. Additionally, a further 10% withholding tax
on distribution is applicable to the distribution to the non-resident. Withholding tax
refers to the distribution withheld by the distributor (the REITs) from the payee
(unitholder of REITs) and pay directly to the Authorities.
46
2.2.4 Hong Kong
2.2.4.1 Background
Established by the introduction of the Code of Real Estate Investment Trust in August
2003, The Hong Kong REITs (H-REITs) Market is the fourth largest market in the
APAC market. Since the introduction of the first REITs – Link REITs in 2005 on the
Hong Kong Stock Exchange (SEHK), the H-REITs regime developed and scale up to
today’s size, with a total of 11 REITs listed on SEHK. According to the MSCI real
estate market size report (2022), Hong Kong was the 9th largest real estate market in
the world, just lagging behind Japan and Australia in APAC. Given the enormous
property market size and the size of SEHK (as the world leading IPO venue), the HREITs market is not particularly active compare with other countries. Apart from the
stagnant listing activities in the market, the market is also not active in expanding its
property portfolio, which causes H-REITs primarily to focus on Hong Kong and
China’s Commercial Property (HK Financial Services Development Council, 2013).
Therefore, the H-REITs market is comparably less diversified than other major markets
in Asia. Another statistic also reflects the lack of activities in the H-REITs market. In
2022, the H-REITs only occupied 0.6% of the total market capitalization of the total
local stock market, compared with over 2% in Japan and nearly 13% in Singapore in
December 2022. Even though the H-REITs market is said to be matured and developed,
it still has lots of untapped potential in the market. To encourage the development of
the REITs market in Hong Kong, the Securities and Futures Commission (SFC)
introduced changes to the Code of Real Estate Investment Trust which regulated the
launch of REITs. The modification reduces the constraint on the investment activities
and borrowing limits of the listed REITs on SEHK, which provide more flexibility for
the operation of H-REITs (SEC, 2021). Furthermore, the HKSAR government initiated
the Grant Scheme for H-REITs in the 2021-2022 fiscal year. The Grant Scheme
provided financial subsidies to listed SFC-authorized REITs (Winston & Strawn LLP,
2021). The policy once again highlights the determination of HK Authorities to
develop the REITs market in the following decade and enlighten the future
development of the H-REITs market.
The figure below shows the growth in market capitalization of the existing H-REITs
in the market. According to table 11 in the previous section, the H-REITs experienced
sluggish growth in the previous decade, with a 1.7% CAGR in the period. The growth
of the market is expected to enhance due to the proactive stance taken by the
government on the development of the H-REITs market in recent years.
47
Figure 18: Growth in Market Capitalization of H-REITs Market: From Nov 2005 to
Jan 2023
Growth in Market Capitalization of H-REIT
Market
350.00
HKD (Billion)
300.00
250.00
200.00
150.00
100.00
50.00
11/30/2022
11/30/2021
11/30/2020
11/30/2019
11/30/2018
11/30/2017
11/30/2016
11/30/2015
11/30/2014
11/30/2013
11/30/2012
11/30/2011
11/30/2010
11/30/2009
11/30/2008
11/30/2007
11/30/2006
11/30/2005
-
Note. Author compilation from S&P Capital IQ
Among 11 H-REITs listed on SEHK, 6 (55%) of them is diversified REITs. In terms
of assets held by H-REITs, they primarily own commercial assets like street shops,
shopping malls, and office properties. Table 14 shows the asset types that each HREITs owned as of Jan 2023. According to the table, around 40% of properties owned
by H-REITs were retail types, while another 12% were office properties. With over
50% of the H-REITs portfolio holding commercial property, the H-REITs market is
said to be less diversified than other markets with a similar scale. Besides, H-REITs
rarely invested in the new economy assets like data center and logistic property as other
matured REITs market does [with only SF REITs (SEHK: 2191) invested in logistic
properties], which further narrow the potential of diversification of H-REITs.
48
Table 14: Property Profile of H-REITs
Stock Code in SEHK
Property Type
823
Multiuse
5
Office
9
Retail
104
Parking
29
Industrial
7
778
405
9
16
2
4
1503
808
2191
1
3
2
11
4
3
1
1
5
1
1
1
2
Residential
1
16
17
87001
1881
1426
1
1
1
154
435
1
Hotel
Total No.
2778
4
4
2
9
84
3
16
6
7
4
11
9
86
Note. Author compilation from S&P Capital IQ
Table 15: Profile of Listed H-REITs in Jan 2023
Stock Code
Name
Market Cap
Sector
(Million) (HKD)
823
LINK REITs
137.58
Retail
2778
CHAMPION REITs
21.86
Office
778
FORTUNE REITs
13.46
Retail
405
YUEXIU REITs
12.67
Diversified
87001
HUI XIAN REITs
8.85
Diversified
435
SUNLIGHT REITs
5.97
Diversified
1881
REGAL REITs
4.46
Hotel
1426
SPRING REITs
3.74
Diversified
808
PROSPERITY REITs
3.51
Diversified
2191
SF REITs
2.50
Industrial
1503
CMC REITs
2.43
Diversified
217,030
28,214
Total Market Capitalization (Million)
(HKD) / Million (USD)
Total number of H-REITs
11
Note. Author compilation from S&P Capital IQ
49
2.2.4.2 Regulatory Framework
The keys feature of H-REITs listed on SEHK includes the requirement of an SFCLicensed manager on REITs’s management, 90% of after-tax net income distribution
requirement, and the usage of trust as the legal form (SFC, 2021). The major
characteristics and regulations are similar to the major developed oversea markets
aboard. By the form of trust, H-REITs may hold property directly, indirectly, or via
special purpose vehicles that are legally and beneficially owned by the REITs.
Although some developed countries like Japan and Australia have no specific gearing
(Leverage) limit, H-REITs is featured with a gearing ratio limit of not more than 50%.
Table 16 below lists the general requirement to be qualified as an H-REITs.
Table 16: Major requirement for H-REITs in different aspect
Aspect
Description
Capital
-
Nil
Listing
-
Listed on SEHK
-
Subjected to the listing rule of SEHK
-
Nil
-
Invest primarily in real estate asset in Hong Kong or
Minimum Number of
Investor
Asset & Activities
overseas
-
Invest in minority-owned properties
-
Invest in property development projects up to 25% if
approved by Unitholders
-
Should hold a real estate asset longer than 2 years
-
Should invest at least 70% of non-cash asset into
specific field if the REITs indicates a particular type
of real estate in its name
Distribution
-
Equal or greater than 90% of after-tax net income
Note. Author’s compilation/analysis from PWC, Worldwide Real Estate Investment
Trust Regime (2019). SFC, An Update on the Regulatory Landscape (2022).
50
2.2.4.3 Taxation Treatment on REIT’s Level
The Inland Revenue Ordinance of Hong Kong exempts an authorized REITs from
Hong Kong's profits tax (Pwc, 2019). However, the stamp duty charge on the transfer
of real estate within Hong Kong cannot be exempted from H-REITs. Based on the
types of properties owned by the REITs, it will be subjected to a different level of
stamp duties as summarized in the table below.
Table 17: Level of property tax in Hong Kong real estate market
Type of Transaction
Stamp Duty Rate
Non-Residential Property
Up to 8.5% on Transaction Price
Residential Property
Up to 15.0% on Transaction Price
Lease of Real Estate
0.25 to 1% of the Average Yearly Rent
Shares of Company
0.2% of the Transfer Consideration
Note. Author’s compilation/analysis from GovHK, Stamp Duty Rate (n.d.)
As stamp duty is only available on Hong Kong real estate transactions, the capital gain
and income generated from overseas properties are exempted from both profit tax and
property tax.
It should also be noted that the distribution of dividends from a REITs received by an
investor is tax-free in Hong Kong, unlike the practices in Australia and Japan.
51
2.2.5 Malaysia
2.2.5.1 Background
Prior to the introduction of the first REITs in the Malaysian market, property
investment can be made in the form of listed property trusts (LPTs) in Malaysia
(Newell et al., 2002). The structure of LPTs made Malaysia become the first market in
APAC which introduces the concept of real estate trust to the local stock exchange
other than Australia. However, the ambition of developing the Malaysian property
market through the LPTs program fails due to some local structural and regulatory
factors. After the failure of LPTs structure and the witnesses of the development of
REITs structure in other APAC markets in the early 2000s, a REITs regulatory
framework and guideline was introduced by the Securities Commission of Malaysia
(SC) in 2005 (Wong, 2016). In the same year, the first Malaysia REITs (M-REITs) –
the Axis REITs was listed on the Bursa Malaysia Stock Exchange. Since then, the MREITs market has experienced resounding growth in the following decade, with its
market capitalization growth from RM1.8 billion in 2005 to RM33.2 billion in 2013,
which translated into a 44.0% CAGR. Although M-REITs is relatively insignificant in
terms of its percentage of REITs market capitalization to the overall stock market
capitalization, with only 2% of the stock market cap. Many renowned properties like
PETRONAS Twin Towers, Pavilion Kuala Lumpur, and The Ritz-Carlton Kuala
Lumpur are held under the M-REITs asset portfolio, which indirectly reflected high
confidence in the REITs structure in Malaysia (Wong, 2016). Apart from its
significance in the property market, M-REITs is also characterized by a high dividend
yield. In table 18 below, the average dividend yield of M-REITs is higher than most of
the developed REIT’s markets.
Table 18: Dividend Yield level of major REITs market in APAC
REITs market
Average (%)
Highest (%)
Lowest (%)
Malaysia
6.42
12.17
0.00
Hong Kong
7.32
13.00
2.16
Singapore
6.05
12.33
1.95
Australia
5.91
10.88
0.00
Japan
4.23
7.81
0.52
Note. Author’s compilation from S&P Capital IQ
The higher dividend yield of the M-REITs market can be attributed to the taxation
framework and the lower valuation (in terms of the price-to-earnings ratio) of the
market. For instance, the average P/E ratio of the Malaysia REITs market is 16x while
Japan REITs is 25x in January 2021, which reflects the difference in valuation.
52
Another feature of the M-REITs market is the presence of Islamic REITs (i-REITs). IREITs refers to REITs that conduct activities that conform to Syariah or Islamic
principles. For example, activities related to gambling, entertainment, and hotel are not
permissible under the Syariah Principle. In 2005, the SC of Malaysia issues a guideline
for i-REITs, which makes Malaysia become the first jurisdiction to establish each type
of REITs. According to Bursa Malaysia, there are a total of 4 i-REITs listed on the
exchange as of January 2023, which are:
-
Al- ‘Aqar Healthcare REITs
-
Axis REITs
-
KLCC REITs
-
Al-Salam REITs
The following figure depicted the growing trend of M-REITs market capitalization
since its inception. Although the market experienced astonishing growth from 20052013, the market growth slumped in the following period, with a 3.1% of CAGR in the
last 10 years. There are different reasons to explain the phenomenon of slow growth,
including the lack of attractiveness of M-REITs compared with other investment
alternatives, the reaching maturity of the M-REITs market, and scale and management
inefficiencies (Chuweni, et al., 2021). Even though the M-REITs market had gone
through a lackluster decade, the market is still expected to grow steadily. The growth
of the market might be driven by the strong economic growth of Malaysia and the
development of the property market.
Figure 19: Growth in Market Capitalization of M-REITs Market: From Aug 2005 to
Jan 2023
8/30/2022
8/30/2021
8/30/2020
8/30/2019
8/30/2018
8/30/2017
8/30/2016
8/30/2015
8/30/2014
8/30/2013
8/30/2012
8/30/2011
8/30/2010
8/30/2009
8/30/2008
8/30/2007
8/30/2006
RM50.00
RM45.00
RM40.00
RM35.00
RM30.00
RM25.00
RM20.00
RM15.00
RM10.00
RM5.00
RM-
8/30/2005
RM (BIllion)
Growth in Market Capitalization of M-REIT Market
Note. Author’s compilation from S&P Capital IQ
53
For the property segmentation of M-REITs, the majority of property value is focused
on retail property. The ensuing figures visualized the segmentation in the M-REITs
market.
Figure 20 & 21: Property segmentation of M-REITs by number and market
capitalization
SEGMENTATION BY NUMBER OF REIT
Diversified
26%
Retail
32%
Healthcare
5%
Hotel
5%
Office
21%
Industrial
11%
SEGMENTATION BY MARKET CAP
Diversified
43%
Retail
43%
Office
5%
Industrial
2%
Hotel
4%
Healthcare
3%
Note. Author’s compilation from S&P Capital IQ
54
Table 19: Profile of Listed M-REITs in Jan 2023
Stock
Name
Code
Market Cap
Sector
(Million) (RM)
KLCC
KLCC Property Holdings Berhad
12,655
Diversified
IGBREITs
IGB Real Estate Investment Trust
6,247
Retail
SUNREITs
Sunway Real Estate Investment
5,377
Retail
4,129
Retail
Trust
PAVREITs
Pavilion Real Estate Investment
Trust
AXREITs
Axis Real Estate Investment Trust
3,221
Diversified
YTLREITs
YTL Hospitality Reit
1,696
Hotel
IGBCR
IGB Commercial Real Estate
1,264
Retail
Investment Trust
CLMT
Capitaland Malaysia Trust
1,225
Diversified
ALAQAR
Al-`Aqar Healthcare Reit
976
Healthcare
SENTRAL
Sentral Reit
943
Office
UOAREITs
UOA Real Estate Investment
770
Office
619
Industrial
Trust
AMEREIT
AME Real Estate Investment
s
Trust
KIPREITs
KIP Real Estate Investment Trust
521
Retail
ATRIUM
Atrium Real Estate Investment
353
Industrial
344
Diversified
335
Retail
240
Office
220
Diversified
128
Office
41,264
9,491
Trust
ARREITs
Amanahraya Real Estate
Investment Trust
HEKTAR
Hektar Real Estate Investment
Trust
AMFIRST
Amfirst Real Estate Investment
Trust
ALSREITs
Al-Salam Real Estate Investment
Trust
TWRREIT
Tower Real Estate Investment
s
Trust
Total Market Capitalization (Million) (RM) /
Million (USD)
Total number of M-REITs
19
Note. Author’s compilation from S&P Capital IQ
55
2.2.5.2 Regulatory Framework
The M-REITs is administered by the Guidelines on Listed Real Estate Investment Trust
revised in 2019. According to Bursa Malaysia (n.d.), M-REITs exist in the form of unit
trust in the Malaysia Market which is similar to the Singapore and Hong Kong REITs
markets. By the form of a unit trust structure, Malaysian REITs are managed by SCapproved management companies, while properties are held by the appointed
trustee(s). The following table listed the key regulatory requirements for M-REITs, it
should be noted that both REITs and i-REITs receive similar regulatory treatment with
the exception that i-REITs must abide by the Syariah principles.
Table 20: Major requirement for M-REITs in different aspect
Aspect
Description
Capital
-
Minimum capital value of MYR 100 million
-
SC reserved the right to review the reasonableness of
the REITs capital size
Listing
-
Can be either listed or unlisted
-
Only REITs registered with the SC can be listed on
Bursa Malaysia
Minimum Number
-
Nil
-
Should have a minimum of 75% total asset value in
of Investor
Asset & Activities
real estate related asset
-
Non-real estate linked assets and/or cash, deposits, and
money market instruments must not account for more
than 25% of the REITs's total asset value.
-
Not permitted to conduct the following activities
-
Extending loans, financing facilities, or any
other credit facility to anyone; and
-
Acquiring unoccupied land, except for property
development purposes.
Insurance
-
All REITs-acquired real estate must be insured for full
replacement value, including rental loss, with
insurance firms approved by the trustee arranged by
the management company
Distribution
-
Nil
Note. Author’s compilation/analysis from Securities Commission Malaysia,
Guidelines on Listed Real Estate Investment Trusts (2019).
56
M-REITs is also required to observe the borrowing limit imposed on M-REITs. The
REITs can issue debt securities or sukuk for the purpose of investing in real estate
through either a special purpose vehicle fully owned by the REITs or the parent
(REITs) company (Securities Commission Malaysia, 2019). In the meantime, the
gearing ratio of REITs should not exceed the 50% threshold.
2.2.5.3 Taxation Treatment on REIT’s Level
According to the tax treatment public ruling published by the Inland Revenue Board
of Malaysia, a REITs should distribute 90% of its taxable income in order to enjoy a
special tax treatment. By meeting the 90% distribution requirements, REITs would be
exempted from the corporate income tax at a 24% rate. However, REITs are still
subjected to withholding tax provisions even when the 90% distribution requirement
is achieved. According to the Inland Revenue Board of Malaysia (n.d.), individuals
and all other non-corporate investors are subjected to a 10% withholding tax while
non-resident corporate investors have a withholding tax with a rate of 24%.
Apart from the tax treatment on the corporate level, the Malaysian Authorities also
provide other tax incentives to REITs to encourage market development. Examples of
tax incentives include exemptions of stamp duty, exemption from real property gains
tax, and allowable deductions on establishment expenditure incurred by REITs.
57
2.2.6 India
2.2.6.1 Background
As the fifth-largest economy in the world, India has a promising future economic
development due to its large and growing population, favorable demographic profile,
and rapid technological development. Real estate sectors in India play an important
role in their economy, making up 7% of India’s national GDP. Despite the significance
of real estate in India’s economy, India saw a slow movement in developing their own
REITs regime. The Securities and Exchange Board of India (SEBI) finalized and
released the REITs regulations in 2014 which allowed the establishment of REITs
structure in India. Not until 2019 did first India’s REITs – Embassy Office Park – listed
on the National Stock Exchange of India (NSE). The Indian REITs (I-REITs) market
had delivered a moderate return since the establishment of Embassy, with a total return
of 11.39% in the period of April 2019 to July 2022 (Walia et al., 2023). The
performance is dull compared with other investment options in India, with stock
delivering 16.45% and listed realty stocks delivering 26.86% return on average (Walia
et al., 2023). Although the economic and social turmoil caused by COVID-19 is one
of the major reasons causing the moderate performance of I-REITs, the poor relative
performance also indirectly reflects the low popularity of I-REITs among investors.
The limited number of REITs options, poor liquidity of the market, and immature
regulatory environment are some reasons that cause the unpopularity of I-REITs
among investors.
58
Still, the I-REITs market has a promising future due to the following reasons. Firstly,
there are huge growth potentials for the I-REITs market, as assets owned by I-REITs
only occupied a small percentage of the overall real estate capitalization. According to
research conducted by Savills (2020), I-REITs capitalization to the overall real estate
market capitalization is around 20%, which is much lower than 50%-95% in developed
countries like US and Japan. The development of the I-REITs market is expected to
include more institutional-grade assets in the REITs portfolio, which will definitely
stimulate the growth of the market. The strong growth of the economy and real estate
market is another favorable news for the I-REITs market. According to India Brand
Equity Foundation Real Estate Industry Report (2022), the real estate market size is
expected to reach US$ 1 trillion by 2030, which is a nearly 20% CAGR from the
current levels. The strong growth in the economy and real estate field enhances the
demand for real estate asset, which support the growth of the market. Additionally,
Indian Authorities have taken steps to modify and improved the existing policy
framework of the REITs market. The government works aggressively on a series of tax
reforms and clarifications to clear up ambiguities in the current regulatory system
(Savills, 2020).
In November 2022, Nexus Select Trust filed an Initial Public Offering (IPO) to
establish India's first retail REITs (Outlook, 2022). The trust owns a portfolio of 17
shopping malls with a total valuation of US$ 3 billion. This IPO exemplifies the rapid
development of the I-REITs market.
The following figure shows the growth in market size of the I-REITs market. From the
figure, the market size of the I-REITs market stagnated from 2020 through 2022 due
to the economic disruption caused by COVID-19. There is no new IPO listing during
this economically uncertain period. As the negative effect caused by COVID-19 ease
gradually, the growing trend of the I-REITs market is expected to resume.
59
Figure 22: Growth in Market Capitalization of I-REITs Market: From April 2019 to
Jan 2023
Growth in Market Capitalization of I-REIT Market
₹800.00
₹700.00
Billion (Rupee)
₹600.00
₹500.00
₹400.00
₹300.00
₹200.00
₹100.00
₹4/30/2019
4/30/2020
4/30/2021
4/30/2022
Note. Author’s compilation from S&P Capital IQ
For the property segmentation in the I-REITs market, the majority of properties held
by I-REITs are office types of assets. By solely focusing on single types of assets, the
I-REITs market will exhibit a higher overall risk as the income of the REITs heavily
relies on office assets. Moreover, a REITs market with diversified property types can
be better positioned on both favorable market conditions and economic downturns and
mitigate the impact of market fluctuation. Although the current portfolio of I-REITs
cannot allure investors due to its limited exposure, the situation is expected to improve
amid the tremendous economic growth expected in India in the following decade. For
instance, with the trend of increasing overseas investment (by multinational
cooperation) in India’s Manufacturing Industry, Industrial assets are expected to
emerge as the asset which attracts REITs investment in the future. The following table
listed the number of property types held by currently listed I-REITs.
60
Table 21: Property Profile of I-REITs
Property Type
Scale
Total Number
Office
98558512 sq. ft.
42
1096
Hotel
Hotel
Rooms
Energy Infrastructure
Multi-Use (Hotel, service residences, elite
shopping centres and boutique office space)
3
460 Acres
1
300000 sq. ft.
1
Note. Author’s compilation from Internet sources
Table 22: Profile of Listed I-REITs in Jan 2023
Stock Code
Name
Market Cap
Sector
(Million)
(RP)
NSEI:
EMBASSY
NSEI:
MINDSPACE
NSEI: BIRET
Embassy Office Parks REITs
288,026
Office
Mindspace Business Parks REITs
189,522
Office
Brookfield India Real Estate Trust
91,766
Office
569,317
6,832
Total Market Capitalization (Million) (RP) /
Million (USD)
Total number of I-REITs
3
Note. Author’s compilation from S&P Capital IQ
61
2.2.6.2 Regulatory Framework
Before 2014, there is a lack of a proper indirect approach to investing in real estate
assets in India. Owing to this deficiency, the Securities and Exchange Board of India
(SEBI) drafted and implemented the SEBI (Real Estate Investment Trust) Regulation
in 2014, which aims to introduce the concept of REITs into the Indian Market (Kashyap
& Batwara, 2022). However, the REITs’s regulation had been amended numerous
times after its establishment due to the slow growth in the I-REITs markets. For
instance, the 2017 amendment enabled REITs to raise capital by the means of issuing
securities while the 2020 amendment relaxed the lock-in requirements for REITs amid
the COVID pandemic (Kashyap & Batwara, 2022). The consistent modification
strengthens the regulatory maturities of the I-REITs market, which boost the
development of the market consequentially. The following table summarized the
statuary requirement of an I-REITs.
Table 23: Major requirement for I-REITs in different aspect
Aspect
Description
Capital
-
Unit offered to the public shall not be less than 25%
-
The initial offer size of the REITs should be more than
2.5 billion rupees
Listing
-
Should be registered on SEBI under relevant regulations
Minimum
-
Number of unit holders other than the sponsor(s) should
Number
of
be not less than 200
Investor
Asset & Activities
-
Can invest in real estate directly or indirectly by a
holding company or a SPV
-
Should not invest in vacant land, mortgages type asset
and agricultural property
-
At least 80% of the value of the REITs assets must be
invested in completed and rent-generating properties
Leverage
-
Not allowed to invest in the units of other REITs
-
Should only invested on India securities or assets
-
The total borrowing of the REITs, net cash and cash
equivalents should not be greater than 49% of the asset
value
Distribution
-
Must distribute at least 90% of its net distributable
cashflow
Note. Author’s compilation/analysis from Securities and Exchange Board of India
(Real Estate Investment Trusts) Regulations (2023)
62
Although I-REITs are established in a trust structure that is similar to other APAC
countries, the I-REITs structure framework has posed restrictions on the sponsor of the
REITs. The sponsor or the sponsor group of the REITs refers to the entity that
established the REITs and appointed the trustee who controls and administers the
properties of the REITs. To be qualified as a sponsor(s), the requirement below should
be observed (SEBI, 2023).

The net worth of sponsor(s) should be more than 1 billion rupees collectively

The sponsor(s) should have at least 5 years’ experience in real estate
development and management

The sponsor(s) must collectively hold at least 15% of the total units of the REITs
for at least three years from the date of listing.
2.2.6.3 Taxation Treatment on REIT’s Level
For the income received from renting or leasing real estate assets held directly by the
REITs or interest received by SPV, the cooperate tax on the REITs level is exempted.
Additionally, the income designated for dividend distribution is also exempted from
the corporate income tax. However, the profit from the trading of securities in the SPV
or the appreciation of real estate assets owned by REITs is subjected to capital gain tax
(Pwc, 2021).
For the requirement of withholding tax, the degree of withholding collected is based
on the sources of the distribution and the types of investors. The rate of withholding
tax ranges from 5% to 40% in the I-REITs regime.
63
2.2.7 China
2.2.7.1 Background
v With a total market capitalization of US791 billion in 2021, China was the fourth
largest property market in the world. With such a colossal market scale, the process of
real estate securitization in China is relatively slow compared with other APAC
property markets. The development of the REITs market in China can be traced back
to the early 2000s. Due to the developments of REITs in other markets, Chinese
Authorities started to explore the possibility of developing REITs in the Chinese
securities market. In 2004, the State Council of China published a document related to
the development of more investment alternatives in the capital market, which makes
REITs catch more attention in the Chinese Market. Besides the guidance from the
government, some Chinese Firms started to utilize the power of the foreign capital
market by listing offshore REITs owning China’s real estate assets. For example,
Yuexiu REITs was listed on SEHK in 2005 while the CapitaLand China Trust was set
up on the SGX in 2006 (The Business Times, 2023). The successful offshore listing
activities reveal the potential for securitization of Chinese real estate assets, which
facilitates the development of the China REITs (C-REITs) market. Following the
listing of offshore REITs, China subsequently launched its own REITs-type product –
“quasi-REITs” in 2015. Despite Quasi-REITs provided an approach for real estate
assets securitization, it is not identical to conventional REITs due to the difference in
legal and tax arrangements (Savills, n,d,). The launching of offshore REITs and quasiREITs provides valuable experience to China’s Market. In April 2020, the National
Development and Reform Commission (NDRC) and the China Securities Regulatory
Commission (CSRC) released the "Circular to Promote the Relevant Work for Real
Estate Investment Trusts in the Infrastructure Sector Pilot Scheme" and the "Securities
Investment in Infrastructure Mutual Funds Guidelines (for trial operation)". The
circular and the guideline provided the fundamental framework for establishing CREITs in the capital market. The setup of the regulatory framework (The Pilot scheme)
allows the establishment of REITs in the open market. However, the C-REITs
investments are limited to infrastructure projects like industrial parks, transportation
projects, and utility projects. As China was undergoing the process of urbanization in
the recent decade, limiting REITs to focus on infrastructure projects can speed up the
process of urbanization and allow the authorities to attained substantial fund to support
those infrastructure projects (The Business Times, 2023).
64
In June 2021, the first nine publicly traded infrastructure-focused REITs were launched
on the Shanghai Stock Exchange (SSE) and Shenzhen stock exchanges (SZSE). The
C-REITs market has grown at an enormous speed since then. According to the figure
below, the market capitalization had grown more than double since 2021, with the
number of REITs increasing from 9 to 25 as of January 2023.
Figure 23: Growth in Market Capitalization of C-REITs Market: From Jun 2021 to Jan
2023
Growth in Market Capitalization of C-REIT Market
¥100.00
¥90.00
¥80.00
¥70.00
¥60.00
¥50.00
¥40.00
¥30.00
¥20.00
¥10.00
¥-
30
25
20
15
10
5
7/1/21
8/1/21
9/1/21
10/1/21
11/1/21
12/1/21
1/1/22
2/1/22
3/1/22
4/1/22
5/1/22
6/1/22
7/1/22
8/1/22
9/1/22
10/1/22
11/1/22
12/1/22
1/1/23
2/1/23
0
Total Market Capitalization (Billion RMB)
Number of REITs
Note. Author’s compilation/analysis from REITs.szse.cn & sse.com.cn/REITs
Although the C-REITs market is still immature in its regulatory structure, with the
missing favorable tax treatment which underpins the popularity of REITs in other
regimes. Additionally, the limitation on investing in infrastructure assets also restricts
the investment options available to investors. The Chinese Authorities have initiated
multiple measures to enhance the mechanism in the REITs market recently. For
instance, the country would broaden the pilot plan for REITs to include new energy,
water conservation, and new forms of infrastructure assets in the REITs portfolio
according to sources at the China Securities Regulatory Commission (ChinaDaily,
2022). Looking forward, the C-REITs market is expected to grow at an astronomical
speed. According to UBS' optimistic estimation, the C-REITs market capitalization
will be US 3 trillion in 2030, which would make China the largest REITs market
globally. With a huge amount of unsecuritized real estate assets in China, the C-REITs
market is expected to provide promising growth in the foreseeable future.
65
Under the current regulatory system of the C-REITs market, C-REITs only allow
holding infrastructure projects in their portfolio. Of 25 C-REITs listed on SSE and
SZSE today, most of them are holding industrial assets or public infrastructure assets.
The following figures show the distribution of property held by C-REITs.
Figure 24: Property segmentation of C-REITs by market capitalization
SEGMENTATION BY MARKET CAP
Residential
6%
Industrial
36%
Infrastructure
58%
Note. Author’s compilation/analysis from REITs.szse.cn & sse.com.cn/REITs
Table 24: Profile of Listed C-REITs in Jan 2023
Stock Code
Name
Market Cap
Sector
(Million)
(RMB)
508009
508018
180201
508056
508008
Zhong Jin An Hui Jiao Kong
(中金安徽交控) REITs
Hua Xia Zhong Guo Jiao Jian
(华夏中国交建) REITs
Ping An Guang Zhou Guang He
(平安广州广河) REITs
Zhong Jin Pu Luo Si (中金普洛
斯) REITs
Guo Jin Zhong Guo Tie Jian (国
金中国铁建) REITs
10,505
Infrastructure
8,665
Infrastructure
8,296
Infrastructure
7,691
Industrial
4,959
Infrastructure
4,818
Infrastructure
Peng Hua Shen Zhen Neng
180401
Yuan
(鹏华深圳能源) REITs
66
Stock Code
Name
Market Cap
Sector
(Million)
(RMB)
508001
508027
508099
508066
180101
Zhe Shang Hu Hang Yong (浙
商沪杭甬) REITs
Dong Wu Su Yuan Chan Ye (东
吴苏园产业) REITs
Jian Xin Zhong Guan Cun (建
信中关村) REITs
Hua Tai Jiang Su Jiao Kong (华
泰江苏交控) REITs
Bo Shi She Kou Chan Yuan (博
时蛇口产园) REITs
4,500
Infrastructure
4,274
Industrial
3,729
Industrial
3,090
Infrastructure
2,596
Industrial
2,495
Industrial
2,325
Infrastructure
1,984
Industrial
1,972
Industrial
1,962
Industrial
1,743
Industrial
1,555
Industrial
1,552
Infrastructure
1,519
Infrastructure
1,464
Residential
Hong Tu Chuang Xin Yan Tian
180301
Gang
(红土创新盐田港) REITs
508006
508000
Fu Guo Shou Chuang Shui Wu
(富国首创水务) REITs
Hua An Zhang Jiang Guang Da
(华安张江光大) REITs
Guo Tai Jun An Dong Jiu Xin
508088
Jing Ji
(国泰君安东久新经济) REITs
Jia Shi Jing Dong Cang Chu Ji
508098
Chu She Shi
(嘉实京东仓储基础设施)
REITs
180102
180103
180202
Hua Xia He Fei Gao Xin (华夏
合肥高新) REITs
Hua Xia He Da Gao Ke (华夏
和达高科) REITs
Hua Xia Yue Xiu Gao Su (华夏
越秀高速) REITs
Zhong Hang Shou Gang Lu
180801
Neng
(中航首钢绿能) REITs
508058
Zhong Jin Sha Men An Ju (中金
厦门安居) REITs
67
Stock Code
Name
Market Cap
Sector
(Million)
(RMB)
Hua Xia Bei Jing Bao Zhang
508068
Fang
1,440
Residential
1,314
Residential
1,181
Residential
1,082
Industrial
86,710
12,139
(华夏北京保障房) REITs
Hua Xia Ji Jin Hua Run You
508077
Chao
(华夏基金华润有巢) REITs
Hong Tu Chuang Xin Shen
180501
Zhen An Ju
(红土创新深圳安居) REITs
Guo Tai Jun An Lin Gang
508021
Chuang Xin Chan Ye Yuan (国
泰君安临港创新产业园)
REITs
Total Market Capitalization (Million) (RMB) /
Million (USD)
Total number of C-REITs
25
Note. Author’s compilation/analysis from REITs .szse.cn & sse.com.cn/REITs
68
2.2.7.2 Regulatory Framework
The C-REITs regime is regulated by the "Securities Investment in Infrastructure
Mutual Funds Guidelines (for trial operation)" updated by CSRC in August 2020.
Compare with listed with trust structure in majority of REITs regime, C-REITs are
structure like public funds that invest in asset backed securities according to the CSRC
guideline. In this special structure, the REITs will indirectly own the infrastructure
asset by fully holding shares of an asset backed securities (ABS). The following figures
shows the C-REITs structure in a detail manner.
Figure 25: The structure of C-REITs
Note. From “Challenges and Opportunities for Public Infrastructure REITs in China”,
by H. Wan, 2022. Journal of Economics & Management Research, 3 (2), p2-7.
10.47363/JESMR/2022(3)154.
Apart from the requirement of REITs structure, other features required by the guideline
are summarized in the table below.
69
Table 25: Major requirement for C-REITs in different aspect
Aspect
Description
Capital
-
The initial offer size of the REITs should be more than
200 million RMB
Listing
Minimum Number
-
Can be listed on both SSE and SZSE
-
At least 20% of the total amount of units offer by IPO
-
At least 1000 individual investors
-
More than 80% of assets should be invested in
of Investor
Asset & Activities
infrastructure backed securities (SPV)
-
The infrastructure asset should have been in operation
for at least 3 years and are generating stable cash flows
and a good return on investment
-
The infrastructure assets should be in specific sector
(e.g., warehousing, logistics, and toll roads)
Leverage
-
Not more than 20% of Net Asset Value
Distribution
-
Must distribute at least 90% of its distributable profit
on an annual basis
Note. Author’s compilation/analysis from Securities Investment in Infrastructure
Mutual Funds Guidelines (for trial operation) (2020)
The manager of the REITs (the Fund Manager) is also subjected to specific
requirements:
-
The management entity should be equipped with at least 2 property
management personnel who have at least 5-year experience in public
infrastructure management and operation
-
The management entity should hold the CSRC license to conduct such public
offering business.
70
2.2.7.3 Taxation Treatment on REIT’s Level
The taxation treatment of REITs in China is regulated by the State Taxation
Administration (STA). To date, there is no special tax incentive for the establishment
of a C-REITs. Under the current taxation policy, C-REITs will be subject to double
taxation. According to Wan (2022), different taxes will be levied based on the
transaction patterns and operation model C-REITs adopted. If a REITs is established
by an ‘asset transfer’ approach to allocating its asset to the ABS, both deed tax and
stamp tax will be collected. During the owning and management of the underlying
properties, REITs may be subject to several taxes, including Value Added Tax (VAT),
stamp duty, property tax, land use tax, and corporate income tax. The complexity of
the REITs taxation system enhances the cost of operation and lowers the investor return
(in term of dividend distribution) significantly, which hinders the development of the
C-REITs market materially.
71
2.2.8 Philippines
2.2.8.1 Background
As one of the fastest-growing property markets in the APAC region, the Philippines
developed its own REITs regime in the late 2000s. The Republic Act No. 9856, also
known as the REITs Act, was approved by the Council in 2009 (Securities and
Exchange Commission Philippines, n.d.). However, the REITs Act does not provide
favorable taxation and ownership treatment to REITs. Due to the unfriendly regulatory
environment, the first Philippine REITs (P-REITs) did not list on the Philippine Stock
Exchange (PSE) until 2020, when the Securities and Exchange Commission
Philippines relaxed the restrictive ownership and taxation requirements. The
modification of regulations provides more incentives for REITs listings. To date, there
are a total of 7 REITs listed on PSE, with a total market capitalization of 240.28
Philippine pesos. The P-REITs market is said to contain huge growth potential due to
the following reasons: the Philippine economy has been steadily increasing, along with
significant growth in both the outsourcing business sector and the population. The
expected economic growth will lead to high demand for business and residential space.
Also, the superior performance of the Philippine property market driven by strong
demand from local and foreign investors is another factor that might assist the
development of the REITs market. According to CEIC, the Philippine Housing Price
had grown 6.5% YoY in September 2022, which is a resounding performance
compared with other APAC countries. With a steady increase in property value, the PREITs market will have a strong foundation to thrive.
According to Bloomberg news (2023), a new retail REITs sponsored by SM Prime
Holding Inc will possibly be listed on the PSE in the coming months. The sponsor of
the REITs, SM Prime Holding Ltd, is one of the largest property developers in the
Philippines. The IPO of the retail REITs is expected to raise around US$1 billion,
which will mark the largest REITs listing in PSE history. The above news reflects the
increasing popularity of the P-REITs market and could lead to more listing activities,
which will benefit the overall development of the P-REITs market.
72
Figure 26 below shows the change in market capitalization and the number of REITs
in the P-REITs market. Since the listing of the first REITs - Ayala Land REITs in
August 2020, the market capitalization of the P-REITs market has nearly ten folded,
from 26 billion Philippines Peso (PHP) to 240 billion PHP.
Figure 26: Growth in Market Capitalization of P-REITs Market: From August 2020 to
Jan 2023
Growth in Market Capitalization of P-REIT Market
₱350.00
8
₱300.00
7
6
₱250.00
5
₱200.00
4
₱150.00
3
₱100.00
2
Total Market Capitalization (Billion PHP)
2/1/2023
12/1/2022
10/1/2022
8/1/2022
6/1/2022
4/1/2022
2/1/2022
12/1/2021
10/1/2021
8/1/2021
6/1/2021
4/1/2021
2/1/2021
0
12/1/2020
₱-
10/1/2020
1
8/1/2020
₱50.00
Number of REITs
Note. Author Compilation from S&P Capital IQ
73
Table 26: Profile of Listed P-REITs in Jan 2023
Stock
Name
Code
Market Cap
Sector
(Million)
(PHP)
RCR
Robinsons Land Commercial REITs
63,502
Office
AREITs
Ayala Land REITs
62,693
Diversified
M.REITs
Megaworld REITs
36,209
Office
FILRT
Filinvest REITs
27,889
Office
DDMPR
DoubleDragon Properties REITs
25,315
Office
CREITs
Citicore Energy REITs
15,905
VREITs
Vista Land REITs
12,375
Retail
243,889
4,390
Total Market Capitalization (Million) (PHP) /
Million (USD)
Total number of P-REITs
Infrastructur
e
7
Note. Author’s compilation/analysis from S&P Capital IQ
2.2.8.2 Regulatory Framework
The P-REITs regime is mainly governed by the REITs Act passed in 2009, along with
other relevant regulations, including PSE listing rules on REITs and Bureau of Internal
Revenue (BIR) Regulation No. 13-2011. The above regulations provide basic
guidelines on the operation and listing of P-REITs. Although a P-REITs need not be
structured as a trust statutorily, the REITs Act 2009 provides a similar structure for PREITs to comply with. The following figures show the REITs structure stipulated
under the REITs Act 2009.
74
Figure 27: REITs structure under REITs Act 2009
Note. From Launching of the REITs Regulations, by Securities and Exchange
Commission Philippines, 2020.
(https://www.sec.gov.ph/wp-content/uploads/2020/02/2020REITs_Briefer-onPhilippine-REITs.pdf)
Some requirements are also imposed on a number of stakeholders within the REITs
structure. For instance, at least 1/3 of the board of directors should be independent
directors, while the property managers and fund managers must possess certain
qualifications under the rules.
Other than the requirement in structure, P-REITs also subjected to the requirements
listed on the following table.
75
Table 27: Major requirement for P-REITs in different aspect
Aspect
Description
Capital
-
Minimum paid-up Capital of 300 million PHP
Listing
-
Must registered with the SEC as a stock corporation
-
Must have at least 33.3% of public float (Outstanding
shares owned by public)
Minimum Number
-
of Investor
Asset & Activities
At least 1000 shareholders with each owning at least
50 shares
-
May only invest in real estate with a track record of at
least three years from the date of acquisition.
-
At least 75% of the REITs's deposited property must
be invested in or comprise income-producing real
estate
-
At least 35% of the deposited property must be
invested in income-generating real estate in the
Philippines.
-
The investment in income-generating real estate
outside Philippines shall not exceed 40% of its
deposited property
Leverage
-
Not more than 35% of deposited property
Distribution
-
Must distribute at least 90% of its distributable income
on an annual basis
Note. Author’s compilation/analysis from The Republic Act No. 9856 (2009) and PSE
Amended Listing Rules for Real Estate Investment Trusts (2020)
76
2.2.8.3 Taxation Treatment on REIT’s Level
According to BIR Revenue Regulations No. 13-2011, P-REITs are subject to certain
favorable tax provisions to encourage their establishment. REITs are exempt from VAT
on the transfer of real property when certain requirements are fulfilled. On the REITs
income received, a lower creditable withholding tax rate of 1% applies, which is
substantially lower than the normal 15% rate. However, P-REITs shareholders are still
subject to "double taxation" (corporate tax and dividend tax) unless the dividend is
received by the following entity:
-
Nonresident individual or nonresident foreign corporation
-
Domestic corporation or resident foreign corporation
-
Overseas Filipino Investors
Owing to the problem of double taxation, the P-REITs market is far from becoming
tax efficient.
2.2.9 Chapter Summary
This chapter provides a comprehensive summary of the market background and regulatory
structure in each APAC REITs market. Since the inception of the J-REITs market in 2001,
the APAC REITs market has grown at tremendous speed. The enormous growth of the APAC
REITs market can be attributed to strong economic growth, regulatory system developments,
and increasing investor interest in APAC REITs as a promising asset class. Given that some
emerging markets, like China and India REITs markets, were only established in recent years,
the colossal size of their property market reflects a bright prospect for their REITs market in
the coming decades.
The following table summarized the characteristic, and the data of the APAC REITs markets.
For the performance of each respective market, it is calculated based on the market weighted
capitalization index of each market. The methodology of the construction of the market
weighted capitalization index will be illustrated and explained in the later section.
77
Table 28: Summary statistics of developed APAC REITs markets
Japan
Australia
Singapore
Hong
Kong
No. of REITs
61
44
39
11
Market Cap
118 B
105 B
80 B
28 B
-4.2%
-6.7%
-0.1%
-8.9%
12.9%
13.6%
9.0%
1.7%
27.6%
15.3%
27.4%
13.1%
Year of Inception
2001
1971
2002
2005
Major Types of
Office
Retail
Industrial
Retail
Market Performance CAGR (1-
-
-12.6%
15.7%
-1.1%
year)
11.1%
Market Performance CAGR (10-
5.2%
10.7%
6.6%
4.7%
7.9%
7.5%
6.3%
7.5%
4.23%
5.95%
6.05%
7.32%
(USD)
Market Cap CAGR
(1-year)
Market Cap CAGR
(10-year)
Market Cap CAGR
(Since Inception)
Sector-Specific REITs
year)
Market Performance CAGR (Since
Inception))
Average Dividend Yield
(As of Jan 2023)
Note. Author Compilation
78
3 Literature Review
This chapter will provide a comprehensive review on the theory and literature related to the performance
and the relationship between APAC markets. As there are extensive number of papers related to the
performance of APAC REITs, this review will mainly focus on the discussion of the following topics:
-
Risk and return characteristic of International and APAC REITs
-
Benefit of diversification with REITs investments
-
Optimal allocation of REITs in a mixed-asset portfolio
-
Relationship and dynamic between different APAC REITs market
-
Investment strategy related to REITs investment
3.1
Risk and Return characteristic of International and APAC REITs
3.1.1 Performance and characteristic of REITs outside APAC region
The performance of international REITs has been studied extensively in the past. The US
market was the major focus of previous literature due to its dominance in market size and
performance. Since the inception of REITs in the 1960s in the US, numerous studies have
investigated the performance of the REITs market.
Smith and Shulman (1975) are pioneers in investigating the performance of the US REITs
market. By studying the return levels from 1963 to 1974, they discovered that REITs returns
are expected to be equivalent to those of diversified portfolios of common stock. Since the
market has developed significantly compared to the previous decade, there have been more
studies to examine the performance of the US REITs market. Wang et al. (1995) examined
whether the REITs market resembles the performance of the general stock market in the US,
and their conclusion indicates that REITs may only partly resemble the performance of the
stock market due to the relatively low attention from investors. Meanwhile, Ryu et al. (2021)
examined the market efficiency of the US REITs market compared with other financial
instruments. The empirical results suggest that REITs stocks are more efficient than the US
stock market, meaning that the REITs market reflects more available and relevant
information in their stock price. In other words, investors will face a hard time trying to "beat
the market" by owning REITs stocks.
79
Furthermore, the performance of REITs amid the COVID pandemic was also explored by
Bhargava and Weeks (2022). The research suggests that REITs exhibit more sensitivity to
disruption, leading to a faster initial reaction and subsequent recovery. As a result, during
periods of market volatility, REITs may outperform the market and provide significant
portfolio diversification benefits. From these papers, it can be inferred that REITs perform
slightly differently compared to conventional stocks.
In addition to the performance of the US REITs market, previous literature has covered the
performance and characteristics of other REITs regimes. For developed markets, BeaubrunDiant & Maury (2021) investigated the performance and impact of asset combination in the
French REITs market. The empirical results revealed that there was lower market volatility
for REITs focusing on residential assets. Other developed markets in Europe have also been
covered in previous studies. Newell and Marzuki conducted analyses on the risk-adjusted
return and benefits of diversification in Germany (2017), Spain (2018), and Belgium (2019),
respectively, with Belgium exhibiting the highest risk-adjusted return during the period
covered in those studies. However, there are a limited number of research studies covering
developing markets outside of APAC, with Dabara et al. (2021) probing into the
organizational structure and performance of the Nigerian REITs market.
Apart from investigating the return level of the international REITs market, previous
literature has also examined the determinants of REITs performance. Fisher et al. (2021)
showed that the location density of the property held by REITs significantly impacts the
rental growth of the property, thus affecting the REITs's performance. Meanwhile, Alam
(2022) proved the statistical relationship between housing prices and the return of REITs.
Additionally, Lin et al. (2008) confirmed the relationship between investor sentiment and
REITs returns, revealing that the return of REITs will be higher if investor sentiment is
optimistic.
There have also been attempts to explain the key determining factors impacting REITs return.
Letdin et al. (2020) investigated the critical areas that significantly affect REITs return. The
study summarized that factor such as volatility, internal factors like organizational structure
and dividend policy, external factors like monetary policy and systematic risks, financial
leverage level, and investor sentiment are the major factors that substantially affect REITs
return. Therefore, the impact of different factors on REITs returns and performance has been
comprehensively studied by previous literature.
80
3.1.2 Performance and characteristic of APAC REITs
Compared to the early development of the REITs regime in the US and Europe, APAC
countries did not develop REITs until the early 2000s. Since the launch of REITs in various
APAC countries such as Japan, Singapore, and Hong Kong, many studies have covered their
performance in a holistic manner. Ooi et al. (2006) was among the trailblazers who
investigated the development of the APAC REITs market. The authors covered various Asia
REITs regimes, including Japan, Singapore, South Korea, Hong Kong, Taiwan, and
Malaysia. The study included an analysis of the regulatory framework, taxation structure,
and risk-adjusted performance. The authors concluded that the regulatory framework played
an important role in the development of a REITs market. Additionally, Japan and Singapore
delivered the best risk-adjusted performance during the period of the study (2001-2006). A
few years later, Pham (2013) provided a more extensive study on the Asian REITs structure,
performance, and significance. The research covered mature REITs markets in Asia,
including Japan, Singapore, Hong Kong, Malaysia, Taiwan, Thailand, and South Korea, over
the period of 2001 to 2012. From the empirical results, the author revealed that REITs
perform better than other asset classes, suggesting a stronger benefit of diversification.
Additionally, Asian REITs markets had also delivered stronger risk-adjusted performance
compared to the US market.
Apart from analyzing the performance of the whole APAC REITs market, there is other
research that examines the characteristics and performance of individual REITs markets. For
developed REITs markets, the characteristics and performance of those markets were
revealed in a comprehensive manner. Examples include Liu et al. (2019), who discovered
that the Hong Kong REITs market has yet to reach weak-form market efficiency level, while
Lecomte and Ooi (2013) reveal the fact that there was a positive correlation between S-REITs
stock performance and REITs governance practices. The academic field has already provided
considerable review on characteristics such as the impact of crises, future development
potential, and the impact of investor sentiment on developed APAC REITs markets. On the
contrary, the investigation of performance and characteristics of emerging REITs markets
was narrow in scope. The research topic on these emerging markets mainly focuses on the
evaluation of the regulatory framework and development procedure of the REITs regime.
Kashyap and Batwara (2022) provided legal analysis of REITs regulation in India, while Zhu
(2021) provides an overview of the development of REITs in China. The previous literature
covering emerging REITs markets focused on factual details instead of evaluating the actual
performance and characteristics of those REITs markets. This represents a significant
research gap in the current academic field.
81
3.1.3 Risk of investing in REITs
Investors in REITs face various types of risk, which have been extensively studied in
previous literature. For example, DiBartolomeo et al. (2021) examined liquidity risk in the
US REITs market and found that during market-wide liquidity shocks, REITs returns tend to
increase due to investors viewing the statutory dividend payout requirement as a source of
enhanced liquidity. Chaudhry et al. (2022) analyzed the impact of macroeconomic factors on
US REITs returns and found that factors such as the default rate, Gross Domestic Product
figure, Federal Fund rate, and inflation rate have significant impacts on REITs returns. Li
and Zhu (2022) studied how property market volatility and equity market volatility affect
REITs return volatility and found that a 1-unit increase in the Standard Deviation of the
change of a REITs's underlying property market results in a 0.93% increase in REITs return
volatility, and that the impact of property market volatility on REITs returns is twice that of
stock market influence.
While some authors have evaluated the overall systematic risk of REITs investments, such
as Piao et al. (2021) who examined the systematic risk of various types of specialized REITs
in the US, and Pham (2013) who provided a brief review of the risk level of individual APAC
markets, few studies have examined the risk factors associated with investing in each APAC
market or each type of specialized REITs market in detail.
3.2
Benefit of diversification with REITs investments
3.2.1 Benefit of diversification with US and APAC REITs
The diversification benefits of including REITs in mixed asset portfolios, including financial
instruments like stocks and bonds, have been well studied in previous literature. Given that
market dynamics are constantly changing, researchers have consistently updated their
assessments of the potential for diversification with REITs. Chandrashekaran (1999) reported
inconsistencies in the correlation between US REITs and other financial assets over different
time periods. The correlation between REITs and other financial instruments often decreases
when REITs are performing well, and increases when REITs are performing poorly. Such a
conclusion implies that asset allocation strategies related to REITs should be dynamic instead
of fixed. Apart from Chandrashekaran, Boudry et al. (2020) used a utility-based framework
to analyze the diversification benefits of investing in both preferred and common stocks of
US REITs. By examining the returns and risk characteristics from 2000 to 2014, the study
found that both preferred and common stocks of REITs can provide significant
diversification benefits.
82
Regarding the diversification benefits of REITs outside the US market, Lindquist (2022)
analyzed the diversification benefits of investing in international REITs. By examining the
performance of various international REITs markets from 2002 to 2011, the study showed
that a portfolio consisting of 50% REITs and 50% international REITs outperformed a
portfolio consisting of only domestic REITs in terms of risk-adjusted performance. Pham
(2013) also provided extensive analysis on the diversification benefits of different APAC
REITs regimes. By examining the correlations between different financial assets and
markets, the study revealed empirical evidence that proved APAC REITs exhibit significant
diversification benefits. Firstly, APAC REITs had a low correlation with other financial assets
in their own markets. Secondly, the correlation between APAC REITs markets was
substantially lower than the regional stock markets. Thirdly, the APAC REITs markets
exhibit a low relationship with international markets including the US markets. This evidence
proved that diversification benefits of APAC REITs existed on local, regional, and
international levels. In addition to Pham's research, Hwang et al. (2019) also discovered that
APAC REITs can provide a benefit in reducing market volatility, further proving the benefit
of diversification with the use of up-to-date data.
In conclusion, REITs provide significant diversification benefits as they have a low
correlation with other investment instruments. Additionally, the inclusion of APAC REITs in
an investment portfolio can also reduce the impact of market-specific REITs and enhance
portfolio diversification. However, as with any investment strategy, it is important to
carefully consider the risks, investors' own risk tolerance, and the potential returns associated
with the investment, as pointed out by previous literature.
3.2.2 Benefit of diversification with Sector Specific REITs
In addition to the role of diversification with REITs in a mixed asset portfolio, another
potential investment strategy is to focus on sector-specific REITs rather than investing in a
diversified pool of REITs. Therefore, this literature review will also investigate the benefits
of diversification by sector-specific REITs.
McAllister and Peterson (2017) conducted an empirical investigation into the benefits of
investing in sector-specific REITs in the US. The study analyzed the performance of US
sector-specific REITs using data from 1994 to 2014. The authors found that owning sectorspecific REITs can increase portfolio diversity and lower risk. Investors can benefit from the
specific risk-return characteristics of sectors such as healthcare or industrial real estate,
which can help to minimize the impact of industry-specific risks on investment portfolios.
83
For the Asia-Pacific REITs market, Lin (2021) examined the risk and return characteristics
of sector-specific REITs in the region, including Japan, Australia, and Singapore. The study
analyzed the performance of sector-specific REITs in six major sectors, including retail,
office, industrial, residential, healthcare, and hospitality, using data from 2007 to 2018. The
study found that industrial and office REITs provide the highest returns but also entail the
greatest risk. Healthcare REITs offer the lowest risk but also provide the lowest returns
compared to other sectors. The study also revealed that compared to diversified REITs,
sector-specific REITs in the Asia-Pacific region display a greater degree of idiosyncratic risk,
indicating that investing in sector-specific REITs requires a higher level of sector-specific
expertise and knowledge.
Overall, these studies highlight the importance of carefully assessing the unique risks and
features associated with each sector, while also providing empirical evidence to support the
potential benefits of investing in sector-specific REITs in specific developed REITs markets.
3.3
Optimal allocation of REITs in a mixed-asset portfolio
As REITs have become an increasingly popular investment option for investors seeking to diversify
their portfolios, it is important for investors to understand the proportion of assets they should
allocate to REITs. This section aims to explore the optimal allocation of REITs in a mixed-asset
portfolio.
Several studies have examined the optimal allocation of REITs in a mixed-asset portfolio. For
example, Bhuyan et al. (2014) examined the optimal portfolio allocation among REITs, stocks, and
long-term bonds in the US financial markets. The study indicated that over the last 35 years, REITs
have offered greater returns and lower risk compared to equities and long-term bonds by applying
the mean variance analysis. The authors suggest that a higher percentage of a portfolio should be
allocated to REITs for investors with a longer investment horizon and higher risk tolerance, while
a smaller fraction of a portfolio should be allocated to REITs for investors with a narrower
investment horizon and lower risk tolerance.
84
In the APAC region, Pham (2013) provided an analysis of the optimal asset allocation for the local
markets in different APAC REITs regimes. The study revealed that over 33% of a mixed-asset
portfolio should be allocated to REITs in respective APAC local markets, with Hong Kong and
Taiwan having the most significant allocation according to the empirical results. According to the
analysis, the optimal pan-Asian investment portfolio would mostly include Singapore REITs at the
aggressive end of the risk spectrum, Taiwan and Malaysia REITs in the middle of the risk spectrum,
and Thailand and Malaysia REITs at the lower end of the spectrum. Additionally, multiple studies
have analyzed the optimal asset allocation on the local level in different APAC REITs regimes,
including the Philippines (Sallan & Gemida, 2022), Singapore (Newell et al., 2015), India (Walia
et al., 2023), and Thailand (Pham, 2015). The results of these studies all point to the same
conclusion, that APAC REITs should play a significant role in an investor’s portfolio, with
consideration given to the investor's risk tolerance and investment goals. However, some analyses
have developed an opposite conclusion. Pham and Khoi (2011) examined the performance of
South-Korea REITs (K-REITs) and revealed that K-REITs performed poorly over the entire period
compared to other investment alternatives. Consequently, K-REITs did not represent a significant
weight in a mixed-asset portfolio.
In conclusion, based on the literature that is available, the optimal distribution of REITs within a
mixed-asset portfolio relies on a number of factors, including the investor's risk appetite, their
investing objectives, and market characteristics. Nevertheless, REITs market dynamics are
changing consistently, and the empirical results discovered in the past literature may not be valid
anymore, and the previous literature also fail to include emerging APAC markets (i.e. China, India)
and sector-specific REITs during the construction of the optimal mixed asset portfolio.
3.4
Relationship and dynamic between different APAC REITs market
3.4.1 Correlation between various Asian REITs Market and REITs subsectors
As investors have a growing interest in investing in multiple REITs regimes to gain the
benefit of diversification, it is vital for them to have a thorough understanding of the
dynamics between different APAC markets to attain the benefits of diversification.
Correlation refers to the statistical relationship between two variables, which measures the
strength and direction of the association between the two variables.
85
Young (2000) analyzed the relationship between different types of sector-specific REITs in
the US by means of a rolling correlation index. The author discovered that the positive
correlation between different sector-specific REITs had been increasing over the study
period. However, the author also acknowledged the problem of serial correlation, which
hindered the effectiveness of the study. Apart from the use of a rolling correlation index,
Chong et al. (2012) applied another approach to examine the correlation between different
sector-specific REITs. By using a DCC GARCH framework, the problem of correlation
index, including the exhibition of bias during volatile periods and the need to assume a
homoscedastic error term, can be eliminated. Still, this research generates a similar
conclusion compared with Young's analysis, which found that the correlation of sub-sectors
had been surging continuously since the early nineties. Therefore, the result reduced the
strength of diversification with sector-specific REITs.
Although there was a substantial review on the correlation between sector-specific REITs in
the US, there are a limited number of literature reviews on the correlation between different
REITs markets, especially in APAC. Pham (2012) was the only literature which attempted to
compare the correlation between various Asian REITs markets by constructing a correlation
matrix. A total of 7 Asia REITs markets correlations were studied with the division of the
sub-period, and the correlation varied between different APAC markets, with Japan and
Singapore exhibiting the highest correlation during the study period.
Overall, the existing research suggests that the correlation and relationship between various
REITs markets are complex issues and can vary over time. Although the correlation between
different markets has covered by previous literature, further research is needed to better
understand the dynamics and relationship between the REITs market as the APAC REITs
market has become more mature and complicated.
3.4.2 Volatility spillover effect between REITs market
The phenomenon known as the "volatility spillover effect" exists when changes in the
volatility of one financial asset or market have an impact on the volatility of another financial
asset or market. As the volatility spillover effect measures the transmission of volatility from
one element to the other, it differs from correlation in that the former examines the magnitude
and direction of the link between two variables. Investors should be aware of the volatility
spillover effect since it emphasizes the need for diversification. By diversifying their
portfolios across several assets or markets, investors can lower their exposure to volatility
spillover effects. Moreover, volatility spillover analysis is a tool that investors may use to
spot market risks and opportunities and make proper investment choices.
86
Nikbakht et al. (2016) analyzed the volatility spillover effect of REITs in international
markets, using data from US and European REITs from 1999 to 2011. The primary result
was the finding of volatility transmission from US markets to European markets, and the
volatility spillover reduces the benefit of cross-border diversification to investors in
international portfolios. Li and Yung (2007) also examined the level of volatility spillover
effect between the Pacific and Atlantic regions. The findings indicate that the Pacific region's
REITs returns volatility has a considerable spillover transmission, and there are substantial
volatility transmissions between the Pacific and Atlantic regions. Similar to the Nikbakht
study, the authors concluded that the results had a major implication on international
investment strategy, as geographic risk of markets can be transmitted across national borders.
Regarding the volatility spillover effect among APAC REITs markets, Pham (2013) provided
a holistic review of this topic. By applying the EGARCH model, the paper discovered that
there is a strong tendency for the spillover effect to be transmitted from developed markets
to emerging markets, with Hong Kong and Singapore being the main emitters of volatility
within the region. Hestiawan and Prihadi (2018) had investigated into the return spillover
between Asian REITs. Volatility spillover effect and return spillover effect are both important
concepts in financial markets, but they refer to different phenomena. Volatility spillover
effect refers to the transmission of volatility, or the risk, between different financial assets or
markets. On the other hands, return spillover effect refers to the transmission of returns or
price changes between different financial assets or markets. The study's findings are
consistent with those made by Pham. At first, at only 14.08%, there was still a low degree of
connectivity among Asian REITs markets. Advanced REITs markets have a much higher
connectedness than the developing market when testing the calculation of return spillover
based on the maturity stage of the market. Additionally, Japan and Singapore, which are
highly developed markets, have a significant impact on the transmission of strong growth to
other emerging markets.
In conclusion, previous literature has well studied the volatility spillover effect between
markets. Although the data used in analyzing the spillover effect was not up to date, the
results still present useful insights for investors to devise their own investment strategies
based on the dynamics between markets.
87
3.5
Investment strategy related to REITs investment
REITs have become an increasingly popular investment strategy over the past few decades.
Numerous studies have examined the investment strategy of REITs, with a particular focus on their
performance, diversification benefits, and risk characteristics as mentioned in previous sections.
Other publications have also investigated the effectiveness of specific types of investment
strategies in the REITs market. For example, Hao et al. (2016) analyzed the effectiveness of
momentum strategies in the US REITs market, which refers to a strategy of buying assets that have
recently outperformed the market and selling assets that have recently underperformed the market.
By using the Fama-French Three Factor Model, the authors discovered that momentum strategies
are useful when investor sentiment of the market is taken into consideration. Moss et al. (2015)
also analyzed the fruitfulness of momentum strategy in the US market and concluded that a
combined momentum and trend following a global REITs strategy can be beneficial for both a
dedicated REITs portfolio and adding REITs to a multi-asset portfolio.
Moss et al. (2017) also analyzed the efficiency of sector-specific REITs strategies in the market,
which means that investors own specialized (instead of diversified) REITs as their dominant asset
types in their portfolio. From the empirical result, the portfolio containing only sector-specific
REITs showed a significant outperformance to the market benchmark. Therefore, the results clearly
imply that practitioners can use this approach to create a portfolio with improved risk-adjusted
returns.
For the investment strategy focusing on the fundamentals of individual REITs, Larsen et al. (2013)
analyzed Dogs of the Dow strategies, which means investing in firms with the highest dividendto-share-price ratio. The results revealed that the strategies were highly effective in the scope of
the US REITs market, with a significant outperformance compared to the Dow Jones Equity REITs
Index. However, the study also stated that the strategies were negatively correlated with the
portfolio size, which means that investors can only generate a superior return by only holding a
few individual REITs. Additionally, Brounen et al. (2013) investigated the impact of Net Asset
Value (NAV) premium on REITs pricing. The study stated that the excess demand was the major
reason accounting for the premium to NAV, and the overvaluation led to an underperformance of
the premium REITs.
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In summary, REITs have become an increasingly popular investment option over the past few
decades, with investors drawn to their potential for both income and capital appreciation. While
the research on this topic is mixed, there is evidence to suggest that REITs can provide
diversification benefits and strong returns. Additionally, multiple types of investment strategies can
be exploited by investors to attain an excess return. However, it should be noted that the previous
literature focuses on the US markets, and there is a significant research gap in advising investment
strategies for investors to invest in APAC REITs.
3.6
Conclusion
This literature review offers a thorough review of the key considerations to take into account and
the best strategies for approaching real estate investment trusts (REITs), with a focus on those in
the Asia-Pacific (APAC) region. In addition to examining the advantages of diversification with
REITs investments and the optimized distribution of REITs in a mixed-asset portfolio, the review
also examines the risk and return characteristics of international and APAC-based REITs.
Additionally, the review analyzes the dynamics and relationships between various APAC REITs
markets, as well as the potential effects on investors from these relationships.
However, the literature review revealed several research gaps, including an insufficiency of studies
examining the performance of new APAC REITs and the risk of sector-specific REITs.
Additionally, there is a general absence of risk-adjusted comparisons among APAC REITs markets,
relatively limited research on how to allocate APAC REITs in an investment portfolio, and out-ofdate research on how different APAC REITs markets relate to one another. The need for additional
research to help investors make more knowledgeable investment decisions and to better understand
the potential risks and returns of investing in APAC REITs is highlighted by these research gaps.
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4 Data and Methodology
As this paper includes multiple analyses, this chapter outlines the sources of data and the methodology
applied for various empirical studies in this paper. Explanation of data sources and methodology is
essential for the study to ensure the credibility and trustworthiness of the findings.
4.1
Data Sources
The main source of REITs data for the qualitative analysis in this research is Standard and Poor's
(S&P) Capital IQ. The platform is one of the largest providers of data and analysis of the stock
market for practitioners in the investment industry. In addition to S&P Capital IQ, other relevant
sources, including the website of local securities exchanges and the website of individual listed
REITs, are used to provide additional information and verify the information from S&P Capital IQ.
Data are collected on each APAC market to analyze their respective performance. Monthly data on
the market capitalization, share price, share outstanding, and dividend yield of individual REITs
since their inception were collected for the evaluation of individual performance and construction
of total return index for each market.
While the data for markets indices (equity and bond market) are adopted from other sources,
including S&P Dow Jones Index Website and investing.com.
To calculate the risk-adjusted performance of REITs sector, benchmark index for each market is
needed for the calculation of beta. Following shows the benchmark equity index adopted for each
market in the calculation of the risk-adjusted return.
-
Japan: Nikkei 225
-
Australia: S&P_ASX 200
-
Singapore:
-
Hong Kong: Hang Seng Index
-
Malaysia: FTSE Bursa Malaysia KLCI
-
India: Nifty 50
-
China: Shanghai Shenzhen CSI 300
-
Philippines: PSEi Composite
MSCI Singapore
To calculate an optimal mixed assets investment portfolio, the respective monthly returns of the
stock markets, bond markets, and cash in each APAC market covered in the studies are collected.
The following table lists the name of the index that acts as a proxy for the stock market and bond
market in each studied regime, respectively.
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Table 29: Indexes represent the performance of market in APAC regime
Country
Stock
Bond
Japan
S&P Japan 500 (Total Return)
S&P Japan Bond Index
Australia
S&P ASX 200 (Total Return)
S&P Australia Aggregate Bond Index
Singapore
S&P Singapore BMI (Total Return)
S&P Singapore Bond Index
Hong Kong
S&P Hong Kong BMI (Total Return)
S&P Hong Kong Bond Index
Malaysia
S&P Malaysia BMI (Total Return)
S&P Malaysia Bond Index
India
S&P india BMI (Total Return)
S&P BSE India Bond Index
China
S&P China BMI (Total Return)
S&P China Bond Index
Philippine
S&P Philippine BMI (Total Return)
S&P Philippines Bond Index
Note. Author compilation from S&P Dow Jones Indices (2023)
In addition to calculating mixed asset investment portfolios in each APAC market, we will also
calculate mixed asset portfolios on an international level. Therefore, we will collect total return
indices from different international markets for the mean variance analysis. The following table
lists the indices adopted for these international markets.
Table 30: Indexes represent the performance of international market
REITs
Europe Market
US Market
APAC Market
REITs Europe
S&P U.S. Equity All REITs
-
Index (Total Return)
Stock
Euro Stoxx 50
S&P 500 (Total Return)
S&P Asia Pacific BMI
(Total Return)
Bond
S&P Eurozone Sovereign
S&P U.S. Aggregate Bond
S&P Pan Asia Bond
Bond Index
Index
Index
Note. Author compilation
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4.2
Index Construction
To understand the individual performance of REITs markets and sub-sectors, a market
capitalization-weighted index will be constructed to evaluate the investment performance of REITs
sub-sectors and REITs markets, respectively. Since there are statutory requirements to distribute a
substantial portion of net income to shareholders in multiple REITs regimes, it is important to
consider the impact of dividend distribution on the total return of the markets/sub-sectors. To
address this issue, the market capitalization of each REITs will be adjusted by the dividend income,
providing a more accurate measure of the actual performance of the markets. Custom REITs market
capitalization-weighted indices are constructed using a monthly frequency to enable comparison
with the mainstream asset classes used in this research.
The indexes are computed based on the following formula:
𝑀𝑘𝑡𝑡 =
∑𝑛𝑡=1 [𝑆
𝑖,𝑡 ×( 𝑃𝑖,𝑡 + 𝐷𝑖,𝑡 )] × 𝑊𝑖,𝑡
100%
Mkt t = Index Value as of time t
S i,t = Share Outstanding of index constituent i at time t
P i,t = Share Price of index constituent i at time t
D i,t = Dividend Paid of index constituent i at time t
W i,t = Percentage weighting of index constituent i at time t
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4.3
Performance Analysis
4.3.1 Return Measurement
The first approach to compare and assess the performance of different investments is through
monthly total return calculation. Using the index value of market indexes computed in the
previous section, the monthly return can be calculated using the following formula:
𝑅𝑡 =
(𝑀𝑘𝑡𝑡 − 𝑀𝑘𝑡𝑡 )
× 100%
𝑀𝑘𝑡𝑡−1
R t = Return as of time t
Mkt t = Index Value as of time t
Mkt t = Index Value as of time t-1
In addition to comparing monthly total returns, investors may also want to compare the
performance of investments with different time horizons. To do this, they can use the
annualized return method. The calculation of annualized return can be denoted by the
following formula:
𝐴𝑅𝑡 =
𝐸𝑚𝑘𝑡𝑡
1
(
)−1
𝐵𝑚𝑘𝑡𝑡 𝑡 − 𝑖
AR t = Annualized return with investment time equal to t – i years
Emkt t = Ending Index Value as of time t
Bmkt i = Beginning Index Value as of time i
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4.3.2 Risk Measurement
Since volatility can make it difficult to predict future returns and can result in substantial
losses if an investment performs poorly, it is typically viewed as a form of risk in the capital
market. Standard Deviation (SD) is a widely employed measure of investment risk that
gauges the degree of variation and volatility of an investment. Standard deviation is a
statistical indicator that measures the extent to which a given value in a probability
distribution deviates from the distribution's mean. A high-volatility investment is regarded
as riskier than a low-volatility investment, and the higher the SD, the greater the risk. The
SD of an investment is estimated by the periodic return, such as the monthly return, of the
instrument. The following formula can be used to estimate an investment's SD:
∑𝑛𝑖−1(𝑅𝑖 − 𝑅𝑚)2
𝑆𝐷𝑖 = √
𝑛−1
SDi = Standard Deviation of periodic return of asset i
Ri = Periodic Return in the population
Rm = Mean of Periodic Return in the population
n = Total amount of data in the population
The application of the beta coefficient is another method for assessing investment risk. The
sensitivity of an investment's returns to the overall market returns is assessed by beta. An
investment with a beta of 1 has returns that follow the market; investments with a beta greater
than 1 have returns that are more volatile than the market as a whole, while investments with
a beta lower than 1 have returns that are less volatile. Therefore, beta provides an indication
as to how much the returns on an investment might change in response to changes in the
market.
𝛽𝑖 =
𝐶𝑜𝑣(𝑅𝑖, 𝑅𝑚)
𝑉𝑎𝑟(𝑅𝑚)
𝛽𝑖 = Market beta of asset i
Cov = Covariance
Var = Variance
Rm = Average expected rate of return on the market
Ri = Expected return on an asset i
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4.3.3 Risk Adjusted Return Measurement
v Comparing risk-adjusted performance is crucial for investors because it offers a fair way
to assess the return generated by each investment option in relation to the degree of risk taken
by the investor. In finance and investment analysis, the Sharpe Ratio is a commonly used
indicator of performance after adjusting for risk. The ratio takes into account the standard
deviation of the investment's volatility as well as its average return. A higher Sharpe Ratio,
which indicates that the investment produced higher returns for the level of risk taken,
generally denotes better risk-adjusted performance. The Sharpe Ratio is calculated using the
following formula.
𝑆ℎ𝑎𝑟𝑝𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝑅𝑖 − 𝑅𝑓
𝑆𝐷𝑖
Ri = Average Return of an asset i
Rf = Average Return of risk-free asset
SDi = Standard Deviation of an asset i
The Treynor Ratio is another widely used measurement of risk-adjusted performance in
investment and financial analysis, besides the Sharpe Ratio. Like the Sharpe Ratio, the
Treynor Ratio considers both the average return and risk of the investment but uses beta
instead of standard deviation to quantify risk. The Treynor Ratio offers a way to determine
whether an investment generated higher returns for the level of market risk taken, by
comparing the excess return of the investment to its level of systematic risk.
𝑇𝑟𝑒𝑦𝑛𝑜𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝑅𝑖 − 𝑅𝑓
𝛽𝑖
Ri = Average Return of an asset i
Rf = Average Return of risk-free asset
𝛽𝑖 = Beta of an asset i
In addition to the aforementioned ratios, the Sortino and Calmar ratios will be used to analyze
risk-adjusted performance. The Sortino ratio is a risk-adjusted performance metric that
focuses downside risk. It specifically measures an investment's excess return over the riskfree rate, divided by the downside deviation of the returns. The downside deviation only
takes into account negative returns. A higher Sortino ratio indicates that an investment has
produced higher returns for the amount of downside risk assumed.
95
𝑆𝑜𝑟𝑡𝑖𝑛𝑜 𝑅𝑎𝑡𝑖𝑜 =
𝑅𝑖 − 𝑅𝑓
𝐷𝐷𝑖
Ri = Average Return of an asset i
Rf = Average Return of risk-free asset
DDi = Downside Deviation of an asset i
The Calmar ratio is another risk-adjusted performance indicator that compares an
investment's average yearly return to its maximum drawdown over a given time period. The
maximum drawdown is the greatest peak-to-trough loss in the value of the investment during
a single time period. The Calmar ratio is used to assess the ability of an investment to grow
in value relative to the risk of significant losses. A higher Calmar ratio indicates that a
particular investment has produced higher returns in comparison to its maximum drawdown.
𝐶𝑎𝑙𝑚𝑎𝑟 𝑅𝑎𝑡𝑖𝑜 =
𝑅𝑖 − 𝑅𝑓
𝑀𝐷𝑖
Ri = Average Return of an asset i
Rf = Average Return of risk-free asset
MDi = Maximum Downdraw of an asset i in specific timeframe
A more comprehensive assessment of the performance of can be provided by using multiple
risk-adjusted performance measures at the same time. Investors can evaluate an investment's
performance from a variety of perspectives and identify areas of risk that may not be captured
by a single metric. For example, the Sharpe ratio captures both systemic and unsystemic risk,
whereas the Calmar ratio captures the risk of market collapse.
96
4.3.4 Correlation Between Assets
The correlation coefficient between investment instruments will be determined in order to
further analyze performance and understand the dynamics between various investment
instruments in the market. Correlation coefficient is a statistical tool that is frequently used
in investment analysis to evaluate the direction and strength of a relationship between two
variables. A positive correlation indicates that the two assets are more likely to move
together, whereas a negative correlation indicates that they are more likely to move in
opposition to one another. The following formula can be used to determine the correlation
coefficient.
𝑟=
𝐶𝑜𝑣(𝑎, 𝑏)
𝑆𝐷𝑎 × 𝑆𝐷𝑏
r = correlation coefficient for asset a and b
Cov = Covariance
SDa = Standard Deviation of asset a
SDb = Standard Deviation of asset b
In addition to the simple correlation coefficient, rolling correlation will also be applied to
assess the relationship between two variables over a rolling window of time. Unlike
traditional correlation analysis, which calculates the correlation coefficient between two
variables over the entire period, rolling correlation calculates the correlation coefficient over
a specified period, often a moving window of several months or years. Rolling correlation
analysis can help investors depict changes and dynamics in the relationship between two
assets over time and provide more insights for investors to diversify their portfolio. As the
study aims to provide a long-term investment strategy suggestion to investors, a 12-month
rolling correlation analysis will be computed.
97
4.4
Investment Portfolio Determination
To determine the optimal investment portfolio consisting of APAC REITs, mean variance analysis
will be adopted. Mean variance analysis is a key component of Modern Portfolio Theory (MPT),
which was introduced by Harry Markowitz in 1952. MPT states that investors tend to build a
portfolio with maximized return and minimized risk (Forbes, 2023). Since MPT assumes that
investors are rational and risk-averse, mean variance analysis was developed as a tool to determine
the portfolio that minimizes expected return while minimizing the risk of investment.
Mean variance analysis attempts to use mathematical formulas to figure out the optimal balance
between risk and return. To calculate the best portion of assets in a mixed-asset portfolio, the
expected return and variance of the portfolio should be calculated first.
The expected return of the portfolio is the weighted average return of the assets in the portfolio.
The formula for the expected return of the portfolio is as follows.
𝑛
𝑅𝑝 = ∑
𝑖=1
𝑊𝑖 × 𝑅𝑖
Rp = Expected return of the portfolio
Wi = Weight of portfolio invested in an asset i
Ri = Expected return of an asset i
In calculating the standard deviation (risk) of the portfolio, the standard deviation of individual
assets and the correlation between assets are considered in determining the overall risk level of the
portfolio. By considering these two factors, it is implied that the risk of the portfolio will be lowered
if the volatility and correlation between assets in the portfolio are low.
98
𝑛
𝑛
𝑆𝐷𝑝 = √∑ ∑ 𝑊𝑎 𝑊𝑏 𝑆𝐷𝑎 𝑆𝐷𝑏 𝑅𝑎,𝑏
𝑎=1 𝑏=1
SDp = Standard Deviation of the portfolio
Wa = Weighting of asset a in the portfolio
Wb = Weighting of asset b in the portfolio
SDa = Standard Deviation of asset a in the portfolio
SDb = Standard Deviation of asset b in the portfolio
Ra,b = Correlation coefficient between asset a and b
By calculating the expected return and risk of the portfolio, the optimal weight of each asset can
be solved using quadratic programming. In this study, the "Solver" function in Microsoft Excel
will be used to calculate the portfolio with the maximum Sharpe ratio, which is the optimal
investment portfolio. In addition to calculating the portfolio with the highest level of Sharpe ratio,
the efficient frontier of the portfolio will also be constructed. An efficient frontier is a set of
investment portfolios that provides the highest level of return at a given level of risk (CFI, 2023).
As investors have different risk and return objectives, the efficient frontier is constructed to allow
investors to select a portfolio based on their risk preference.
Figure 28: Example of efficient frontier
Note. From “An Empirical Analysis of Real Estate Investment Trusts in Asia: Structure,
Performance and Strategic Investment Implications”, by Anh. Khoi. Pham, 2013, The University
of Western Sydney.
99
4.5
Analysis on Dynamics Between Markets
4.5.1 Rolling Correlation Coefficient
The rolling correlation index is used to determine the correlation between markets over a
rolling window of time, just like performance analysis. Changes in the relationship between
the variables during the analysis period can be captured by using a rolling window of time.
4.5.2 Vector Autoregressions (VAR) Model
Although the rolling correlation index provides a simple approach to analyzing the dynamic
between markets, it can only take into account the relationship between two variables and
fails to provide information on causality. Given the limitations of the correlation coefficient,
another model should be adopted to determine the dynamic, especially the spillover effect
between markets. The VAR model is a common model used for the analysis of multivariate
time-series data (Eric, 2021). The model is widely used in finance and econometrics for
causality analysis, forecasting, and policy analysis.
There are several advantages of this model. First, the VAR model can incorporate multiple
variables simultaneously in the model, which is particularly useful for analyzing the
interaction between different markets. In addition, the VAR model can also provide results
on the direction of causality between variables, which is vital for the analysis of the spillover
effect. Furthermore, the VAR model has the ability to capture the dynamics between time
series data, which commonly have the problem of autocorrelation. Therefore, the VAR model
is adopted alongside the rolling correlation coefficient to evaluate the dynamics between
markets.
100
The VAR (Vector Autoregression) model is a generalization of the univariate autoregressive
model that is used for forecasting time series data. Since our study evaluates the relationship
between different REITs markets, the basic requirements for applying the VAR model,
including having at least two time series variables and the presence of a cause-and-effect
relationship between the variables, are fulfilled (Prabhakaran, 2019). In the VAR model, each
variable is modeled as a linear combination of its own past values and the past values of the
other variables. The equations/expressions for the VAR (1) model, which study the spillover
effect between markets, are as follows.
𝑉𝑚1,𝑡 = 𝑎1 + 𝑏1 𝑉𝑚1,𝑡−1 + 𝑏2 𝑉𝑚2,𝑡−1 + 𝑏3 𝑉𝑚3,𝑡−1 + 𝑏4 𝑉𝑚4,𝑡−1 + 𝑏5 𝑉𝑚5,𝑡−1 + 𝑏6 𝑉𝑚6,𝑡−1
+ 𝑏7 𝑉𝑚7,𝑡−1 + 𝑏8 𝑉𝑚8,𝑡−1 + 𝑈𝑡
𝑉𝑚2,𝑡 = 𝑎2 + 𝑏11 𝑉𝑚2,𝑡−1 + 𝑏12 𝑉𝑚1,𝑡−1 + 𝑏13 𝑉𝑚3,𝑡−1 + 𝑏14𝑉𝑚4,𝑡−1 + 𝑏15 𝑉𝑚5,𝑡−1
+ 𝑏16 𝑉𝑚6,𝑡−1 + 𝑏17 𝑉𝑚7,𝑡−1 + 𝑏18 𝑉𝑚8,𝑡−1 + 𝑈𝑡
𝑉𝑚3,𝑡 = 𝑎3 + 𝑏21 𝑉𝑚3,𝑡−1 + 𝑏22 𝑉𝑚1,𝑡−1 + 𝑏23𝑉𝑚2,𝑡−1 + 𝑏24 𝑉𝑚4,𝑡−1 + 𝑏25 𝑉𝑚5,𝑡−1
+ 𝑏26𝑉𝑚6,𝑡−1 + 𝑏27 𝑉𝑚7,𝑡−1 + 𝑏28 𝑉𝑚8,𝑡−1 + 𝑈𝑡
𝑉𝑚4,𝑡 = 𝑎4 + 𝑏31 𝑉𝑚4,𝑡−1 + 𝑏32 𝑉𝑚1,𝑡−1 + 𝑏33𝑉𝑚2,𝑡−1 + 𝑏34 𝑉𝑚3,𝑡−1 + 𝑏35 𝑉𝑚5,𝑡−1
+ 𝑏36𝑉𝑚6,𝑡−1 + 𝑏37 𝑉𝑚7,𝑡−1 + 𝑏38 𝑉𝑚8,𝑡−1 + 𝑈𝑡
𝑉𝑚5,𝑡 = 𝑎5 + 𝑏41 𝑉𝑚5,𝑡−1 + 𝑏42 𝑉𝑚1,𝑡−1 + 𝑏43𝑉𝑚2,𝑡−1 + 𝑏44 𝑉𝑚3,𝑡−1 + 𝑏45 𝑉𝑚4,𝑡−1
+ 𝑏46𝑉𝑚6,𝑡−1 + 𝑏47 𝑉𝑚7,𝑡−1 + 𝑏48 𝑉𝑚8,𝑡−1 + 𝑈𝑡
𝑉𝑚6,𝑡 = 𝑎6 + 𝑏51 𝑉𝑚6,𝑡−1 + 𝑏52 𝑉𝑚1,𝑡−1 + 𝑏53𝑉𝑚2,𝑡−1 + 𝑏54 𝑉𝑚3,𝑡−1 + 𝑏55 𝑉𝑚4,𝑡−1
+ 𝑏56𝑉𝑚5,𝑡−1 + 𝑏57 𝑉𝑚7,𝑡−1 + 𝑏58 𝑉𝑚8,𝑡−1 + 𝑈𝑡
𝑉𝑚7,𝑡 = 𝑎7 + 𝑏61 𝑉𝑚7,𝑡−1 + 𝑏62 𝑉𝑚1,𝑡−1 + 𝑏63𝑉𝑚2,𝑡−1 + 𝑏64 𝑉𝑚3,𝑡−1 + 𝑏65 𝑉𝑚4,𝑡−1
+ 𝑏66𝑉𝑚5,𝑡−1 + 𝑏67 𝑉𝑚6,𝑡−1 + 𝑏68 𝑉𝑚8,𝑡−1 + 𝑈𝑡
𝑉𝑚8,𝑡 = 𝑎8 + 𝑏71 𝑉𝑚8,𝑡−1 + 𝑏72 𝑉𝑚1,𝑡−1 + 𝑏73𝑉𝑚2,𝑡−1 + 𝑏74 𝑉𝑚3,𝑡−1 + 𝑏75 𝑉𝑚4,𝑡−1
+ 𝑏76𝑉𝑚5,𝑡−1 + 𝑏77 𝑉𝑚6,𝑡−1 + 𝑏78 𝑉𝑚7,𝑡−1 + 𝑈𝑡
Vmx,t = Volatility/Return level of market x at of time t
ay = Constants of the equation which served as the intercept of the model
bz = Coefficient of 1 lags of Volatility/Return level of market x
ut = White Noise term
101
The coefficients in a VAR (Vector Autoregression) model imply the relationships among the
variables in the system. Specifically, each coefficient represents the effect of a one-unit
change in the lagged value of one variable on the current value of another variable, holding
all other variables constant. The signs and magnitudes of the coefficients are critical for
understanding the relationships between the variables. A positive coefficient indicates a
positive relationship between the variables, implying that an increase in one variable causes
an increase in the other. A negative coefficient suggests a negative correlation, meaning that
an increase in one variable is related to a decrease in the other variable.
The lag length in a VAR model refers to the number of autoregressive terms included in the
model. To determine the appropriate lag length for the model specification, several
factors/indicators will be considered, such as
-
Frequency of the data
-
Akaike (AIC)
-
Schwarz-Bayesian (BIC)
-
Hannan-Quinn (HQ)
-
Residual Test
The frequency of data is commonly provided clues for the lag length of the model. For
instances, annual data will commonly apply one lags while monthly data will usually apply
12 lags to reflect the data characteristics. Other statistical metrics like AIC and BIC can also
be accessed to determine the goodness of fit of the model.
It is vital for the model to have
an appropriate lag length to allow the model to have an accurate forecast and unbiases
estimate of coefficient.
The VAR analysis will be conducted using the EViews software programme.
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4.5.3 Granger causality
To further analyze the dynamics between variables, VAR studies commonly report additional
tests to support their findings. The Granger causality test is a statistical hypothesis test used
to determine whether one time series is statistically significant in forecasting another time
series. The null hypothesis of the test is that one time series does not provide useful
information in predicting another variable. If the p-value of the F-statistics is less than 0.05
(statistically significant), the causal relationship between variables can be verified. As the
coefficients resulting from the VAR model do not necessarily imply causal relationships
between variables in the system, the Granger causality test provides a means to strengthen
the results of the VAR model.
4.5.4 Impulse Response Analysis
Another test that is commonly reported after a VAR analysis is the impulse-response analysis.
The impulse-response analysis provides insight into the dynamic response of the system to
shocks from other variables over time. The result of the analysis shows the effect of a oneunit shock on one variable to another variable over time. The results of the analysis are
usually delivered as a diagram showing the impact of a variable over time.
Figure 29: Result diagram of Impulse Response Analysis
Note. An Introduction to Impulse Response Analysis of VAR Models, by Franz X. Mohr,
(2021), r-econometrics, https://www.r-econometrics.com/timeseries/irf/.
103
4.5.5 Forecast Error Decomposition
Forecast error decomposition is a statistical technique used to investigate the causes of
forecast error in a time series model. The technique is used to break down the forecast error
into its constituent parts, such as bias, variance, and covariance. In other words, this method
demonstrates how much of the variability in the dependent variable is explained by its own
variation as well as variation from other variables in the system. Forecast error can be
decomposed to help understand the relative importance of different sources of error and
develop targeted interventions to reduce the error. The forecast error decomposition
technique provides valuable insights into the behavior of the system being analyzed and can
help analysts make more informed decisions.
104
5 The performance of REITs in APAC REITs market
As APAC REITs become increasingly important investment instruments for investors, it is necessary to
conduct research on the market to understand their performance since their establishment. In this section,
the performance of REITs in various regimes will be examined using the following approach. Firstly, the
market capitalization-weighted index of each market and sub-sector (including sector-specific REITs and
diversified REITs) in the markets will be presented to depict the general trend of different markets.
Secondly, the risk-adjusted performance represented by Sharpe Ratio, Treynor Ratio, Sortino Ratio, and
Calmar Ratio will be compared. The comparison of risk-adjusted performance allows investors to
evaluate the return of the investment with consideration of the risk taken. Additionally, the correlation
between different REITs sub-sectors and investment assets will also be presented using a correlation
matrix analysis. The results of the correlation analysis are crucial for determining the benefits of
diversification. If an investment asset is negatively correlated with another investment asset, investors
can reduce the overall risk of the investment by investing in both markets. Therefore, the correlation
analysis assists in assessing the possible diversification benefits with APAC REITs.
105
5.1
Overall and sub-sector index performance
The overall and sub-sector indices are market capitalization-weighted indices. Individual stocks in
the market or sector are weighted according to their total market capitalization, with adjustments
made for paid dividends. However, one issue with market capitalization-weighted indices is the
sudden increase in index value that may result from the inclusion of new stocks. This sudden
increase can introduce extreme volatility to the index, significantly impacting calculations in
subsequent sections. As such, adjustments must be made to the index to reduce the impact of
including new elements. One approach commonly adopted by index providers, such as Standard
and Poor's and MSCI, is the gradual inclusion approach. This approach involves adding the value
of the newly listed stock to the index gradually over a period of six to twelve months, depending
on the scale of the change, instead of adding the value all at once.
5.1.1 Japan
Figures 30 and Table 31 depict the performance of the overall and sub-sector REITs markets
in Japan. The empirical results reveal that the healthcare sector has exhibited the best
performance since market establishment, with a CAGR of 17.2% since 2015. In contrast, the
office and retail sectors have shown lackluster performance since establishment, with
CAGRs of 9.4% and 8.1% respectively. Furthermore, the JREITs market performed better in
the early 2000s than in the 2010s, as nearly all sectors exhibited a 10-year CAGR that was
higher than their CAGR since the early 2000s. Overall, the JREITs market provides moderate
performance compared with other markets.
Figure 30: Graphic performance of Japan overall and sub-sectors REITs markets
J REIT Overall & Sub-sector index (Jan 2015 = 100)
Overall
Diversified
Healthcare
Hotel
Industrial
Office
Residential
Retail
11/1/22
12/1/21
1/1/21
2/1/20
3/1/19
4/1/18
5/1/17
6/1/16
7/1/15
8/1/14
9/1/13
10/1/12
11/1/11
12/1/10
1/1/10
2/1/09
3/1/08
4/1/07
5/1/06
6/1/05
7/1/04
8/1/03
9/1/02
10/1/01
400
350
300
250
200
150
100
50
0
Note. Author Compilation
106
Table 31: Summary statistics of Japan REITs overall and subsectors indexes
Healthcar
Overall
Diversified
Industria
Hotel
e
Mean of
Residentia
Office
l
Retail
l
81.8
74.1
166.9
55.7
74.9
81.9
77.2
75.1
141.6
152.9
380.8
161.5
196.1
145.4
141.5
125.5
21.8
7.3
63.0
2.0
11.3
15.0
10.2
27.6
32.8
40.0
85.6
51.0
51.2
33.6
41.5
27.3
Oct01
Mar02
Apr15
May0
May05
Oct01
Jun06
Aug0
Index Value
Highest of
Index Value
Lowest of
Index Value
Standard
Deviation
of Index
Value
Starting
Date
4
4
CAGR (1
-11.1%
-5.2%
11.9%
53.9%
-17.7%
year)
-4.1%
1.6%
14.2%
CAGR
5.2%
8.0%
7.9%
14.5%
18.3%
13.8%
3.6%
6.6%
3.1%
22.2%
15.5%
9.4%
16.1%
8.1%
(10 years)
CAGR
(Since
17.2%
Start)
Note. Author Compilation
107
5.1.2 Australia
In Australia market, the agricultural REITs sector delivered the most stable performance
compared with other sub-sectors. With a CAGR of 28.5% since 2014, it delivered the best
performance compare with other sub-sectors in the same period. The strong performance of
agricultural REITs in Australia can be attributed to the strong growth in agricultural
production in Australia, with the gross value of agricultural production increase by 59% in
past 20 years (Department of Agriculture, Fisheries and Forestry, 2023). In the meantime,
residential property also delivered a promising return in the same period, with 30.6% 10-year
CAGR and 19.4% CAGR since the first listing (Since start). Compare with other market,
Australia market exhibit the best stability and performance in recent decades, with a 10.7%
CAGR for the overall markets, which is substantially higher than 5.2% in Japan, 6.6% in
Singapore and 4.7% in Hong Kong. However, AREITs market had faced a substantial hit in
the last years due to the economic uncertainly brought by inflation and pandemic, with the
board AREITs market facing a drop of 12.6%. To conclude, AREITs market exhibit a strong
return characteristic since its establishment.
Figure 31: Graphic performance of Australia overall and sub-sectors REITs markets
J REIT Overall & Sub-sector index (Feb 2014 = 100)
Overall
Agricultural
Management
Diversified
Healthcare
Hotel
Industrial
Infrastructure
Office
Residential
Retail
2021-09-01
2020-04-01
2018-11-01
2017-06-01
2016-01-01
2014-08-01
2013-03-01
2011-10-01
2010-05-01
2008-12-01
2007-07-01
2006-02-01
2004-09-01
2003-04-01
2001-11-01
2000-06-01
1999-01-01
1997-08-01
1996-03-01
1994-10-01
1993-05-01
1991-12-01
1990-07-01
1800
1600
1400
1200
1000
800
600
400
200
0
Note. Author Compilation
108
Table 32 & 33: Summary statistics of Australia REITs overall and subsectors indexes
Mean of
Overall
Agricultural
Management
Diversified
Healthcare
Hotel
106.8
570.5
97.2
78.0
281.4
178.2
352.0
1213.6
195.5
151.4
590.3
296.7
17.4
97.7
17.4
15.2
86.9
100.0
77.4
319.4
41.7
39.7
143.7
43.0
Jul90
Feb14
Jul05
Jul90
Jun13
Dec13
-12.6%
-13.2%
21.7%
-8.7%
-19.2%
4.4%
15.8%
1.8%
-1.1%
5.0%
18.6%
11.0%
Index Value
Highest of
Index Value
Lowest of
Index Value
Standard
Deviation of
Index Value
Starting Date
CAGR (1
year)
CAGR
10.7%
(10 years)
CAGR
7.5%
28.5%
(Since Start)
109
Industrial
Infrastructure
Office
Residential
Retail
169.3
142.9
73.4
156.2
376.5
574.1
468.9
257.3
674.2
1650.9
8.9
7.9
0.0
4.8
11.6
129.1
129.9
73.6
154.3
479.0
Feb05
May03
Jan92
Dec04
Dec96
-13.6%
-9.2%
-20.8%
-20.8%
8.7%
15.7%
18.2%
4.4%
30.6%
24.4%
10.6%
16.0%
21.0%
19.4%
17.5%
Mean of
Index Value
Highest of
Index Value
Lowest of
Index Value
Standard
Deviation of
Index Value
Starting Date
CAGR (1
year)
CAGR
(10 years)
CAGR
(Since Start)
Note. Author Compilation
5.1.3 Singapore
Among the several sub-sectors in the SREITs market, the data center REITs has performed
brilliantly in the previous decade. With a CAGR of 17.3% since 2014, the data center REITs
has grown tremendously due to the growth in demand for digital services. Additionally, data
centers are attractive to investors due to their steady, utility-like cashflow (McKinsey &
Company, 2023). However, the data center sector faced a significant decline due to economic
uncertainty and valuation concerns (Data center REITs were trading at high valuation
multiples compared with other REITs sub-sectors). Despite these challenges, the sector still
has a promising future due to the long-term trend of increasing data consumption. However,
if the performance of the data center sector is excluded, the performance of the SREITs
market in recent years is a tragedy, with most sectors having a 10-year CAGR in the midsingle digits. Although the performance of SREITs in the 2000s was good, the poor
performance in recent years reduces the attractiveness of SREITs as an investment option.
110
Figure 32: Graphic performance of Singapore overall and subsectors REITs markets
S REIT Overall & Sub-sector index (Dec 2014 = 100)
700
600
500
400
300
200
100
Overall
Data Centre
Diversified
Healthcare
Hotel
Industrial
Office
Retail
2022-12-01
2022-03-01
2021-06-01
2020-09-01
2019-12-01
2019-03-01
2018-06-01
2017-09-01
2016-12-01
2016-03-01
2015-06-01
2014-09-01
2013-12-01
2013-03-01
2012-06-01
2011-09-01
2010-12-01
2010-03-01
2009-06-01
2008-09-01
2007-12-01
2007-03-01
2006-06-01
2005-09-01
0
Note. Author Compilation
111
Table 34: Summary statistics of Singapore REITs overall and subsectors indexes
Data
All
Diversified
Healthcare
Hotel
Industrial
Office
Retail
Centre
Mean of
107.23
279.36
99.62
101.62
99.35
119.57
61.77
80.01
196.09
573.60
177.91
221.96
166.39
258.44
113.05
135.19
39.75
100.00
36.95
16.34
22.66
41.77
8.49
19.20
38.21
149.56
29.80
49.50
30.02
61.25
28.56
30.35
Sep05
Dec14
Sep05
Dec06
Mar06
Sep05
Apr06
Sep05
15.7%
3.5%
18.4%
-14.4%
20.6%
8.8%
-7.6%
4.3%
5.4%
6.4%
3.7%
9.3%
-4.6%
5.5%
7.4%
15.7%
9.9%
7.4%
11.6%
5.8%
Index
Value
Highest
of Index
Value
Lowest
of Index
Value
Standard
Deviatio
n of
Index
Value
Starting
Date
CAGR
(1 year)
CAGR
(10
6.6%
years)
CAGR
(Since
6.3%
17.3%
Start)
112
5.1.4 Hong Kong
The HREITs market has delivered similar performance in recent years, with all sectors
exhibiting a mid/high single-digit 10-year CAGR since 2005, with the exception of the hotel
subsector (-3.9% CAGR). It should be noted that the limited number of REITs listed on the
Hong Kong Stock Exchange (HKEX) means that the movement of the REITs market is
dominated by the price movement of a single security - LINK REITs (0823) - which has a
nearly 70% weighting in the index. Although the HREITs market experienced tremendous
growth in the early 2010s (with an 18% CAGR from 2010 to 2018), all sectors have
experienced a continuous decline since 2018 (-9% CAGR), due to political instability caused
by social unrest followed by the COVID pandemic. The substantial drop in recent years has
made HREITs an unfavorable investment vehicle for investors, with only a 4.7% 10-year
CAGR, which is comparable to the return of bonds investment. Although the HREITs market
has delivered unsatisfactory results in recent years, the potential for the development of the
HREITs market is enormous as number of property sectors have yet to be covered by HREITs
market.
113
Figure 33: Graphic performance of Hong Kong overall and subsectors REITs markets
H REIT Overall & Sub-sector index (Mar 2007 = 100)
700
600
500
400
300
200
100
Overall
Retail
Diversified
Office
2022-11-30
2021-11-30
2020-11-30
2019-11-30
2018-11-30
2017-11-30
2016-11-30
2015-11-30
2014-11-30
2013-11-30
2012-11-30
2011-11-30
2010-11-30
2009-11-30
2008-11-30
2007-11-30
2006-11-30
2005-11-30
0
Hotel
Note. Author Compilation
Table 35: Summary statistics of Hong Kong REITs overall and subsectors indexes
Overall
Retail
Diversified
Office
Hotel
Mean of Index Value
217.1
218.1
348.1
172.5
74.8
Highest of Index Value
479.0
468.6
652.0
321.2
103.5
Lowest of Index Value
68.1
64.1
50.9
46.7
27.0
Standard Deviation of
107.9
107.1
195.8
58.2
17.7
Starting Date
Nov05
Nov05
Dec05
May06
Mar07
CAGR (1 year)
-1.1%
-3.2%
-16.0%
-9.4%
-6.3%
CAGR (10 years)
4.7%
3.9%
-8.1%
-0.9%
-4.9%
CAGR (Since Start)
7.5%
9.5%
6.0%
3.3%
-3.9%
Index Value
Note. Author Compilation
114
5.1.5 Malaysia
Among the different property sectors, diversified REITs dominated the long-term CAGR
measurement, with a 21.3% CAGR since 2005 and a 14.7% 10-year CAGR. The
performance of other REITs sub-sectors showed great variation, with some subsectors
exhibiting high growth rates (Industrial 10-year CAGR = 12.7%) and others showing low
growth rates (Healthcare 10-year CAGR = 0.1%). Although most sectors showed moderate
growth rates since their establishment, all sub-market growth is said to have stagnated in the
period of 2014-2023 according to Figure 34. The slower growth in the MREITs market can
be explained by the slow economic growth in recent years, with the annual GDP growth rate
dropping to around 4%. However, MREITs have become a popular investment option in
recent months due to their ability to hedge against developed markets. The MREITs has
experienced a strong recovery since mid-2022 due to decelerating inflation, weaker US
dollars, and improving fundamentals (Lazard Asset Management, 2023). Therefore, MREITs
are said to be providing moderate performance compared with other countries in the long
term.
Figure 34: Graphic performance of Malaysia overall and subsectors REITs markets
M REIT Overall & Sub-sector index (Apr 2007 = 100)
Overall
Diversified
Healthcare
Industrial
Office
Retail
2023-02-01
2022-04-01
2021-06-01
2020-08-01
2019-10-01
2018-12-01
2018-02-01
2017-04-01
2016-06-01
2015-08-01
2014-10-01
2013-12-01
2013-02-01
2012-04-01
2011-06-01
2010-08-01
2009-10-01
2008-12-01
2008-02-01
2007-04-01
2006-06-01
2005-08-01
4000
3500
3000
2500
2000
1500
1000
500
0
Hotel
Note. Author Compilation
115
Table 36: Summary statistics of Malaysia REITs overall and subsectors indexes
Mean of
Overall
Diversified
Healthcare
Hotel
Industrial
Office
Retail
771.9
1764.1
253.0
132.4
146.2
159.1
934.0
1452.7
3540.0
383.3
222.5
452.8
272.9
1635.4
61.7
89.9
100.0
79.6
64.2
61.9
65.3
527.9
1367.6
80.5
37.2
73.7
53.2
508.5
Aug05
Aug05
Aug06
Dec05
Apr07
Dec05
Dec06
10.4%
11.6%
13.7%
8.8%
66.6%
0.0%
13.0%
7.2%
14.7%
0.1%
1.2%
12.7%
3.0%
1.4%
18.4%
21.3%
6.5%
2.5%
8.9%
6.4%
18.2%
Index Value
Highest of
Index Value
Lowest of
Index Value
Standard
Deviation of
Index Value
Starting Date
CAGR (1
year)
CAGR (10
years)
CAGR (Since
Start)
Note. Author Compilation
5.1.6 India
Established in 2019, the IREITs market grew at a high speed since its inception. However,
the growing trend of the market was disrupted by the global economic uncertainty caused by
the COVID-19 pandemic, which led to a decline in investor confidence and reduced demand
for investment in the market. In addition to economic uncertainty, the restrictive regulatory
environment in India has also contributed to the poor performance of the market. There has
been no new REITs listing on the National Stock Exchange (NSE) since July 2021, which
reflects the inactivity of the REITs market. Although the IREITs market is the only APAC
regime showing negative performance since its establishment, the market is expected to
recover given the strong economic growth potential of India.
116
Figure 35: Graphic performance of India overall REITs markets
I REIT Index (From Apr 2019 = 100)
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
0.0
Note. Author Compilation
Table 37: Summary statistics of India REITs overall index
IREITs overall market index
Mean of Index Value
108.4
Highest of Index Value
141.7
Lowest of Index Value
90.8
Standard Deviation of Index Value
12.1
Starting Date
Sep19
CAGR (1 year)
-9.9%
CAGR (Since Start)
-0.9%
Note. Author Compilation
117
5.1.7 China
Among the three sub-sectors in the Chinese REITs market, only infrastructure REITs have
provided a positive return on both 1-year CAGR and CAGR since the inception of the
market. As these infrastructure REITs develop public infrastructure such as tolled roads or
utility stations, they are relatively immune from economic or financial market shocks. Other
REITs sub-sectors have shown a significant downturn in recent years, with industrial REITs
declining by 18.0% and residential REITs declining by 28.9%. Although the performance of
the Chinese REITs market is not comparable to that of other growing markets, the results
obtained from the analysis of 2021-2023 data are not conclusive, as other markets are also
experiencing a decline during the same period.
Figure 36: Graphic performance of China overall and subsectors REITs markets
C REIT Overall & Sub-sector index (Jun 2021 = 100)
140
120
100
80
60
40
20
Overall
Industrial
Infrastructure
2023-01-01
2022-12-01
2022-11-01
2022-10-01
2022-09-01
2022-08-01
2022-07-01
2022-06-01
2022-05-01
2022-04-01
2022-03-01
2022-02-01
2022-01-01
2021-12-01
2021-11-01
2021-10-01
2021-09-01
2021-08-01
2021-07-01
2021-06-01
0
Residential
Note. Author Compilation
Table 38: Summary statistics of China REITs overall and subsectors indexes
Overall
Industrial
Infrastructure
Residential
Mean of Index Value
96.7
92.0
96.9
84.9
Highest of Index Value
107.6
117.3
110.6
100.0
Lowest of Index Value
86.2
75.1
89.7
74.9
Standard Deviation of Index Value
6.0
9.6
6.2
9.4
Starting Date
Jun21
Jun21
Jun21
Aug22
CAGR (1 year)
-0.1%
-18.0%
10.4%
CAGR (Since Start)
6.4%
2.0%
8.8%
-28.9%
Note. Author Compilation
118
5.1.8 Philippines
Compared to other APAC REITs regimes that have diverse performance among different
sectors, different sub-sector REITs in the Philippine market have shown a similar trend since
the market was established in August 2020 as shown in figure 37 below. The market
experienced significant growth from 2020 to late 2021 and faced a moderate decline
subsequently in 2022 amid the fear of high inflation and recession. However, the market has
set to rebound in late 2022, with nearly a 15% increase in the board REITs market since
October 2022. This increasing trend is expected to continue in the coming years. According
to PSE operators, there are expected to be 11 listings of PREITs in 2023, which will double
the total number of REITs on the main board of PSE (D.Tabile, 2023).
Figure 37: Graphic performance of Philippines overall and subsectors REITs markets
P REIT Overall & Sub-sector index (Aug 2020 = 100)
160
140
120
100
80
60
40
20
0
Overall
Diversified
Office
Infrastructure
Retail
Note. Author Compilation
119
Table 39: Summary statistics of Philippines REITs overall and subsectors indexes
Overall
Diversified
Office
Infrastructure
Retail
97.9
90.4
99.2
98.5
95.6
150.8
143.2
135.7
110.8
100.6
61.2
49.1
72.6
81.1
87.9
24.1
29.6
16.6
7.6
4.2
Starting Date
Aug20
Aug20
Mar21
Feb22
Jun22
CAGR (1 year)
-29.4%
-18.0%
-26.4%
24.4%
42.2%
6.9%
-12.7%
-7.7%
Mean of Index
Value
Highest of Index
Value
Lowest of Index
Value
Standard
Deviation of
Index Value
CAGR (Since
Start)
Note. Author Compilation
5.1.9 Section Summary
This section presents the results of the market capitalization weighted index of each APAC
REITs market and its sub-sectors. The CAGR of each market, covering different periods, is
also presented to show the overall performance of each market/sector. By comparing the
CAGR between different investment instruments, investors can estimate the level of future
return on these investments. Among various APAC REITs markets, Malaysia and Australia
have shown the best long-term performance, with the highest level of CAGR since their
respective markets were established and over a 10-year horizon. In terms of short-term
performance, the Singapore REITs market has demonstrated great resilience in previous
years, with a CAGR of 15.7%.
Table 40: Comparison of CAGR between APAC REITs markets
CAGR length
JPN
AUS
SGP
HKG
MAS
IND
CHN
PHP
1 years
-11.1%
-12.6%
15.7%
-1.1%
10.4%
-9.9%
-0.1%
-29.4%
10 years
5.2%
10.7%
6.6%
4.7%
7.2%
Since Start
7.9%
7.5%
6.3%
7.5%
18.4%
-0.9%
6.4%
24.4%
Note. Author Compilation
120
Table 41: Top performing REITs subsector
1st
2nd
3rd
4th
5th
CAGR (1 year)
CAGR (10 year)
CAGR (Since Start)
Malaysia – Industrial
Australia – Residential
Philippines – Diversified (42.4%)
(66.6%)
(30.6%)
Japan – Hotel
Australia – Retail
Australia – Agricultural
(53.9%)
(24.4%)
(28.5%)
Australia – Asset Management
Japan – Hotel
Japan – Hotel
(21.7%)
(18.3%)
(22.2%)
Singapore – Hotel
Australia – Infrastructure
Malaysia – Diversified
(20.6%)
(18.2%)
(21.3%)
Singapore – Diversified
Australia – Asset Management
Australia – Office
(18.4%)
(15.8%)
(21.0%)
Note. Author Compilation
However, it should be noted that the CAGR alone does not consider the risks involved in
achieving the annual return. Therefore, it is essential to assess the risk-adjusted performance
before making any investment decisions.
5.2
Risk-adjusted Performance
This section aims to compare and contrast the risk-adjusted performance of different markets and
sub-sectors. In order to gain a thorough understanding of the performance of various investment
instruments during different periods, both long-term and short-term risk-adjusted performance of
different market REITs total return index will be evaluated. Subsequently, this section will present
the risk-adjusted performance calculated using 10-year (From 01/2013 – 01/2023) and 3-year
data of total REITs return indexes, stock market benchmark indexes and S&P bond market indexes
(From 01/2020 to 01/2023). To compare the risk-adjusted performance of different investments,
the Sharpe Ratio, Treynor Ratio, Sortino Ratio, and Calmar Ratio will be employed. These ratios
evaluate different types of risk present in investments, which are listed in the table below. It is
believed that investors can gain a more holistic view of APAC REITs performance after reading
this section.
121
Table 42: Comparison between risk-adjusted performance ratio
Ratio
Function
Method to measure risk
Sharpe Ratio
Measure the excess return per unit of risk
Standard Deviation
(both systematic and non-systematic risk)
Treynor Ratio
Measure the excess return per unit of systematic risk
Beta
Sortino Ratio
Measure the excess return per unit of downside risk
Semistandard Deviation
Calmar Ratio
Measure the return to drawdown ratio
Maximum Drawdown (Consecutive
decrease in value)
Note. Author compilation from various internet sources
5.2.1 Japan
From a long-term perspective, hotel REITs present the highest overall risk (29.16%),
downside risk (93.74%), and maximum drawdown level (65.58%) compared to other
investment instruments. The high level of risk is partially attributed to the significant impact
of the pandemic on this sector. However, this risk is offset by a high annualized return
(17.94%). On the other hand, the Japan Bond Index shows the lowest risk compared to REITs
and stocks, with an annualized risk of 1.56%, semi-deviation of 5.4%, and a maximum
drawdown of 7.73%. Despite this low level of risk, investors were only compensated with a
0.31% annualized return. The comparison of risk-adjusted performance is presented in
Figure 38, which shows the ranking of each sector in four risk-adjusted performance metrics.
Industrial REITs topped in nearly every measurement, with a Sharpe Ratio of 0.72 (#2),
Sortino Ratio of 0.27 (#2), and Calmar Ratio of 0.50 (#1). Meanwhile, Healthcare and
Residential REITs markets also provided satisfactory risk-adjusted performance. On the
contrary, the equity market (Nikkei 225) had the worst risk-adjusted performance as it was
the only instrument that provided a negative annualized return.
122
Table 43 & 44: Risk adjusted performance of Japan REITs and other investment vehicles (10
years data)
Overall
Diversified
Healthcare
Hotel
Industrial
Annualized return
3.90%
7.38%
17.18%
17.94%
13.54%
Annualized risk
16.93%
17.61%
28.40%
29.16%
18.63%
Beta
0.12
0.06
0.07
-0.10
0.01
Semi deviation
54.94%
53.79%
61.37%
93.74%
49.42%
Max drawdown
24.40%
37.87%
39.95%
65.58%
26.60%
Average drawdown
8.45%
9.75%
10.53%
18.92%
7.39%
Sharpe ratio
0.22
0.42
0.60
0.61
0.72
Sharpe ratio Rank
6
4
3
2
1
Treynor ratio
31.56%
115.39%
241.42%
-183.77%
1067.93%
Treynor ratio Rank
7
4
2
10
1
Sortino ratio
0.07
0.14
0.28
0.19
0.27
Sortino ratio Rank
6
4
1
3
2
Calmar ratio
0.15
0.19
0.43
0.27
0.50
Calmar ratio Rank
6
5
2
4
1
Office
Residential
Retail
S&P Japan Bond Index
Nikkei 225
Annualized return
1.89%
6.15%
2.58%
0.31%
-1.19%
Annualized risk
19.68%
16.57%
18.98%
1.56%
18.31%
Beta
0.16
0.05
0.02
0.00
1.00
Semi deviation
63.96%
45.81%
60.48%
5.40%
63.03%
Max drawdown
32.50%
21.53%
38.37%
7.73%
55.34%
Average drawdown
13.86%
7.66%
17.39%
1.92%
16.47%
Sharpe ratio
0.09
0.36
0.13
0.09
-0.07
Sharpe ratio Rank
8
5
7
9
10
Treynor ratio
10.64%
121.64%
107.96%
59.81%
-1.37%
Treynor ratio Rank
8
3
5
6
9
Sortino ratio
0.03
0.13
0.04
0.02
-0.02
Sortino ratio Rank
8
5
7
9
10
Calmar ratio
0.05
0.28
0.06
0.02
-0.02
Calmar ratio Rank
8
3
7
9
10
Note. Author Compilation
123
Figure 38: Graphical representation of risk adjusted performance of sectors in Japan
Ranking of risk-adjusted ratios (Japan 10-year)
10
9
8
7
6
5
4
3
2
1
0
Sharpe ratio Rank
Treynor ratio Rank
Calmar ratio Rank
Overall
Sortino ratio Rank
Note. Author Compilation
The dynamics of the market have changed dramatically since the COVID-19 pandemic,
which has caused structural changes in the economy. These changes are reflected in the
Japanese market, where the hotel sector remains the riskiest instrument to invest in, while
the overall risk-adjusted performance of healthcare and industrial REITs still leads other
investment instruments. However, the residential REITs sector no longer provides top-notch
risk-adjusted performance to investors. Instead, the retail REITs sector has delivered
satisfactory risk-adjusted performance since the start of the pandemic, with a Sharpe Ratio
of 0.32 (#3), Treynor Ratio of 1.79 (#2), Sortino Ratio of 0.05 (#3), and Calmar Ratio of 0.09
(#3). The relatively attractive performance can be attributed to the increased demand for ecommerce activities, which has allowed retail REITs to maintain their income compared to
other sectors. On the other hand, the bond and equity market have delivered the worst riskadjusted performance, consistent with the 10-year analysis results. With the extreme lowinterest-rate (negative rate) environment lingering in Japan, the bond markets are deemed to
provide poor performance to investors.
124
Table 45 & 46: Risk adjusted performance of Japan REITs and other investment vehicles (3
years data)
Overall
Diversified
Healthcare
Hotel
Industrial
Annualized return
-3.56%
-4.12%
16.48%
-1.17%
5.83%
Annualized risk
8.34%
11.04%
12.82%
21.52%
10.87%
Beta
0.08
0.06
-0.03
-0.13
0.06
Semi deviation
59.88%
78.16%
71.45%
145.79%
62.33%
Max drawdown
24.40%
37.87%
20.57%
65.58%
26.60%
Average drawdown
9.82%
17.21%
5.80%
37.61%
8.40%
Sharpe ratio
-0.44
-0.38
1.28
-0.06
0.52
Sharpe ratio Rank
7
6
1
4
2
Treynor ratio
-44.31%
-70.56%
-585.22%
9.69%
97.69%
Treynor ratio Rank
6
8
10
4
3
Sortino ratio
-0.06
-0.05
0.23
-0.01
0.09
Sortino ratio Rank
8
7
1
4
2
Calmar ratio
-0.15
-0.11
0.80
-0.02
0.21
Calmar ratio Rank
7
5
1
4
2
Office
Residential
Retail
S&P Japan Bond Index
Nikkei 225
Annualized return
-6.03%
-1.84%
3.40%
-2.04%
-9.07%
Annualized risk
10.32%
8.04%
10.26%
0.76%
13.04%
Beta
0.09
0.02
0.02
-0.01
1.00
Semi deviation
68.27%
50.61%
70.54%
6.72%
81.52%
Max drawdown
32.50%
15.55%
38.37%
7.73%
55.34%
Average drawdown
15.62%
6.40%
12.08%
3.48%
27.80%
Sharpe ratio
-0.60
-0.24
0.32
-2.84
-0.70
Sharpe ratio Rank
8
5
3
10
9
Treynor ratio
-67.80%
-86.81%
179.34%
241.60%
-9.19%
Treynor ratio Rank
7
9
2
1
5
Sortino ratio
-0.09
-0.04
0.05
-0.32
-0.02
Sortino ratio Rank
9
6
3
10
5
Calmar ratio
-0.19
-0.13
0.09
-0.28
-0.17
Calmar ratio Rank
9
6
3
10
8
Note. Author Compilation
125
Figure 39: Graphical representation of risk adjusted performance of sectors in Japan
Ranking of risk-adjusted ratios (Japan 3-year)
10
9
8
7
6
5
4
3
2
1
0
Sharpe ratio Rank
Treynor ratio Rank
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
5.2.2 Australia
In terms of long-term risk level, both asset management REITs and retail REITs present
significant risk to investors. The annualized standard deviation of the asset management
REITs sector is 70.83%, which is nearly double that of the retail REITs sector (48.04%),
which ranked second in terms of volatility during the study period. In other words, investors
would be subject to significant volatility shocks if holding asset management REITs. For
retail REITs, the semi-deviation (101.68%) and maximum drawdown (76.65%) were the
highest among different sectors and instruments. These high levels imply that investors may
face substantial risk of capital depreciation when holding these investments.
126
In terms of long-term risk-adjusted performance, residential REITs have taken a lead in
nearly all aspects, with all ratios ranking 1st or 2nd among different sectors and instruments.
The low-interest-rate environment, limited land supply, and urbanization trends have all
contributed to the strong performance of the Australian residential REITs markets.
Additionally, Healthcare REITs have also performed brilliantly in the 10-year timeframe,
with the highest Sharpe ratio (0.81) among all groups. It is important to note that the low
value of the Treynor Ratio for Healthcare REITs was caused by the negative beta, which is
not relevant to the performance of Healthcare REITs. Therefore, Healthcare REITs are also
considered top performers in this period. Conversely, with a annualized return (1.27%) lower
than the bond market (2.53%), the worse risk-adjusted performer was the diversified REITs
sector, with a -0.06 Sharpe Ratio, -0.02 Sortino Ratio and -0.03 Calmar Ratio.
Table 47 & 48: Risk adjusted performance of Australia REITs and other investment vehicles
(10 years data)
Overall
Agricultural
Management
Diversified
Healthcare
Hotel
Industrial
10.21%
13.69%
16.54%
1.27%
23.07%
11.04%
15.37%
26.20%
24.79%
70.83%
19.89%
25.54%
19.07%
21.45%
Beta
-0.04
-0.18
0.04
-0.14
-0.08
-0.15
-0.20
semi deviation
73.92%
59.08%
75.42%
74.53%
85.53%
65.81%
67.46%
Max
40.89%
27.10%
50.48%
42.81%
44.97%
33.54%
41.25%
10.29%
5.59%
29.52%
12.65%
5.49%
6.29%
6.30%
Sharpe ratio
0.30
0.46
0.20
-0.06
0.81
0.46
0.60
Sharpe ratio
8
5
9
13
1
6
3
-
-63.14%
366.61%
8.51%
-253.90%
-58.49%
-64.56%
11
8
1
3
12
7
9
Sortino ratio
0.10
0.19
0.19
-0.02
0.24
0.13
0.19
Sortino ratio
9
4
6
13
2
8
5
Calmar ratio
0.19
0.42
0.28
-0.03
0.46
0.26
0.31
Calmar ratio
9
3
7
13
2
8
4
Annualized
return
Annualized
risk
drawdown
Average
drawdown
Rank
Treynor ratio
204.13%
Treynor ratio
Rank
Rank
Rank
127
S&P Australia
Aggregate Bond
S&P_ASX
Infrastructure
Office
Residential
Retail
Index
200
17.55%
4.09%
29.74%
24.06%
2.53%
3.81%
risk
27.02%
19.41%
37.70%
48.04%
3.39%
13.07%
Beta
-0.18
-0.12
0.17
-0.01
-0.03
1.00
Annualized
return
Annualized
Semi
deviation
101.68
86.39%
65.22%
69.06%
%
11.35%
48.68%
50.11%
45.33%
43.12%
76.65%
13.30%
27.65%
drawdown
6.61%
12.86%
5.84%
27.87%
1.69%
5.18%
Sharpe ratio
0.56
0.08
0.72
0.45
0.03
0.10
4
11
2
7
12
10
Max
drawdown
Average
Sharpe ratio
Rank
Treynor ratio
2601.0
-83.74%
-13.29%
163.52%
8%
-3.44%
1.36%
Rank
10
6
2
13
5
4
Sortino ratio
0.17
0.03
0.40
0.21
0.01
0.03
Rank
7
11
1
3
12
10
Calmar ratio
0.30
0.04
0.63
0.28
0.01
0.05
5
11
1
6
12
10
Treynor ratio
Sortino ratio
Calmar ratio
Rank
Note. Author Compilation
128
Figure 40: Graphical representation of risk adjusted performance of sectors in Australia
Ranking of risk-adjusted ratios (Australia 10-year)
13
11
9
7
5
3
1
-1
Sharpe ratio Rank
Treynor ratio Rank
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
Similar to the long-term analysis, retail REITs still present a high-risk level, with an
annualized standard deviation of 27.66% (#1), semi-deviation of 168.05% (#1), and a
maximum drawdown of 76.65% (#1). Asset management REITs and infrastructure REITs
can also be categorized as groups with high risk, with over 50% maximum drawdown during
the study period. In contrast to the long-term analysis, agricultural REITs and industrial
REITs delivered the best risk-adjusted performance in the shorter-term analysis. For
agricultural REITs, the strong agricultural development in Australia supported by the
government, along with the essential nature of the agricultural industry, meant that
agricultural REITs were minimally impacted by the shock of the bond market caused by
economic uncertainty and the pandemic. For industrial REITs, the growth of e-commerce
caused by the COVID-19 pandemic dramatically increased the demand for industrial
properties used for warehousing and logistics. According to CBRE, the vacancy rate of
industrial properties in Australia in the first half of 2022 was around 1.3%, the second-lowest
rate worldwide (Schlesinger, 2022). With such strong demand for industrial property, it is
unsurprising that the industrial sector delivered such resounding risk-adjusted performance.
On the other hand, the Australian bond market was the worst performer, with nearly all ratios
indicating the lowest performance among all groups. The raising interest rate environment
was the main culprit for the poor risk-adjusted performance of the market. The office sector
also delivered extremely poor performance due to the trend of work-from-home, with an
annualized return of -12.27% and the lowest Calmar ratio among all groups during the study
period.
129
Table 49 & 50: Risk adjusted performance of Australia REITs and other investment
vehicles (3 years data)
Overall
Agricultural
Management
Diversified
Healthcare
Hotel
Industrial
6.21%
13.01%
-5.94%
-8.58%
7.85%
13.25%
14.38%
risk
17.23%
11.46%
13.20%
16.11%
21.39%
14.69%
17.04%
Beta
-0.24
-0.24
0.16
-0.21
-0.15
-0.16
-0.28
Semi
114.09
deviation
%
70.24%
85.97%
117.16%
139.11%
96.65%
103.55%
40.89%
27.10%
50.48%
42.81%
44.97%
33.54%
41.25%
13.11%
9.56%
40.38%
24.68%
9.81%
9.19%
11.42%
0.24
0.96
-0.60
-0.66
0.27
0.77
0.73
7
1
10
11
6
2
3
Annualized
return
Annualized
Max
drawdown
Average
drawdown
Sharpe
ratio
Sharpe
ratio Rank
Treynor
ratio
-17.75%
-45.15%
-48.67%
51.21%
-40.04%
69.05%
-43.52%
6
10
11
4
8
13
9
0.04
0.16
-0.09
-0.09
0.04
0.12
0.12
7
1
11
10
6
3
2
0.10
0.41
-0.16
-0.25
0.13
0.34
0.30
7
1
10
11
6
2
3
Treynor
ratio Rank
Sortino
ratio
Sortino
ratio Rank
Calmar
ratio
Calmar
ratio Rank
130
S&P Australia
Aggregate
S&P_ASX
Infrastructure
Office
Residential
Retail
Bond Index
200
8.71%
-12.27%
13.85%
-9.42%
-2.08%
0.95%
risk
21.35%
12.36%
19.64%
27.66%
2.58%
9.94%
Beta
-0.26
-0.16
-0.17
-0.2
-0.02
1
141.85%
93.32%
114.99%
168.05%
18.31%
71.47%
50.11%
45.33%
43.12%
76.65%
13.30%
27.65%
drawdown
13.99%
30.82%
12.64%
57.70%
4.55%
7.47%
Sharpe ratio
0.31
-1.15
0.60
-0.41
-1.59
-0.11
Rank
5
12
4
9
13
8
Treynor ratio
-25.67%
88.41%
-67.98%
57.54%
215.09%
-1.05%
Rank
7
2
12
3
1
5
Sortino ratio
0.05
-0.15
0.10
-0.07
-0.22
-0.01
Rank
5
12
4
9
13
8
Calmar ratio
0.13
-0.31
0.27
-0.15
-0.31
-0.04
5
11
1
6
12
10
Annualized
return
Annualized
Semi
deviation
Max
drawdown
Average
Sharpe ratio
Treynor ratio
Sortino ratio
Calmar ratio
Rank
Note. Author Compilation
131
Figure 41: Graphical representation of risk adjusted performance of sectors in Australia
Ranking of risk-adjusted ratios (Australia 3-year)
13
11
9
7
5
3
1
-1
Sharpe ratio Rank
Treynor ratio Rank
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
5.2.3 Singapore
The levels of long-term risk across different sectors in Singapore's investment markets
perform in a similar manner. During the study period, the standard deviation of stocks ranged
from 13.84% to 20.56%, with diversified REITs being associated with the highest overall
risk. Office REITs experienced the highest level of semi deviation (68.49%), while data
centers experienced the greatest drawdown (50.97%) since mid-2022. The recent significant
drop in data center REITs can be explained by the increase in interest rates, which caused
sector revaluation (Keng, 2022). Despite the recent revaluation, data center REITs still have
the best long-term risk-adjusted performance among SREITs, with a Sharpe Ratio of 1.70
(#1), Sortino Ratio of 0.62 (#1), and Calmar Ratio of 0.17 (#1). With the increasing need for
cloud space and server capacity, data centers have thrived in previous years and are expected
to have significant growth in the future. Additionally, industrial REITs have also shown
promising risk-adjusted performance due to the trend of ecommerce globally. Conversely,
office REITs have been the worst performer in the recent decade, with an annualized return
of -4.57% since 2013 due to the problem of oversupply and the trend of remote working.
132
Table 51 & 52: Risk adjusted performance of Singapore REITs and other investment vehicles
(10 years data)
Overall
Data Centre
Diversified
Healthcare
Hotel
Annualized return
5.98%
33.82%
5.24%
5.46%
2.98%
Annualized risk
13.92%
18.69%
20.56%
13.76%
20.36%
Beta
-0.07
-0.02
-0.16
-0.16
-0.14
Semi deviation
43.91%
51.13%
53.33%
46.00%
66.06%
Max drawdown
22.39%
50.97%
27.99%
29.23%
41.81%
Average drawdown
8.01%
8.94%
10.44%
7.12%
15.10%
Sharpe ratio
0.28
1.70
0.15
0.25
0.04
Sharpe ratio Rank
3
1
6
4
7
Treynor ratio
-58.90%
-1772.84%
-19.68%
-21.48%
-6.64%
Treynor ratio Rank
6
10
4
5
3
Sortino ratio
0.09
0.62
0.06
0.07
0.01
Sortino ratio Rank
3
1
5
4
7
Calmar ratio
0.17
0.62
0.11
0.12
0.02
Calmar ratio Rank
3
1
5
4
7
S&P Singapore
Industrial
Office
Retail
Bond Index
MSCI Singapore
Annualized return
7.91%
-4.57%
4.82%
1.49%
-2.36%
Annualized risk
14.25%
17.23%
16.65%
1.90%
13.84%
Beta
-0.01
-0.07
-0.03
0.01
1.00
Semi deviation
46.50%
68.49%
48.09%
6.11%
50.75%
Max drawdown
21.92%
50.21%
29.04%
6.22%
33.75%
Average drawdown
6.94%
29.33%
7.86%
0.98%
14.11%
Sharpe ratio
0.41
-0.39
0.16
-0.31
-0.32
Sharpe ratio Rank
2
10
5
8
9
Treynor ratio
-601.55%
95.71%
-94.45%
-75.13%
-4.44%
Treynor ratio Rank
9
1
8
7
2
Sortino ratio
0.13
-0.10
0.06
-0.10
-0.09
Sortino ratio Rank
2
10
6
9
8
Calmar ratio
0.27
-0.13
0.09
-0.09
-0.13
Calmar ratio Rank
2
10
6
8
9
Note. Author Compilation
133
Figure 42: Graphical representation of risk adjusted performance of sectors in Singapore
Ranking of risk-adjusted ratios (Singapore 10-year)
10
9
8
7
6
5
4
3
2
1
0
Sharpe ratio Rank
Treynor ratio Rank
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
As observed in the long-term analysis, the data center sector presents a significant downside
risk (75.07% semi deviation) and drawdown risk (50.97% maximum drawdown) due to
recent revaluation. Additionally, the hotel REITs sector has also experienced a significant dip
since the start of the pandemic, leading to high-risk figures (ranked 2nd in standard deviation,
1st in semi deviation, and 3rd in maximum drawdown). The diversified REITs and healthcare
REITs sectors have delivered the best risk-adjusted performance since 2020, with a Sharpe
Ratio of 0.67 (#1 excluding board REITs market) and 0.62 (#2 excluding board REITs
market), respectively. Conversely, despite the office REITs sector having the lowest nominal
return in the study period (-6.80%), both the Singapore bond market and equity market have
delivered poorer risk-adjusted performance, with Sharpe ratios of -1.17 (#10) and -0.91 (#9),
respectively.
134
Table 53 & 54: Risk adjusted performance of Singapore REITs and other investment
vehicles (3 years data)
Overall
Data Centre
Diversified
Healthcare
Hotel
Annualized return
9.28%
-4.41%
13.35%
8.04%
-2.35%
Annualized risk
9.75%
12.51%
17.27%
9.99%
15.87%
Beta
-0.17
-0.11
-0.29
-0.24
-0.31
Semi deviation
52.73%
75.07%
71.77%
59.10%
106.37%
Max drawdown
16.06%
50.97%
27.99%
29.23%
41.81%
Average drawdown
4.36%
19.92%
6.70%
6.67%
20.39%
Sharpe ratio
0.76
-0.50
0.67
0.62
-0.26
Sharpe ratio Rank
1
7
2
3
6
Treynor ratio
-43.78%
56.63%
-40.34%
-26.25%
13.26%
Treynor ratio Rank
10
2
9
8
5
Sortino ratio
0.14
-0.08
0.16
0.11
-0.04
Sortino ratio Rank
2
7
1
3
6
Calmar ratio
0.46
-0.12
0.41
0.21
-0.10
Calmar ratio Rank
1
7
2
3
6
S&P Singapore
MSCI
Industrial
Office
Retail
Bond Index
Singapore
Annualized return
4.64%
-6.80%
3.84%
0.39%
-6.74%
Annualized risk
8.84%
11.42%
11.35%
1.23%
9.44%
Beta
-0.14
-0.29
0.11
-0.01
1
Semi deviation
48.92%
85.79%
71.38%
7.96%
62.74%
Max drawdown
20.17%
50.21%
29.04%
6.22%
33.75%
Average drawdown
7.41%
40.38%
8.41%
2.09%
23.59%
Sharpe ratio
0.32
-0.75
0.18
-1.17
-0.91
Sharpe ratio Rank
4
8
5
10
9
Treynor ratio
-20.67%
29.78%
18.28%
135.47%
-8.56%
Treynor ratio Rank
7
3
4
1
6
Sortino ratio
0.06
-0.10
0.03
-0.18
-0.14
Sortino ratio Rank
4
8
5
10
9
Calmar ratio
0.14
-0.17
0.07
-0.23
-0.25
Calmar ratio Rank
4
8
5
9
10
Note. Author Compilation
135
Figure 43: Graphical representation of risk adjusted performance of sectors in Singapore
Ranking of risk-adjusted ratios (Singapore 3-year)
12
10
8
6
4
2
0
Sharpe ratio Rank
Treynor ratio Rank
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
5.2.4 Hong Kong
Compare with other APAC regime which had diverse risk level between different groups, the
Hong Kong REITs markets and equity markets exhibit similar risk level in the recent decade.
For instance, the annualized risk (standard deviation) of groups ranged from 18.31% to
22.45%, which was only a 3% difference. The retail REITs market show the best riskadjusted performance (without considering Treynor Ratio) when the overall HKREITs
market is excluded. The robust performance of retail sectors can be attributed to the strong
asset quality held by the REITs. For other asset group, all of them have a negative annualized
return in the study period, with diversified REITs delivered the worse performance (-7.95%)
and the lowest risk-adjusted performance on the equity markets. However, the worse riskadjusted performance comes from the bond market, with the lowest value in all risk-adjusted
performance measure. Similar to other APAC regime which have poor bond performance,
the low yield in the Hong Kong bond market is not attractive to investor, which reduced their
demand and caused the poor performance.
136
Table 55: Risk adjusted performance of Hong Kong REITs and other investment vehicles (10
years data)
Overall
Retail
Diversified
Office
Hotel
S&P Hong
Hang
Kong Bond
Sang
Index
Annualized
4.41%
3.62%
-7.95%
-0.80%
-4.71%
0.83%
-1.19%
20.51%
19.45%
21.22%
21.08%
22.45%
0.53%
18.31%
Beta
0.01
0.01
-0.04
0.05
-0.01
0.01
1.00
semi
68.15%
65.09%
77.87%
69.51%
73.82%
1.21%
63.03%
51.07%
52.38%
75.76%
64.76%
65.63%
0.83%
55.34%
15.74%
15.18%
29.33%
19.75%
23.73%
0.13%
16.47%
0.13
0.10
-0.46
-0.12
-0.29
-1.68
-0.16
1
2
6
3
5
7
4
295.12%
246.02%
268.05%
-49.63%
763.94%
-168.08%
-2.92%
2
4
3
6
1
7
5
0.04
0.03
-0.12
-0.04
-0.09
-0.74
-0.05
1
2
6
3
5
7
4
0.05
0.04
-0.13
-0.04
-0.10
-1.08
-0.05
1
2
6
3
5
7
4
return
Annualized
risk
deviation
Max
drawdown
Average
drawdown
Sharpe
ratio
Sharpe
ratio Rank
Treynor
ratio
Treynor
ratio Rank
Sortino
ratio
Sortino
ratio Rank
Calmar
ratio
Calmar
ratio Rank
Note. Author Compilation
137
Figure 44: Graphical representation of risk adjusted performance of sectors in Hong Kong
Ranking of risk-adjusted ratios (Hong Kong 10-year)
7
6
5
4
3
2
1
0
Overall
Retail
Sharpe ratio Rank
Diversified
Office
Treynor ratio Rank
Hotel
S&P Hong Hang Sang
Kong Bond
Index
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
In analyzing the short-term performance of the Hong Kong market, it is important to consider
factors such as political instability, economic uncertainty, and the pandemic. Since the start
of the pandemic, no equity in the market has provided a positive nominal return. Similar to
the long-term performance analysis, the retail REITs sector has been the best risk-adjusted
performer, while the diversified REITs sectors and bond market have been the poorest
performers. Compared to other developed APAC markets, the Hong Kong market has not
only delivered the worst nominal returns, but also the worst risk-adjusted returns in the past
three years.
138
Table 56: Risk adjusted performance of Hong Kong REITs and other investment vehicles (3
years data)
Overall
Retail
Diversified
Office
Hotel
S&P Hong
Hang
Kong Bond
Sang
Index
Annualized
-7.18%
-8.07%
-18.33%
-11.83%
-12.14%
0.78%
-9.07%
14.27%
13.87%
18.67%
14.95%
19.40%
0.32%
13.04%
Beta
-0.10
-0.10
-0.08
-0.02
-0.02
0.00
1.00
semi
92.78%
90.06%
121.73%
95.27%
109.57%
1.04%
81.52%
51.07%
52.38%
75.76%
64.76%
65.63%
0.73%
55.34%
32.91%
32.66%
51.57%
41.15%
45.70%
0.19%
27.80%
-0.62
-0.70
-1.07
-0.91
-0.71
-2.91
-0.83
1
2
6
5
3
7
4
89.14%
102.44%
257.64%
830.44%
556.65%
-207.09%
-
return
Annualized
risk
deviation
Max
drawdown
Average
drawdown
Sharpe
ratio
Sharpe
ratio Rank
Treynor
ratio
Treynor
10.77%
5
4
3
1
2
7
6
-0.10
-0.11
-0.16
-0.14
-0.13
-0.90
-0.13
1
2
6
5
3
7
4
-0.17
-0.19
-0.26
-0.21
-0.21
-1.27
-0.19
1
2
6
4
5
7
3
ratio Rank
Sortino
ratio
Sortino
ratio Rank
Calmar
ratio
Calmar
ratio Rank
Note. Author Compilation
139
Figure 45: Graphical representation of risk adjusted performance of sectors in Hong Kong
Ranking of risk-adjusted ratios (Hong Kong 3-year)
7
6
5
4
3
2
1
0
Overall
Retail
Sharpe ratio Rank
Diversified
Office
Treynor ratio Rank
Hotel
Sortino ratio Rank
S&P Hong
Kong Bond
Index
Hang Sang
Calmar ratio Rank
Note. Author Compilation
5.2.5 Malaysia
In the 10-year analysis period, diversified REITs exhibited the highest annualized overall
risk, with a 22.60% standard deviation. Meanwhile, Hotel REITs demonstrated the highest
levels of downside and drawdown risk, with semi-deviation and maximum drawdown of
66.59% and 49.68%, respectively. In terms of long-term risk-adjusted performance,
diversified REITs ranked highest in all risk-adjusted performance ratios, except for the
Treynor ratio, which was negatively affected by its beta value. The Industrial REITs sector
also delivered a strong performance in the recent decade, ranking second in all risk-adjusted
measures. On the other hand, the stock market was the worst performer over the 10-year
horizon, delivering a negative annualized return of -1.37%. There were multiple factors
contributing to the continuous decline of the market. The Malaysian equity market is
relatively small and concentrated, making it difficult for foreign investors to make substantial
investments (Azhar, 2022). Additionally, the depreciation of the Malaysian currency,
Ringgit, against other foreign currencies, has reduced the attractiveness of the stock market.
As a result, investors have sought alternative investments that yield higher returns, such as
the Malaysia sovereign bond market, which provides an approximate 4% annual return with
lower risk.
140
Table 57 & 58: Risk adjusted performance of Malaysia REITs and other investment vehicles
(10 years data)
Overall
Diversified
Healthcare
Hotel
Industrial
Annualized return
6.59%
14.21%
-0.13%
0.77%
12.68%
Annualized risk
13.14%
22.60%
10.92%
20.75%
21.48%
Beta
-0.17
-0.13
-0.15
-0.06
0.11
semi deviation
37.74%
38.42%
40.03%
66.59%
35.08%
Max drawdown
26.53%
26.04%
32.82%
49.68%
23.13%
Average drawdown
8.04%
8.36%
13.97%
16.05%
10.22%
Sharpe ratio
0.22
0.46
-0.35
-0.14
0.42
Sharpe ratio Rank
3
1
8
6
2
Treynor ratio
-16.62%
-78.21%
25.97%
50.96%
80.83%
Treynor ratio Rank
8
9
4
3
2
Sortino ratio
0.08
0.27
-0.10
-0.04
0.26
Sortino ratio Rank
3
1
8
6
2
Calmar ratio
0.11
0.40
-0.12
-0.06
0.39
Calmar ratio Rank
3
1
8
6
2
S&P Malaysia
FTSE Bursa
Office
Retail
Bond Index
Malaysia KLCI
Annualized return
2.99%
0.79%
3.79%
-1.37%
Annualized risk
19.40%
12.28%
3.02%
9.46%
Beta
-0.01
-0.18
-0.05
1.00
semi deviation
47.54%
45.27%
9.58%
35.06%
Max drawdown
47.29%
31.56%
5.01%
28.25%
Average drawdown
15.15%
10.97%
0.58%
10.97%
Sharpe ratio
-0.04
-0.24
0.03
-0.54
Sharpe ratio Rank
5
7
4
9
Treynor ratio
137.13%
15.72%
-1.76%
-5.07%
Treynor ratio Rank
1
5
6
7
Sortino ratio
-0.02
-0.06
0.01
-0.14
Sortino ratio Rank
5
7
4
9
Calmar ratio
-0.02
-0.09
0.02
-0.18
Calmar ratio Rank
5
7
4
9
Note. Author Compilation
141
Figure 46: Graphical representation of risk adjusted performance of sectors in Malaysia
Ranking of risk-adjusted ratios (Malaysia 10-year)
9
8
7
6
5
4
3
2
1
0
Sharpe ratio Rank
Treynor ratio Rank
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
The Hotel REITs sector was severely hit by the pandemic and presented the greatest shortterm risk. International travel restrictions substantially reduced the number of tourists
visiting Malaysia, resulting in the Hotel REITs sector having the highest level of downside
risk (106.20% semi-deviation), drawdown risk (49.68% maximum drawdown), and the
second-highest overall risk (15.03% standard deviation). Although the diversified REITs
market delivered a strong long-term risk-adjusted performance, its short-term risk-adjusted
performance bottomed out when the performance of the board REITs market was excluded.
The diversified REITs market in Malaysia is dominated by one stock - KLCCREITs, which
has a 72% weighting in the market capitalization index. The poor risk-adjusted performance
of the diversified REITs market can be attributed to the poor financial performance delivered
by KLCCREITs. Due to high exposure to the retail markets (which were significantly
impacted by the hospitality sectors), the revenue of the company remained at the same level
as the pre-pandemic period. In addition to the diversified REITs sector, the retail (#6) and
hotel (#5) REITs sectors also delivered poor risk-adjusted performance due to their close
relationship with the tourism industry.
142
Table 59 & 60: Risk adjusted performance of Malaysia REITs and other investment vehicles
(3 years data)
Overall
Diversified
Healthcare
Hotel
Industrial
Annualized return
-4.67%
-3.53%
-1.38%
-10.62%
33.93%
Annualized risk
5.66%
5.40%
4.46%
15.03%
15.56%
Beta
-0.24
-0.17
-0.22
-0.17
0.08
semi deviation
40.77%
38.15%
30.96%
106.20%
42.90%
Max drawdown
26.53%
26.04%
32.82%
49.68%
15.77%
Average drawdown
16.60%
17.05%
24.23%
33.51%
1.79%
Sharpe ratio
-1.42
-1.28
-1.07
-0.93
1.96
Sharpe ratio Rank
9
8
7
5
1
Treynor ratio
33.70%
41.64%
21.63%
81.04%
378.36%
Treynor ratio Rank
5
3
6
2
1
Sortino ratio
-0.20
-0.18
-0.15
-0.13
0.71
Sortino ratio Rank
9
8
7
5
1
Calmar ratio
-0.30
-0.27
-0.15
-0.28
1.94
Calmar ratio Rank
9
7
4
8
1
S&P Malaysia
FTSE Bursa
Office
Retail
Bond Index
Malaysia KLCI
Annualized return
1.67%
-4.44%
2.90%
-1.64%
Annualized risk
9.37%
7.94%
2.55%
7.21%
Beta
-0.04
-0.39
-0.10
1.00
semi deviation
64.36%
59.04%
14.82%
47.03%
Max drawdown
47.29%
31.56%
5.01%
28.25%
Average drawdown
28.15%
21.25%
1.46%
19.14%
Sharpe ratio
-0.18
-0.99
-0.19
-0.70
Sharpe ratio Rank
2
6
3
4
Treynor ratio
38.35%
20.17%
4.83%
-5.03%
Treynor ratio Rank
4
7
8
9
Sortino ratio
-0.03
-0.13
-0.03
-0.11
Sortino ratio Rank
2
6
3
4
Calmar ratio
-0.04
-0.25
-0.10
-0.18
Calmar ratio Rank
2
6
3
5
143
Figure 47: Graphical representation of risk adjusted performance of sectors in Malaysia
Ranking of risk-adjusted ratios (Malaysia 3-year)
9
8
7
6
5
4
3
2
1
0
Sharpe ratio Rank
Treynor ratio Rank
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
5.2.6 India
Since the establishment of the India REITs market in 2019, only short-term risk-adjusted
performance has been analyzed. The REITs market has exhibited both the highest risk level
and the worst risk-adjusted performance since the outbreak of the pandemic. The IREITs
market has posted an overall risk of 12.27%, with a maximum drawdown of 34.99% since
2020. Although the Nifty 50 (stock market) also exhibits a similar risk level, REITs have
delivered an average annualized return of -9.83%, which is substantially lower than the
6.31% and 13.10% of the bond market and stock market, respectively.
The relatively poor risk-adjusted performance of REITs compared to other investment
options can be attributed to several factors. In addition to the economic uncertainty caused
by the pandemic, the lack of diversification in the IREITs market has also contributed to poor
performance. Since all three listed REITs invested solely in office assets, the market was
severely impacted by the swings of the office property market. Given that the Indian office
sector was facing the problem of oversupply, with at least 25-30 million square feet of readyto-occupy office space, the focus of the IREITs market on the office sector has led to poor
performance. On the other hand, the stock market displays the overall performance of the
Indian economy. With the exceptional recovery of the Indian economy, the stock market has
performed well and become one of the most popular investment options for international
investors to hedge against the risks present in developed markets.
144
Table 61: Risk adjusted performance of India REITs and other investment vehicles (3 years
data)
REITs
S&P BSE India Bond Index
Nifty 50
Annualized return
-9.83%
6.31%
13.10%
Annualized risk
12.27%
1.23%
11.20%
Beta
-0.48
0.00
1.00
semi deviation
90.13%
4.38%
68.80%
Max drawdown
34.99%
1.61%
29.34%
Average drawdown
25.35%
0.22%
4.88%
Sharpe ratio
-1.32
-0.02
0.60
Sharpe ratio Rank
3
2
1
Treynor ratio
33.37%
24.10%
6.76%
Treynor ratio Rank
1
2
3
Sortino ratio
-0.18
-0.01
0.10
Sortino ratio Rank
3
2
1
Calmar ratio
-0.46
-0.02
0.23
Calmar ratio Rank
3
2
1
Note. Author Compilation
Figure 48: Graphical representation of risk adjusted performance of sectors in India
Ranking of risk-adjusted ratios (India 3-year)
4
3
3
2
2
1
1
0
REIT
Sharpe ratio Rank
S&P BSE India Bond Index
Treynor ratio Rank
Sortino ratio Rank
Nifty 50
Calmar ratio Rank
Note. Author Compilation
145
5.2.7 China
Since the establishment of the first CREITs in June 2021, the risk-adjusted performance
analysis of the CREITs market has been limited to the period of June 2021 to January 2023.
Additionally, the residential REITs sector has been analyzed from July 2022 to January 2023,
as the first residential REITs was established in July 2022. Among various groups of
investments, residential REITs exhibit the greatest level of semi-deviation (104.68%), while
the stock market (CSI 300) displays the greatest drawdown (28.98%) during the study period.
Unlike other developed APAC markets, the Chinese bond market shows the best riskadjusted performance during the study period. China has undergone the burst of property
bubbles, regulatory crackdowns in technological sectors, and the COVID-19 pandemic
during the study period, causing significant turbulence in both equity and real estate markets
in China. Therefore, it is unsurprising that the bond market delivered the best performance,
as it was considered relatively risk-free. While industrial and infrastructure REITs also
delivered moderate risk-adjusted performance, these REITs sub-sectors invest in assets such
as warehouses, logistics, and industrial parks, which were relatively unaffected by the
turmoil in China. On the contrary, the Chinese stock market and residential REITs market
delivered poor results during the study period, with a Sharpe Ratio of -3.27 and -1.83,
respectively, as shown in Table 62.
146
Table 62: Risk adjusted performance of China REITs and other investment vehicles (July
2021 – Jan 2023 data)
Overall
Industrial
Infrastructure
Residential
S&P China
Shanghai
(Since Jun
Bond Index
Shenzhen
22)
CSI 300
Annualized return
6.77%
12.67%
5.86%
-6.98%
3.73%
-9.97%
Annualized risk
7.12%
9.63%
8.74%
3.00%
0.56%
6.98%
Beta
-0.04
-0.69
0.17
-0.10
0.02
1.00
semi deviation
45.88%
68.74%
50.80%
104.68%
2.64%
64.08%
Max drawdown
16.37%
22.41%
18.92%
25.13%
0.67%
28.98%
Average drawdown
3.97%
5.34%
5.77%
15.09%
0.10%
11.91%
Sharpe ratio
0.56
1.03
0.35
-3.27
1.67
-1.83
Sharpe ratio Rank
3
2
4
6
1
5
Treynor ratio
-
-14.38%
18.42%
99.69%
60.93%
-12.76%
90.04%
Treynor ratio Rank
5
4
2
1
1
3
Sortino ratio
0.09
0.14
0.06
-0.0937
0.36
-0.20
Sortino ratio Rank
3
2
4
5
1
5
Calmar ratio
0.24
0.44
0.16
-0.3903
1.41
-0.44
Calmar ratio Rank
3
2
4
5
1
5
Note. Author Compilation
Figure 49: Graphical representation of risk adjusted performance of sectors in China
Ranking of risk-adjusted ratios (China Since Jul 2022)
6
5
4
3
2
1
0
Overall
Industrial
Sharpe ratio Rank
Infrastructure
Treynor ratio Rank
Residential
S&P China
Bond Index
Sortino ratio Rank
Shanghai
Shenzhen CSI
300
Calmar ratio Rank
Note. Author Compilation
147
5.2.8 Philippines
Given that the PREITs markets have only been established for around two years, the riskadjusted performance was measured from the time of each market's establishment. The retail
REITs sector has shown a high level of investment risk, with a standard deviation of 19.97%
(#1), semi-deviation of 74.38% (#2), and maximum drawdown of 37.83% (#1). Another
sector that exhibited significant risk is the diversified REITs sector, with a semi-deviation of
36.52% (#3) and maximum drawdown of 36.52% (#3). The risk-adjusted performance of
different groups shows significant variation, with the retail REITs sector delivering the
highest risk-adjusted performance, while the hotel REITs sector has experienced a
challenging period.
148
Table 63: Risk adjusted performance of Philippines REITs and other investment vehicles
(Aug 2020 – Jan 2023 data)
Overall
Annualized
Retail
Diversified
Office
Hotel
S&P
PSEi
(Since Mar
(Since
(Since
Philippines
Composite
21)
Feb 22)
Jun 22)
Bond Index
25.66%
43.35%
-19.19%
-11.57%
-8.70%
-0.26%
4.72%
15.61%
19.97%
7.17%
6.20%
3.69%
1.97%
9.09%
Beta
-0.27
-0.53
-0.14
-0.41
-0.31
-0.01
1.00
semi
69.18%
74.78%
77.93%
70.32%
55.32%
13.10%
64.76%
42.28%
37.83%
36.52%
26.84%
12.57%
7.14%
22.01%
12.45%
9.92%
21.55%
11.10%
4.88%
2.71%
6.92%
Sharpe ratio
1.33
1.92
-3.56
-2.90
-4.11
-2.64
-0.02
Sharpe ratio
2
1
6
5
7
4
3
-76.24%
-
185.73%
43.83%
49.40%
684.99%
-0.22%
return
Annualized
risk
deviation
Max
drawdown
Average
drawdown
Rank
Treynor ratio
72.36%
Treynor ratio
7
6
2
4
3
1
5
Sortino ratio
0.30
0.51
-0.33
-0.26
-0.27
-0.40
0.00
Sortino ratio
2
1
6
4
5
7
3
Calmar ratio
0.49
1.02
-0.70
-0.67
-1.21
-0.73
-0.01
Calmar ratio
2
1
5
4
7
6
3
Rank
Rank
Rank
Note. Author Compilation
149
Figure 50: Graphical representation of risk adjusted performance of sectors in Philippines
Ranking of risk-adjusted ratios (Philippines Since Aug 2020)
8
7
6
5
4
3
2
1
0
Overall
Retail
Sharpe ratio Rank
Diversified
Office
Treynor ratio Rank
Hotel
S&P
PSEi
Philippines Composite
Bond Index
Sortino ratio Rank
Calmar ratio Rank
Note. Author Compilation
5.2.9 Section Summary
The above section compares the risk-adjusted performance of REITs markets, subsector
REITs, bond markets, and stock markets. It should be noted that the Treynor Ratio is not
adopted to derive any conclusions in this section, as the value of the Treynor Ratio is distorted
by the negative beta value of REITs.
The table below presents a comparison of both long-term and short-term risk-adjusted
performance between markets. For long-term performance, only five APAC markets have
data available for comparison. The AREITs market leads in risk-adjusted performance
metrics. On the other hand, the HREITs market delivered the worst risk-adjusted
performance, with all ratios lagging behind other markets.
As three-year data for CREITs and PREITs markets are not available, the risk-adjusted
performance of these markets since their date of establishment is adopted for comparison
purposes. Among the eight APAC regimes, the Philippine market's performance is distinct
from other markets, with Sharpe Ratio and Sortino Ratio values that are twice as high,
attributed to their strong economy and property market. Meanwhile, India and Malaysia
presented similar risk-adjusted performance, which falls short compared to other markets.
150
Table 64: Comparison of risk adjusted performance between APAC REITs markets (10-year
data analysis)
Overall JPN
Overall AUS
Overall SGP
Overall HKG
Overall MAS
Sharpe ratio
0.22
0.30
0.28
0.13
0.22
Sharpe ratio Rank
3
1
2
5
4
Sortino ratio
0.07
0.10
0.09
0.04
0.08
Sortino ratio Rank
4
1
2
5
3
Calmar ratio
0.15
0.19
0.17
0.05
0.11
Calmar ratio Rank
3
1
2
5
4
Note. Author Compilation
Table 65: Comparison of risk adjusted performance between APAC REITs markets (3-year
data analysis)
Overall
Overall
Overall
Overall
Overall
Overall
Overall
Overall
JPN
AUS
SGP
HKG
MAS
IND
CHN
PHP
(Since
(Since
Jul 21)
Aug 20)
Sharpe ratio
-0.44
0.24
0.76
-0.62
-1.42
-1.32
0.56
1.33
Sharpe ratio
5
4
2
6
8
7
3
1
Sortino ratio
-0.06
0.04
0.14
-0.10
-0.20
-0.18
0.09
0.30
Sortino ratio
5
4
2
6
8
7
3
1
Calmar ratio
-0.15
0.10
0.46
-0.17
-0.30
-0.46
0.24
0.49
Calmar ratio
5
4
2
6
7
8
3
1
Rank
Rank
Rank
Note. Author Compilation
Beside the risk-adjusted performance of board REITs markets, the risk-adjusted performance
of REITs subsectors, bond markets and stock markets are also analyzed. The result of longterm risk-adjusted performance show that the JREITs and AREITs subsector provide a high
risk-adjusted return. As shown in table 66, most top performers in risk-adjusted performance
belongs to Australia and Japan market. Also, diversified subsector REITs is rarely seen in the
top performing list, with only Malaysia Diversified REITs sector ranked 4th in Sortino Ratio.
151
Table 66: Top performer among APAC subsector REITs, bond and stock market (10-year
data analysis)
Ranking
Sharpe Ratio
Sortino Ratio
Calmar
1st
Singapore – Data Center
Singapore – Data Center
Australia – Residential
(1.70)
(0.62)
(0.63)
Australia – Healthcare
Australia – Residential
Singapore – Data Center
(0.81)
(0.40)
(0.62)
Australia – Residential
Japan – Healthcare
Japan – Industrial
(0.72)
(0.28)
(0.50)
Japan – Industrial
Malaysia – Diversified
Australia – Healthcare
(0.72)
(0.27)
(0.45)
Japan – Hotel
Japan – Industrial
Japan – Healthcare
(0.61)
(0.27)
(0.42)
2nd
3rd
4th
5th
Note. Author Compilation
Regarding the short-term risk-adjusted performance, since developing markets (including
India, China, and the Philippines) are included in the comparison, over half of the top riskadjusted performers are located in developing markets, including retail REITs in the
Philippines, bond market in China, and industrial REITs in India. The strong performance of
developing markets reflects the trend of considering developing market instruments to hedge
against the risks in developed markets.
Table 67: Top performer among APAC subsector REITs, bond and stock market (10-year
data analysis)
Ranking
Sharpe Ratio
Sortino Ratio
Calmar
1st
Singapore – Industrial
Singapore – Industrial
Singapore – Industrial
(1.96)
(0.71)
(1.93)
Philippines – Retail
Philippines – Retail
China – Bond
(1.92)
(0.51)
(1.40)
China – Bond
China – Bond
Philippines – Retail
(1.67)
(0.36)
(1.01)
Japan – Healthcare
Japan – Healthcare
Japan – Healthcare
(1.28)
(0.29)
(0.80)
India – Industrial
Singapore – Diversified
India – Industrial
(1.02)
(0.16)
(0.44)
2nd
3rd
4th
5th
Note. Author Compilation
152
In conclusion, APAC REITs have demonstrated a brilliant record in both long-term and shortterm risk-adjusted performance, with the AREITs market leading in the long-term analysis
and the PREITs market in the short-term analysis. Additionally, sector-specific REITs have
provided a higher risk-adjusted return compared to diversified REITs, which invest in
multiple types of property.
Although most REITs markets have delivered better performance compared to local stock
and bond markets, it cannot be concluded that REITs provide better risk-adjusted
performance than the local stock market, as the stock indices used in this section only reflect
the price return. To solve the problem of unfair comparison, the following table displays the
risk-adjusted performance ratio of the total return of stock markets. The results indicate that
half of the APAC stock markets have better risk-adjusted performance compared to REITs,
namely Japan, Australia, Hong Kong, and India. Consequently, REITs and stocks are said to
provide similar risk-adjusted performance in APAC.
Table 68: Risk adjusted performance of stock total return index in different APAC country
and US (10-year data analysis)
Annualized
JPN
AUS
SGP
HKG
MAS
IND
CHN
PHP
US
9.18%
8.29%
4.16%
3.24%
-
10.11
3.08%
-
12.62
0.73%
%
1.68%
%
return
Annualized risk
15.26
13.01
15.91
16.02
14.10
19.44
19.33
17.09
14.65
%
%
%
%
%
%
%
%
%
Annual risk-free
0.18%
0.07%
0.18%
0.18%
0.18%
0.18%
0.18%
0.18%
2.14%
Sharpe ratio
0.59
0.63
0.25
0.19
-0.06
0.51
0.15
-0.11
0.7152
semi deviation
50.59
43.66
62.68
53.03
51.02
63.90
65.76
63.80
48.43
%
%
%
%
%
%
%
%
%
24.62
23.23
30.49
39.56
39.86
38.24
54.73
36.32
23.79
%
%
%
%
%
%
%
%
%
6.12%
4.24%
10.77
9.22%
19.18
7.04%
14.05
12.92
3.16%
%
%
Max drawdown
Average
drawdown
%
%
Sortino ratio
0.18
0.19
0.06
0.06
-0.02
0.16
0.04
-0.03
0.2163
Calmar ratio
0.37
0.35
0.13
0.08
-0.02
0.26
0.05
-0.05
0.4403
Note. Author Compilation
153
5.3
Correlation Between Investments Options
In addition to measuring the risk-adjusted return, conducting correlation analysis is also essential
to determine the potential benefits of including REITs in an investment portfolio. By using
correlation matrix analysis, investors can determine the extent of diversification benefits gained by
including REITs in a portfolio, whether domestic or international. The information provided by
this analysis can be used by investors to manage their portfolio risk more effectively.
Given that only 10-year bond market data is available, the correlation analysis for developed
market will be conducted from February 2013 to January 2023. For developing market/REITs
subsector which have a history less than 10 years, the analysis of correlation will start from its
market establishment date to January 2023. To determine the diversification benefit in domestic
market, the correlation between different REITs subsector and domestic investment assets
(including stock and bond market) will be constructed. Additionally, the correlation between REITs
market and overseas investment asset will be calculated. In this study, the correlation between
APAC REITs markets and the US equity markets will be constructed, since the US equity markets
is the largest and most liquid market in the world. It is believed that US market can act as a
benchmark for other investment vehicles to prove whether APAC REITs have diversification
benefit in international portfolio.
5.3.1 Japan
Based on Table 69, the correlation between subsector REITs remains high, with most of the
correlation coefficients between subsectors greater than 0.7. This suggests a limited
diversification benefit between most REITs sectors. However, the Hotel REITs sector
appears to be uncorrelated with other JREITs subsectors, with a correlation of less than 0.6
with other sectors. Additionally, a negative correlation is recorded between the Hotel and
Industrial REITs sectors, which indicates a useful diversification benefit between the Hotel
REITs and other REITs subsectors.
154
Table 69: Correlation Matrix between JREITs subsectors (From Apr 2015 – Jan 2023)
Diversified
Healthcare
Hotel
Industrial
Office
Residential
Retail
Diversified
1.00
0.63
0.52
0.60
0.87
0.75
0.80
Healthcare
0.63
1.00
0.11
0.86
0.67
0.87
0.78
Hotel
0.52
0.11
1.00
-0.14
0.41
0.07
0.37
Industrial
0.60
0.86
-0.14
1.00
0.67
0.89
0.71
Office
0.87
0.67
0.41
0.67
1.00
0.81
0.73
Residential
0.75
0.87
0.07
0.89
0.81
1.00
0.73
Retail
0.80
0.78
0.37
0.71
0.73
0.73
1.00
Note. Author Compilation
In terms of correlation with other assets, JREITs demonstrate a moderate correlation, with
static correlations ranging over 0.75 with Japan equity, US equity, and US REITs. The result
of correlation shows JREITs exhibit a high correlation with both domestic and international
asset. Therefore, only moderate diversification benefits in the construction of an international
and domestic asset portfolio can be obtained.
Table 70: Correlation Matrix between JREITs and investment assets
(From Feb 2013 – Jan 2023)
Japan REITs
Japan Equity
Japan Bond
US Equity
US REITs
Japan REITs
1.00
0.78
0.67
0.86
0.92
Japan Stock
0.78
1.00
0.58
0.94
0.90
Japan Bond
0.67
0.58
1.00
0.56
0.65
US Equity
0.86
0.94
0.56
1.00
0.97
US REITs
0.92
0.90
0.65
0.97
1.00
Note. Author Compilation
5.3.2 Australia
Among the different subsectors in the AREITs market, Management, Diversified, and Retail
REITs exhibit a low correlation with other sectors. Asset Management REITs, which focus
on real estate investment and management activities, show negative correlations with all
other sectors except Diversified and Retail REITs. Given that Asset Management REITs
operate differently from conventional REITs, it is unsurprising that they have a low
correlation with other assets and provide substantial diversification benefits. Diversified
REITs exhibit a low positive correlation that ranges from 0.08 to 0.72 with other sectors.
Retail REITs exhibit correlations ranging from -0.44 to 0.46 with other sectors, which
indicates that they could provide strong diversification benefits.
155
The low correlation of Management, Diversified, and Retail REITs with other sectors in the
AREITs market can provide investors with diversification benefits and potentially enhance
portfolio performance.
Table 71 & 72: Correlation Matrix between AREITs subsectors
(From Feb 2014 – Jan 2023)
Agricultural
Management
Diversified
Healthcare
Hotel
Agricultural
1.00
-0.51
0.17
0.95
0.90
Management
-0.51
1.00
0.18
-0.40
-0.35
Diversified
0.17
0.18
1.00
0.23
0.24
Healthcare
0.95
-0.40
0.23
1.00
0.93
Hotel
0.90
-0.35
0.24
0.93
1.00
Industrial
0.93
-0.43
0.18
0.97
0.88
Infrastructure
0.94
-0.38
0.32
0.97
0.93
Office
0.64
-0.19
0.72
0.57
0.53
Residential
0.84
-0.42
0.08
0.93
0.84
Retail
-0.27
0.41
0.46
-0.30
-0.08
Industrial
Infrastructure
Office
Residential
Retail
Agricultural
0.93
0.94
0.64
0.84
-0.27
Management
-0.43
-0.38
-0.19
-0.42
0.41
Diversified
0.18
0.32
0.72
0.08
0.46
Healthcare
0.97
0.97
0.57
0.93
-0.30
Hotel
0.88
0.93
0.53
0.84
-0.08
Industrial
1.00
0.96
0.55
0.95
-0.40
Infrastructure
0.96
1.00
0.64
0.89
-0.22
Office
0.55
0.64
1.00
0.34
0.20
Residential
0.95
0.89
0.34
1.00
-0.44
Retail
-0.40
-0.22
0.20
-0.44
1.00
Note. Author Compilation
Similar to the JREITs market, the AREITs market also exhibits a high correlation with other
investment instruments, with correlation coefficients exceeding 0.75 with Australian equity,
US equity, and US REITs. Although the correlation between AREITs and US equity is
slightly lower than the correlation between Australian equity and US equity markets by a
mere 0.05, AREITs are still said to provide limited diversification benefits in both domestic
and international portfolios.
156
Table 73: Correlation Matrix between AREITs and investment assets
(From Feb 2013 – Jan 2023)
Australia REITs
Australia Equity
Australia Bond
US Equity
US REITs
Australia REITs
1.00
0.78
0.82
0.86
0.92
Australia Equity
0.78
1.00
0.73
0.91
0.90
Australia Bond
0.82
0.73
1.00
0.81
0.83
US Equity
0.86
0.91
0.81
1.00
0.97
US REITs
0.92
0.90
0.83
0.97
1.00
Note. Author Compilation
5.3.3 Singapore
Among the seven subsectors in the SREITs market, the office REITs sector provides
substantial diversification benefits to investors. Office REITs exhibit negative correlations
with other REITs sectors, with correlation coefficients ranging from -0.32 to -0.68. Despite
this negative correlation, the office REITs sector was the only subsector that delivered
negative returns during the study period. Therefore, the low correlation between office REITs
and other assets may be due to their underperformance and adding office REITs to an
investment portfolio may not necessarily reduce investor risk exposure or improve returns.
In contrast, other combinations such as Retail-Data Center and Hotel-Data Center exhibit
moderate correlations, as these property sectors are subject to distinct market and economic
conditions. Overall, the subsectors in the SREITs market can only provide mediocre
diversification benefits when constructing a local REITs portfolio.
Table 74: Correlation Matrix between SREITs subsectors
(From Dec 2014 – Jan 2023)
Data Centre
Diversified
Healthcare
Hotel
Industrial
Office
Retail
1.00
0.65
0.80
0.61
0.94
-0.66
0.60
Diversified
0.65
1.00
0.91
0.74
0.82
-0.48
0.93
Healthcare
0.80
0.91
1.00
0.72
0.92
-0.58
0.85
Hotel
0.61
0.74
0.72
1.00
0.76
-0.35
0.70
Industrial
0.94
0.82
0.92
0.76
1.00
-0.68
0.74
Office
-0.66
-0.48
-0.58
-0.35
-0.68
1.00
-0.32
Retail
0.60
0.93
0.85
0.70
0.74
-0.32
1.00
Data
Centre
Note. Author Compilation
157
The SREITs market exhibits a high correlation with overseas investment options, with a
correlation coefficient of 0.96 with US equity and 0.91 with US REITs. This suggests that
including SREITs in an international portfolio may not provide substantial diversification
benefits. However, SREITs show a negative correlation with local equity markets, indicating
a potential diversification benefit at the domestic level. Although REITs instruments still
exhibit a high correlation (0.90) with local bond markets, the negative correlation with local
stock markets suggests a significant diversification potential.
Table 75: Correlation Matrix between SREITs and investment assets
(From Feb 2013 – Jan 2023)
Singapore REITs
Singapore Equity
Singapore Bond
US Equity
US REITs
Singapore REITs
1.00
-0.40
0.90
0.96
0.91
Singapore Equity
-0.40
1.00
-0.41
-0.35
-0.33
Singapore Bond
0.90
-0.41
1.00
0.91
0.89
US Equity
0.96
-0.35
0.91
1.00
0.97
US REITs
0.91
-0.33
0.89
0.97
1.00
Note. Author Compilation
5.3.4 Hong Kong
The correlation between sectors in the HREITs market is relatively lower compared to other
developed REITs markets, with an average correlation of 0.51. Among these sectors, the
correlation between Hotel REITs and other sectors is relatively lower, with values ranging
from 0.12 to 0.49. Despite the low correlation level, Hotel REITs are not expected to provide
diversification benefits to investors as they have provided negative returns since their
establishment. Therefore, due to the moderate correlation between sectors, HREITs
subsectors are expected to provide only moderate diversification benefits to investors if they
construct a portfolio consisting of HREITs.
Table 76: Correlation Matrix between HREITs subsectors
(From Jul 2007 – Jan 2023)
Retail
Diversified
Office
Hotel
Retail
1.00
0.56
0.87
0.12
Diversified
0.56
1.00
0.58
0.49
Office
0.87
0.58
1.00
0.43
Hotel
0.12
0.49
0.43
1.00
Note. Author Compilation
158
The HREITs market also provides moderate diversification benefits in both domestic and
international portfolios. Compared to domestic investment options, HREITs exhibit a
medium correlation with both equity and bond markets, with correlation coefficients of 0.55
and 0.65, respectively. Additionally, HREITs are moderately correlated with US markets,
making the HREITs market a desirable diversification asset when constructing an
international portfolio.
Table 77: Correlation Matrix between HREITs and investment assets
(From Feb 2013 – Jan 2023)
Hong Kong
Hong Kong
Hong Kong
US
US
REITs
Equity
Bond
Equity
REITs
Hong Kong REITs
1.00
0.55
0.65
0.60
0.68
Hong Kong Equity
0.55
1.00
0.07
0.04
0.06
Hong Kong Bond
0.65
0.07
1.00
0.94
0.91
US Equity
0.60
0.04
0.94
1.00
0.97
US REITs
0.68
0.06
0.91
0.97
1.00
Note. Author Compilation
5.3.5 Malaysia
Among the six sectors in the MREITs market, Industrial REITs exhibit the lowest level of
correlation with other assets, with a correlation coefficient ranging from 0.28 to 0.45. This
indicates a fair level of diversification benefits in the construction of a local REITs portfolio.
In contrast, the level of correlation between other sectors remains high, with correlation
coefficients ranging from 0.70 to 0.95. Therefore, Industrial REITs in the MREITs market
provide distinct diversification benefits compared to other sectors, and investors should
consider including them in their MREITs portfolio to reduce investment risk.
Table 78: Correlation Matrix between MREITs subsectors
(From Apr 2007 – Jan 2023)
Diversified
Healthcare
Hotel
Industrial
Office
Retail
Diversified
1.00
0.86
0.78
0.43
0.85
0.91
Healthcare
0.86
1.00
0.71
0.32
0.79
0.95
Hotel
0.78
0.71
1.00
0.28
0.88
0.80
Industrial
0.43
0.32
0.28
1.00
0.45
0.43
Office
0.85
0.79
0.88
0.45
1.00
0.86
Retail
0.91
0.95
0.80
0.43
0.86
1.00
Note. Author Compilation
159
The overall REITs market can help investors diversify their portfolio in both domestic and
international contexts. The correlations of MREITs with Malaysia equity, Malaysia bond, US
equity, and US REITs are -0.22, 0.40, 0.21, and 0.29, respectively. These low and negative
correlation figures indicate that the MREITs market is driven by separate factors compared
to other investment assets. Therefore, the MREITs market can provide significantly more
diversification benefits in domestic and international contexts compared to other developed
REITs regimes.
Table 79: Correlation Matrix between MREITs and investment assets
(From Feb 2013 – Jan 2023)
Malaysia REITs
Malaysia Equity
Malaysia Bond
US Equity
US REITs
Malaysia REITs
1.00
-0.22
0.40
0.21
0.29
Malaysia Equity
-0.22
1.00
-0.81
-0.72
-0.72
Malaysia Bond
0.40
-0.81
1.00
0.94
0.91
US Equity
0.21
-0.72
0.94
1.00
0.97
US REITs
0.29
-0.72
0.91
0.97
1.00
Note. Author Compilation
5.3.6 India
Although the IREITs market exhibits a negative correlation with other investment assets
analyzed, it is difficult to draw conclusive insights from these results due to the limited
number of observations and the market's decline since its establishment. Nevertheless, it is
expected that the IREITs market will provide significant diversification benefits due to the
substantial differences in market structure between IREITs and other investment options.
Table 80: Correlation Matrix between IREITs and investment assets
(From Apr 2019 – Jan 2023)
India REITs
India Equity
India Bond
US Equity
US REITs
India REITs
1.00
-0.50
-0.41
-0.48
-0.15
India Equity
-0.50
1.00
0.95
0.89
0.76
India Bond
-0.41
0.95
1.00
0.94
0.87
US Equity
-0.48
0.89
0.94
1.00
0.88
US REITs
-0.15
0.76
0.87
0.88
1.00
Note. Author Compilation
160
5.3.7 China
Although the CREITs market consists of three subsectors, the residential sector was only
established in August 2022, leaving insufficient data to analyze its correlation and derive
informative conclusions. Therefore, a correlation analysis was conducted solely between the
industrial and infrastructure REITs sectors. The results indicate that from June 2021 to
January 2023, the correlation coefficient between the two sectors was 0.5, implying a
moderate diversification benefit for investors who attempt to construct a CREITs portfolio
with sub-sector REITs.
Regarding the correlation between CREITs and other investment assets, the results of the
correlation analysis indicate that including CREITs in both domestic and international
portfolios provides substantial diversification benefits. This is due to the fact that CREITs
are mostly negatively correlated with other assets, as illustrated in Table 81 below.
Table 81: Correlation Matrix between CREITs and investment assets
(From Jun 2021 – Jan 2023)
China REITs
China Equity
China Bond
US Equity
US REITs
China REITs
1.00
-0.44
0.54
-0.44
-0.24
China Equity
-0.44
1.00
-0.88
0.69
0.62
China Bond
0.54
-0.88
1.00
-0.69
-0.67
US Equity
-0.44
0.69
-0.69
1.00
0.92
US REITs
-0.24
0.62
-0.67
0.92
1.00
Note. Author Compilation
161
5.3.8 Philippines
Similar to the condition in CREITs market, since subsectors in PREITs market are established
in 2022, the correlation analysis only conducted in diversified and office REITs sector. With
a 0.6 correlation, there is a moderate diversification benefit for investor to invest in both of
these assets.
Despite having a low correlation with the stock market and a negative correlation with the
bond market, the PREITs market is expected to provide substantial diversification benefits
to investors with domestic portfolios. However, it is surprising that the PREITs market has a
high correlation with both the REITs and stock markets in the US. As developing markets
typically have lower correlations with developed markets, this result suggests that the
PREITs market may be heavily impacted by the US economic condition. Therefore, the
diversification benefits brought by the PREITs market in an international portfolio are
expected to be limited. Additionally, it should be noted that the limited number of
observations in the PREITs market may result in statistically insignificant findings, and
therefore, the results may not be conclusive.
Table 82: Correlation Matrix between PREITs and investment assets
(From Aug 2020 – Jan 2023)
Philippines REITs
Philippines Equity
Philippines Bond
US Equity
US Bond
Philippines REITs
1.00
0.43
-0.27
0.77
0.77
Philippines Equity
0.43
1.00
0.30
0.51
0.44
Philippines Bond
-0.27
0.30
1.00
-0.01
-0.05
US Equity
0.77
0.51
-0.01
1.00
0.96
US Bond
0.77
0.44
-0.05
0.96
1.00
Note. Author Compilation
162
5.4
Section Summary
This section has presented a simple analysis of the correlation between assets. The following table
summarizes the results of the above section. The findings indicate that the extent of diversification
benefit is greater when developing APAC countries REITs are included in both domestic and
international portfolios, given the lower correlation between the developing APAC countries REITs
market and other investment assets.
Table 83: Empirical Result from correlation analysis
REITs Market
Subsector with potential
Average Correlation
Average Correlation
diversification benefit
with Domestic Asset
with US Asset
Japan
Hotel
0.73
0.89
Australia
Asset Management,
0.80
0.89
Diversified, and Retail
Singapore
Data Center
0.25
0.93
Hong Kong
-
0.60
0.64
Malaysia
Industrial
0.09
0.25
India
-
-0.46
-0.32
China
-
-0.05
-0.34
Philippines
-
0.08
0.77
Note. Author Compilation
It is important to note that while some APAC REITs may provide diversification benefits when
combined with other assets, the strength of the correlation between them may vary over time and
be influenced by market conditions. For example, the outbreak of the COVID pandemic led to a
significant increase in the correlation between most of the markets. As a result, investors should
take into account the potential changes in correlation when making informed decisions.
Furthermore, other factors such as risk, return, and liquidity should also be considered when
evaluating the diversification benefits of REITs and other investment assets. These factors play an
important role in determining the overall performance of a portfolio and the level of risk that an
investor is willing to take on. Therefore, investors should conduct a thorough analysis of these
factors to ensure that their investment decisions are well-informed and aligned with their
investment objectives.
163
6 Optimal Allocation of APAC REITs in mixed-asset
portfolio
It is common for investment professionals to advise investors to allocate around 10% to 15% of assets to
REITs to achieve the benefits of diversification. However, the optimal allocation of APAC REITs in
domestic, regional, and international mixed-asset portfolios has not been well studied. Therefore, this
chapter aims to determine the optimal allocation of APAC REITs in mixed-asset portfolios. Meanvariance analysis will be used to identify investment portfolios that offer the highest expected return with
the lowest level of risk. The study will present the portfolio with the highest level of Sharpe ratio
(tangency portfolio) and the efficient frontier. The efficient frontier identifies the set of portfolios that
provide the best risk-return tradeoff, which allows investors with different risk tolerance levels to choose
from. The analysis is completed by the solver function in Microsoft Excel with the use of 10 years
historical monthly return data (with the exception of India, China and Philippines which have less than
10-year data) of investment assets total return.
The following portfolio allocations will be determined in the following section:
-
Optimal allocation between REITs, stocks, and bonds at the domestic level
-
Optimal allocation between sector-specific REITs, diversified REITs, stocks, and bonds at the
domestic level
-
Optimal allocation with portfolios consisting only of APAC REITs
-
Optimal allocation between REITs, bonds, and equities of Asia, Europe, and the US (international
portfolio)
164
6.1
Optimal Allocation between REITs, Stocks, And Bonds at the Domestic
Level
6.1.1 Japan
In 10-years data analysis, as shown in table 84, Japan equity demonstrated a higher riskadjusted return compared with REITs. Therefore, majority of allocation is dominated by
equity in high level of risk spectrum, while dominated by bond in low level of risk spectrum.
Therefore, JREITs only occupied a minor role in Japan domestic portfolio.
Table 84: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
JREITs Total Return Index
0.55%
84.61%
0.65%
S&P Japan Bond Index
0.04%
7.67%
0.51%
S&P Japan 500 (Total Return)
0.90%
76.21%
1.18%
Note. Author Compilation
Table 85: Efficient Allocation of JREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean
Return (Annual)
0%
100%
0%
0.28
0.47%
2%
92%
6%
0.29
1.21%
7%
78%
14%
0.36
2.43%
13%
65%
23%
0.43
3.66%
18%
51%
31%
0.50
4.91%
24%
37%
39%
0.56
6.17%
29%
23%
47%
0.62
7.44%
35%
9%
56%
0.67
8.73%
29%
0%
71%
0.73
10.04%
1%
0%
99%
0.87
11.35%
0%
0%
100%
0.87
11.38%
0.87
11.38%
Tangency Portfolio
0%
0%
100%
Note. Author Compilation
165
Figure 51: Efficient Frontier of domestic portfolio with JREITs
Portfolio Frontier
Portfolio Return
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
Portfolio Risk
Note. Author Compilation
6.1.2 Australia
AREITs have a dominant allocation in the high-risk spectrum of the domestic portfolio, as
they can provide double the monthly returns compared to other assets. However, in the
medium-risk level, which is commonly acceptable to the majority of investors, AREITs only
occupy a minor portion. With an allocation of around 10% - 20% to REITs, it reflects the
poor risk-adjusted performance of the overall AREITs market compared to other assets.
Additionally, AREITs are not included in the tangency portfolio, which reflects the portfolio
with the best risk-adjusted return. Therefore, AREITs only have a minor role in a mixed-asset
portfolio domestically compared to other assets.
Table 86: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
AREITs Total Return Index
1.14%
130.99%
0.87%
S&P Australia Aggregate Bond Index
0.22%
16.93%
1.28%
S&P/ASX 200 (Total Return)
0.76%
65.03%
1.16%
Note. Author Compilation
166
Table 87: Efficient Allocation of AREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean
Return (Annual)
0%
100%
0%
0.41
2.63%
0%
94%
6%
0.41
3.04%
0%
84%
16%
0.44
3.66%
2%
76%
22%
0.47
4.28%
4%
69%
28%
0.51
4.91%
6%
61%
34%
0.55
5.54%
8%
53%
39%
0.59
6.17%
10%
45%
45%
0.63
6.80%
12%
37%
51%
0.67
7.44%
14%
30%
57%
0.71
8.08%
16%
22%
62%
0.74
8.73%
18%
14%
68%
0.77
9.38%
20%
6%
74%
0.81
10.04%
24%
0%
76%
0.84
10.69%
38%
0%
62%
0.88
11.35%
51%
0%
49%
0.93
12.02%
64%
0%
36%
0.99
12.68%
100%
0%
0%
1.14
14.54%
0.45
3.89%
Tangency Portfolio
0%
81%
18%
Note. Author Compilation
167
Figure 52: Efficient Frontier of domestic portfolio with AREITs
Portfolio Return
Portfolio Frontier
16.00%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Portfolio Risk
Note. Author Compilation
6.1.3 Singapore
Compared to the previous two APAC REITs regimes, REITs have the lowest return to
variance ratio, while SREITs provide the second-highest risk-adjusted return, which is higher
than the domestic stock market. Therefore, REITs have a high proportion in the medium to
high level of risk spectrum. Despite a high allocation in the majority of risk levels, only 3%
is allocated to SREITs in the tangency portfolio, as the Singapore Bond market provides a
remarkable risk-adjusted performance.
Table 88: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
SREITs Total Return Index
0.58%
69.56%
0.84%
S&P Singapore Bond Index
0.13%
9.48%
1.33%
S&P Singapore BMI (USD) TR
0.46%
83.53%
0.55%
Note. Author Compilation
Table 89: Efficient Allocation of SREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean
Return (Annual)
0%
100%
0%
0.31
1.53%
4%
94%
2%
0.33
1.81%
14%
83%
2%
0.40
2.43%
25%
72%
3%
0.47
3.04%
35%
61%
3%
0.54
3.66%
46%
50%
4%
0.60
4.28%
168
57%
39%
4%
0.66
4.91%
67%
28%
5%
0.71
5.54%
78%
17%
5%
0.76
6.17%
88%
6%
6%
0.80
6.80%
100%
0%
0%
0.83
7.25%
0.32
1.78%
Tangency Portfolio
3%
95%
2%
Note. Author Compilation
Figure 53: Efficient Frontier of domestic portfolio with SREITs
Portfolio Frontier
8.00%
Portdolio Return
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Portfolio Risk
Note. Author Compilation
6.1.4 Hong Kong
Given the high volatility caused by political and economic uncertainty in the Hong Kong
equity market, HREITs and the stock market provided poor risk-adjusted performance
compared to bond markets. Therefore, the tangency frontier and the low-level risk spectrum
are mostly allocated to bonds, which provide a stable return in a riskless manner. As the risk
level increases, the allocation to stocks and REITs increases. Due to HREITs delivering a
higher risk-adjusted return than the stock market, the weighting of HREITs is substantially
higher than stocks in the mixed-asset portfolio of Hong Kong. Therefore, HREITs play an
important role for investor to construct a domestic portfolio in Hong Kong,
169
90.0%
Table 90: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
HREITs Total Return Index
0.57%
102.54%
0.56%
S&P Hong Kong Bond Index
0.07%
2.66%
2.63%
S&P Hong Kong RMI (Total Return)
0.40%
80.10%
0.49%
Note. Author Compilation
Table 91: Efficient Allocation of HREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean Return (Annual)
0%
100%
0%
0.16
0.84%
4%
93%
3%
0.27
1.21%
11%
82%
7%
0.41
1.81%
19%
70%
11%
0.51
2.43%
26%
59%
15%
0.60
3.04%
33%
47%
20%
0.68
3.66%
40%
36%
24%
0.74
4.28%
48%
24%
28%
0.81
4.91%
55%
13%
32%
0.87
5.54%
62%
1%
36%
0.92
6.17%
88%
0%
12%
0.98
6.80%
100%
0%
0%
1.01
7.08%
Tangency Portfolio
0%
100%
0%
0.16
0.84%
Note. Author Compilation
170
Figure 54: Efficient Frontier of domestic portfolio with HREITs
Portfolio Frontier
8.00%
Portfolio Return
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Portfolio Risk
Note. Author Compilation
6.1.5 Malaysia
When compared to the efficient frontier of other market portfolios, the Malaysia market
efficient frontier exhibits another half with a negative slope. The part with the negative slope
represents portfolios that are not efficient or optimal. Therefore, only portfolios with a mean
return greater than 4.28% represent optimal portfolios. Given the inferior risk-adjusted
performance of the stock market since 2013, the efficient portfolio only allocates weightings
to bonds and MREITs, which are deemed more favorable investment assets in the current
market conditions.
Table 92: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
MREITs Total Return Index
0.62%
65.66%
0.9%
S&P Malaysia Bond Index
0.32%
15.12%
2.1%
S&P Malaysia BMI (Total Return)
0.04%
70.50%
0.1%
Note. Author Compilation
171
Table 93: Efficient Allocation of MREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean
Return (Annual)
0%
0%
100%
0.84
0.46%
0%
22%
78%
0.75
1.21%
0%
40%
60%
0.67
1.82%
0%
58%
42%
0.59
2.43%
0%
76%
24%
0.49
3.04%
0%
94%
6%
0.41
3.66%
11%
89%
0%
0.40
4.28%
27%
73%
0%
0.47
4.91%
44%
56%
0%
0.56
5.54%
60%
40%
0%
0.64
6.17%
76%
24%
0%
0.71
6.80%
93%
7%
0%
0.78
7.44%
100%
0%
0%
0.81
7.72%
0.39
4.15%
Tangency Portfolio
7%
93%
0%
Note. Author Compilation
Figure 55: Efficient Frontier of domestic portfolio with HREITs
Portfolio Frontier
9.00%
Portfolio Return
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
0.0%
10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
Portfolio Risk
Note. Author Compilation
172
6.1.6 India
The mean-variance analysis of the Indian market has utilized data since the establishment of
the IREITs market. Unfortunately, since its inception, the IREITs market has remained
stagnant without any significant capital appreciation, while the Indian bond and stock
markets have grown exponentially since 2019. Due to the difference in performance, the
efficient portfolio for the Indian market consists only of stock and bond assets, with the
allocation to stocks increasing as the risk level increases. Historical performance indicates
that IREITs is not an efficient investment asset for the Indian market.
Table 94: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
IREITs Total Return Index
0.04%
108.46%
0.03%
S&P BSE India Bond Index
0.59%
11.90%
4.98%
S&P India BMI (Total Return)
0.95%
113.16%
0.84%
Note. Author Compilation
Table 95: Efficient Allocation of IREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean
Return (Annual)
100%
0%
0%
1.04
0.43%
88%
12%
0%
0.98
1.21%
71%
29%
0%
0.88
2.43%
53%
47%
0%
0.77
3.66%
35%
65%
0%
0.63
4.91%
17%
83%
0%
0.48
6.17%
0%
98%
2%
0.35
7.44%
0%
70%
30%
0.59
8.73%
0%
42%
58%
0.81
10.03%
0%
14%
86%
0.98
11.35%
0%
0%
100%
1.06
12.04%
0.35
7.41%
Tangency Portfolio
0%
99%
1%
Note. Author Compilation
173
Figure 56: Efficient Frontier of domestic portfolio with HREITs
Portfolio Frontier
14.00%
Portfolio Return
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Portfolio Risk
Note. Author Compilation
6.1.7 China
Due to the limited data length, the mean-variance analysis for the Chinese market utilizes
data from June 2021, which marks the establishment of the CREITs market. Since the China
equity market underwent a severe shock in 2021, the equity market delivered poor results,
with an average monthly return of -1.48% since 2021. Consequently, bond markets have
become a popular option among investors. With high-risk adjusted performance of the bond
market, the majority of portfolios must allocate to the bond market according to the meanvariance analysis results. The CREITs market also has a significant allocation in the mixedasset portfolio, with a 50% allocation at the return level of 6.17%. However, as the study
period only covered a nearly 2-year horizon, the results obtained in this study are not
conclusive.
Table 96: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
CREITs Total Return Index
0.69%
87.42%
0.79%
S&P China Bond Index
0.31%
6.92%
4.44%
S&P China BMI (Total Return)
-1.48%
135.60%
-1.09%
Note. Author Compilation
174
Table 97: Efficient Allocation of CREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean
Return (Annual)
0%
0%
100%
1.16
-16.38%
0%
10%
90%
1.10
-14.53%
0%
21%
79%
1.03
-12.43%
0%
32%
68%
0.95
-10.28%
0%
44%
56%
0.87
-8.08%
0%
55%
45%
0.77
-5.84%
0%
66%
34%
0.66
-3.54%
0%
77%
23%
0.53
-1.19%
0%
88%
12%
0.37
1.21%
3%
96%
1%
0.24
3.66%
50%
50%
0%
0.65
6.17%
100%
0%
0%
0.93
8.64%
0.24
3.67%
Tangency Portfolio
3%
96%
1%
Note. Author Compilation
Figure 57: Efficient Frontier of domestic portfolio with CREITs
Portfolio Frontier
10.00%
Portfolio Return
5.00%
0.00%
0.0%
-5.00%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
-10.00%
-15.00%
-20.00%
Portfolio Risk
Note. Author Compilation
175
6.1.8 Philippines
The mean-variance analysis of the PREITs market utilized data since the establishment of
the PREITs market. REITs have delivered a resounding performance since their
establishment, with a monthly average return of 2.26%. The highest return to variance ratio
among the three assets makes REITs the largest contributor to the mixed-asset portfolio and
the tangency portfolio. The PREITs is the only APAC REITs market with a 100% allocation
in the tangency portfolio, indicating its significance in the domestic market.
Table 98: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
PREITs Total Return Index
2.26%
154.20%
1.47%
S&P Philippines Bond Index
-0.04%
19.56%
-0.19%
S&P Philippines BMI (USD) TR
0.46%
102.44%
0.45%
Note. Author Compilation
Table 99: Efficient Allocation of PREITs in domestic portfolio
REITs
Bond
Stock
Portfolio SD
Portfolio Mean
Return (Annual)
0%
100%
0%
0.44
-0.45%
6%
94%
0%
0.47
1.21%
15%
85%
0%
0.55
3.66%
23%
77%
0%
0.65
6.17%
32%
68%
0%
0.73
8.73%
41%
59%
0%
0.81
11.35%
49%
51%
0%
0.89
14.03%
58%
42%
0%
0.96
16.77%
67%
33%
0%
1.02
19.56%
76%
24%
0%
1.08
22.42%
84%
16%
0%
1.14
25.34%
93%
7%
0%
1.20
28.32%
100%
0%
0%
1.24
30.80%
1.24
30.80%
Tangency Portfolio
100%
0%
0%
Note. Author Compilation
176
Figure 58: Efficient Frontier of domestic portfolio with PREITs
Portfolio Frontier
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
0.0%
-5.00%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Note. Author Compilation
6.1.9 Section Summary
In conclusion, the allocation of REITs in the domestic portfolio varies across different APAC
countries, with the highest average efficient allocation in the Philippines market and the
lowest allocation in the Indian market. The findings of the domestic mixed-asset portfolio
are summarized in the following table.
Table 100: Summary of the result of mean variance analysis in constructing domestic
portfolio with REITs
APAC
Sampling Period
Country
Highest
Allocation of REITs
Allocation of REITs
return/variance Ratio
in 6% return level
in tangency portfolio
Japan
02/2013 – 01/2023
Stock
24%
0%
Australia
02/2013 – 01/2023
Bond
8%
0%
Singapore
02/2013 – 01/2023
Bond
78%
3%
Hong
02/2013 – 01/2023
Bond
62%
0%
Malaysia
02/2013 – 01/2023
Bond
60%
7%
India
04/2019 – 01/2023
Bond
Not efficient
0%
China
06/2021 – 01/2023
Bond
50%
3%
Philippines
08/2020 – 01/2023
REITs
23%
100%
Kong
Note. Author Compilation
177
6.2
Optimal Allocation between Sector-specific REITs, Diversified REITs,
Stocks, and Bonds at the Domestic Level
6.2.1 Japan
Different from a domestic portfolio that only includes three investment assets, the inclusion
of subsector REITs in the portfolio substantially increases the allocation of JREITs in the
domestic asset. As shown in Table 102, the tangency portfolio has allocations of 10%, 12%,
and 27% to Healthcare, Hotel, and Industrial REITs, respectively. These results reflect the
strong risk-adjusted performance of these sector-specific REITs in the market, as
demonstrated in the previous section. The allocation of REITs in the portfolio increases
from 3% at the 1.21% return level to 100% at the 23.54% return level, highlighting the
significance of REITs in a domestic portfolio. Furthermore, the allocation of REITs is
substantially greater than the stock allocation in the portfolio across all risk spectrums,
further emphasizing the importance of REITs.
Table 101: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
Diversified JREITs total return index (DIV)
0.78%
88.27%
0.89%
Healthcare JREITs total return index (HEA)
1.40%
143.37%
0.98%
Hotel JREITs total return index (HOT)
1.78%
145.87%
1.22%
Industrial JREITs total return index (IND)
1.30%
92.89%
1.40%
Office JREITs total return index (OFF)
0.36%
98.77%
0.36%
Residential JREITs total return index (RES)
0.68%
82.73%
0.83%
Retail JREITs total return index (RET)
0.45%
94.78%
0.47%
S&P Japan Bond Index
0.03%
7.77%
0.43%
S&P Japan 500 (Total Return)
0.82%
76.28%
1.07%
Note. Author Compilation
178
Table 102: Efficient Allocation of Japan subsector REITs in domestic portfolio
DIV
HEA
HOT
IND
OFF
RES
RET
Bond
Stock
SD
Return
0%
0%
0%
0%
0%
0%
0%
100%
0%
0.28
0.41%
0%
1%
1%
0%
0%
1%
0%
94%
3%
0.28
1.21%
0%
2%
3%
3%
0%
1%
0%
85%
6%
0.33
2.43%
0%
3%
4%
7%
0%
1%
0%
77%
9%
0.38
3.66%
0%
4%
5%
10%
0%
1%
0%
69%
11%
0.43
4.91%
0%
5%
6%
13%
0%
1%
0%
60%
14%
0.48
6.17%
0%
6%
8%
17%
0%
1%
0%
52%
16%
0.52
7.44%
0%
7%
9%
20%
0%
1%
0%
44%
19%
0.57
8.73%
0%
9%
10%
23%
0%
1%
0%
35%
22%
0.60
10.03%
0%
10%
12%
27%
0%
1%
0%
27%
24%
0.64
11.35%
0%
11%
13%
30%
0%
1%
0%
19%
27%
0.68
12.68%
0%
12%
14%
33%
0%
1%
0%
11%
30%
0.71
14.03%
0%
13%
16%
37%
0%
1%
0%
2%
32%
0.74
15.39%
0%
16%
21%
39%
0%
0%
0%
0%
24%
0.78
16.77%
0%
21%
28%
41%
0%
0%
0%
0%
11%
0.82
18.16%
0%
24%
37%
39%
0%
0%
0%
0%
0%
0.88
19.56%
0%
23%
58%
19%
0%
0%
0%
0%
0%
0.97
20.98%
0%
0%
100%
0%
0%
0%
0%
0%
0%
1.21
23.54%
27%
24%
0.64
11.37%
Tangency Portfolio
0%
10%
12%
27%
0%
1%
0%
Note. Author Compilation
Figure 59: Efficient Frontier of domestic portfolio with subsector JREITs
Portfolio Frontier
25.00%
Portfolio Return
20.00%
15.00%
10.00%
5.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
Portfolio Risk
100.0%
120.0%
140.0%
Note. Author Compilation
179
6.2.2 Australia
With the inclusion of subsector REITs, the allocation of REITs dominates the Australian
domestic portfolio in the middle and high-risk level spectrum. The majority of the portfolio
is assigned to agricultural, residential, and retail REITs, which have provided high levels of
returns in the past decade. Similarly, subsector REITs also have a considerable portion in the
tangency portfolio, accounting for a total allocation of 31% in the portfolio, in contrast to
69% for bonds and 0% for stocks. Due to the comparatively low risk-adjusted return of
Australian stocks, they are unable to share an allocation in the optimal portfolio, with a
maximum allocation of only 2% across all risk levels. Therefore, Australia sub-sector REITs
play a material role in medium-to-high risk portfolio.
Table 103: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
Agricultural AREITs Total Return Index (AGR)
2.20%
125.43%
1.75%
Management AREITs Total Return Index (MAN)
2.52%
355.54%
0.71%
Diversified AREITs Total Return Index (DIV)
0.27%
99.42%
0.27%
Healthcare AREITs Total Return Index (HEA)
1.78%
128.60%
1.38%
Hotel AREITs Total Return Index (HOT)
1.01%
96.13%
1.06%
Industrial AREITs Total Return Index (IND)
1.32%
105.79%
1.25%
Infrastructure AREITs Total Return Index (INF)
1.77%
135.64%
1.30%
Office AREITs Total Return Index (OFF)
0.52%
97.44%
0.53%
Residential AREITs Total Return Index (RES)
2.78%
189.20%
1.47%
Retail AREITs Total Return Index (RET)
2.77%
241.04%
1.15%
S&P Australia Aggregate Bond Index
0.20%
16.64%
1.18%
S&P/ASX 200 (Total Return)
0.70%
64.44%
1.08%
Note. Author Compilation
180
Table 104: Efficient Allocation of Australia subsector REITs in domestic portfolio
AGR
MAN
DIV
HEA
HOT
IND
INF
OFF
RES
RET
Bond
STK
SD
RE
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
100%
0%
0.41
2.4%
3%
1%
0%
0%
0%
0%
0%
0%
1%
0%
93%
2%
0.41
3.7%
7%
1%
0%
0%
0%
0%
0%
0%
3%
1%
85%
2%
0.46
6.1%
12%
2%
0%
0%
0%
0%
1%
0%
6%
2%
77%
0%
0.52
8.7%
16%
2%
0%
0%
0%
0%
2%
0%
8%
4%
68%
0%
0.59
11.4%
21%
3%
0%
0%
0%
0%
3%
0%
10%
5%
59%
0%
0.65
14.0%
25%
3%
0%
0%
0%
0%
3%
0%
12%
6%
50%
0%
0.71
16.8%
30%
4%
0%
0%
0%
0%
4%
0%
14%
7%
41%
0%
0.77
19.6%
34%
4%
0%
0%
0%
0%
5%
0%
17%
8%
32%
0%
0.82
22.4%
39%
5%
0%
0%
0%
0%
5%
0%
19%
9%
23%
0%
0.87
25.3%
43%
5%
0%
0%
0%
0%
6%
0%
21%
10%
14%
0%
0.92
28.3%
48%
6%
0%
0%
0%
0%
7%
0%
23%
12%
5%
0%
0.96
31.4%
45%
6%
0%
0%
0%
0%
0%
0%
32%
17%
0%
0%
1.01
34.5%
11%
5%
0%
0%
0%
0%
0%
0%
54%
30%
0%
0%
1.17
37.6%
0%
0%
0%
0%
0%
0%
0%
0%
100%
0%
0%
0%
1.38
39.0%
3%
69%
0%
0.59
11.1%
Tangency Portfolio
2%
0%
0%
0%
0%
2%
0%
8%
Note. Author Compilation
Figure 60: Efficient Frontier of domestic portfolio with subsector AREITs
Portfolio Frontier
45.00%
40.00%
35.00%
Portfolio Return
16%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0% 120.0% 140.0% 160.0%
Portfolio Risk
Note. Author Compilation
181
6.2.3 Singapore
Due to the comparably low risk-adjusted return of the REITs sector in Singapore, the bond
allocation dominates the efficient portfolio at low risk levels. Bonds are assigned allocations
of 70%-62% in the return level of 0% to 5%. As the expected return of the portfolio increases,
the allocation to subsector REITs also increases, with Industrial and Data Center REITs
gaining the most substantial portions. At the return level of 10%, Data Center REITs and
Industrial REITs occupy 42% and 36% of the portfolio, respectively. Meanwhile,
Singaporean stocks fail to obtain a substantial allocation in the efficient portfolio analysis,
with no allocation across all risk levels. Therefore, Singaporean subsector REITs play an
important role in medium-to-high risk portfolios.
Table 105: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
Data Centre SREITs Total Return Index (DAT)
1.09%
92.25%
1.18%
Diversified REITs Total Return Index (DIV)
0.58%
102.92%
0.56%
Healthcare REITs Total Return Index (HEA)
0.48%
68.21%
0.70%
Hotel REITs Total Return Index (HOT)
0.41%
101.91%
0.40%
Industrial REITs Total Return Index (IND)
0.70%
71.14%
0.98%
Office REITs Total Return Index (OFF)
-0.28%
86.18%
-0.33%
Retail REITs Total Return Index (RET)
0.47%
83.01%
0.57%
S&P Singapore Bond Index
0.12%
9.49%
1.29%
S&P Singapore BMI (Total Return)
0.39%
83.07%
0.47%
Note. Author Compilation
182
Table 106: Efficient Allocation of Singapore subsector REITs in domestic portfolio
DAT
DIV
HEA
HOT
IND
OFF
RET
Bond
Stock
SD
Return
0%
0%
0%
0%
0%
100%
0%
0%
0%
0.93
-3.34%
0%
0%
0%
0%
0%
80%
0%
20%
0%
0.83
-2.37%
0%
0%
0%
0%
0%
55%
0%
45%
0%
0.69
-1.19%
0%
0%
0%
0%
0%
30%
0%
70%
0%
0.53
0.00%
0%
0%
0%
0%
0%
6%
0%
94%
0%
0.33
1.21%
7%
0%
1%
1%
1%
0%
0%
90%
0%
0.33
2.43%
12%
1%
3%
0%
7%
0%
1%
76%
0%
0.41
3.66%
18%
1%
4%
0%
13%
0%
2%
62%
0%
0.48
4.91%
24%
1%
6%
0%
19%
0%
2%
48%
0%
0.54
6.17%
30%
1%
8%
0%
24%
0%
3%
33%
0%
0.60
7.44%
36%
1%
9%
0%
30%
0%
4%
19%
0%
0.66
8.73%
42%
1%
11%
0%
36%
0%
4%
5%
0%
0.71
10.04%
53%
2%
2%
0%
43%
0%
0%
0%
0%
0.77
11.35%
77%
0%
0%
0%
23%
0%
0%
0%
0%
0.85
12.68%
100%
0%
0%
0%
0%
0%
0%
0%
0%
0.96
13.90%
83%
0%
037
3.06%
Tangency Portfolio
10%
0%
2%
1%
4%
0%
1%
Note. Author Compilation
Figure 61: Efficient Frontier of domestic portfolio with subsector SREITs
Portfolio Frontier
16.00%
14.00%
12.00%
Portfolio Return
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
-2.00%0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
-4.00%
-6.00%
Portfolio Risk
Note. Author Compilation
183
6.2.4 Hong Kong
As shown in Table 107 below, stocks and bonds provide better risk-adjusted performance
than all subsector REITs in the Hong Kong market. Therefore, subsector REITs in Hong
Kong do not play a significant role in the efficient portfolio calculated by mean variance
analysis. From the efficient allocation shown below, stocks and bonds show similar
allocation levels at low to medium return levels. As the expected return increases, the
allocation to Retail REITs increases since they provide the highest monthly returns.
Therefore, subsector REITs in Hong Kong can only play a substantial role in a domestic
portfolio when the expected return and risk level are high. However, compared to other
APAC markets, the Hong Kong portfolio can only attain a 5.03% annual return, significantly
lower than other APAC countries. Therefore, investors should thoroughly consider before
investing in the Hong Kong market.
Table 107: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
Retail HREITs Total Return Index
0.41%
96.73%
0.42%
Diversified HREITs Total Return Index
-0.68%
99.66%
-0.69%
Office HREITs Total Return Index
0.05%
104.24%
0.04%
Hotel HREITs Total Return Index
-0.15%
112.66%
-0.13%
S&P Hong Kong Bond Index
0.07%
2.58%
2.56%
S&P Hong Kong BMI (Total Return
0.36%
80.14%
0.44%
Note. Author Compilation
184
Table 108: Efficient Allocation of Hong Kong subsector REITs in domestic portfolio
Retail
Diversified
Office
Hotel
Bond
Stock
SD
Return
0%
100%
0%
0%
0%
0%
1.00
-7.91%
0%
89%
0%
0%
11%
0%
0.94
-6.97%
0%
75%
0%
0%
25%
0%
0.87
-5.84%
0%
62%
0%
0%
38%
0%
0.79
-4.70%
0%
49%
0%
0%
51%
0%
0.70
-3.54%
0%
35%
0%
0%
65%
0%
0.60
-2.37%
0%
22%
0%
0%
78%
0%
0.47
-1.19%
0%
9%
0%
0%
91%
0%
0.31
0.00%
4%
0%
0%
0%
89%
7%
0.31
1.21%
18%
0%
0%
0%
57%
25%
0.59
2.43%
32%
0%
0%
0%
25%
43%
0.77
3.66%
82%
0%
0%
0%
0%
18%
0.95
4.91%
100%
0%
0%
0%
0%
0%
0.98
5.03%
0%
0.16
0.80%
Tangency Portfolio
0%
0%
0%
0%
100%
Note. Author Compilation
Figure 62: Efficient Frontier of domestic portfolio with subsector HREITs
Portfolio Frontier
6.00%
4.00%
Portfolio Return
2.00%
0.00%
0.0%
-2.00%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
-4.00%
-6.00%
-8.00%
-10.00%
Portfolio Risk
Note. Author Compilation
185
6.2.5 Malaysia
Based on the empirical results of mean variance analysis, the inclusion of subsector risk can
substantially reduce risk while increasing the return of the portfolio. The results show that
the allocation to diversified and industrial REITs increases when the portfolio return, and
risk increase simultaneously. With a middle return level in the efficient frontier, diversified
and industrial MREITs have occupied over half of the portfolio weight, reflecting the
importance of MREITs in constructing a Malaysian portfolio with stocks, bonds, and REITs.
Additionally, diversified and industrial MREITs also have moderate weightings in the
tangency portfolio, with 6% and 8% allocations, respectively. Due to the high risk-adjusted
performance of the Malaysian bond market, bonds dominate the portfolio with low-single
digit return levels. However, stocks are not included in any optimal portfolio due to their
poor risk-adjusted performance. Therefore, similar to the result in domestic portfolio
analysis, REITs occupy a substantial weighting in a mixed domestic asset portfolio,
especially for diversified and industrial MREITs.
Table 109: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
Diversified MREITs Total Return Index
1.31%
113.38%
1.16%
Healthcare MREITs Total Return Index
0.04%
54.82%
0.08%
Hotel MREITs Total Return Index
0.22%
103.67%
0.21%
Industrial MREITs Total Return Index
1.22%
107.79%
1.13%
Office MREITs Total Return Index
0.40%
97.36%
0.41%
Retail MREITs Total Return Index
0.08%
60.56%
0.13%
S&P Malaysia Bond Index
0.30%
15.02%
2.03%
S&P Malaysia BMI (Total Return)
0.00%
70.51%
0.00%
Note. Author Compilation
186
Table 110: Efficient Allocation of Malaysia subsector REITs in domestic portfolio
Diversified
Healthcare
Hotel
Industrial
Office
Retail
Bond
Stock
SD
Return
0%
0%
0%
0%
0%
0%
0%
100%
0.84
0.02%
0%
39%
0%
0%
0%
13%
24%
24%
0.57
1.21%
0%
24%
0%
0%
0%
5%
61%
10%
0.45
2.43%
0%
8%
0%
2%
0%
0%
90%
0%
0.38
3.66%
5%
2%
0%
6%
0%
0%
87%
0%
0.39
4.91%
10%
0%
0%
11%
0%
0%
80%
0%
0.44
6.17%
15%
0%
0%
16%
0%
0%
69%
0%
0.50
7.44%
20%
0%
0%
21%
0%
0%
59%
0%
0.57
8.73%
25%
0%
0%
26%
0%
0%
48%
0%
0.63
10.04
%
31%
0%
0%
31%
1%
0%
37%
0%
0.69
11.35%
36%
0%
0%
36%
1%
0%
27%
0%
0.74
12.68
%
41%
0%
0%
41%
2%
0%
16%
0%
0.80
14.03
%
46%
0%
0%
47%
2%
0%
5%
0%
0.84
15.39
%
86%
0%
0%
14%
0%
0%
0%
0%
0.99
16.77
%
100%
0%
0%
0%
0%
0%
0%
0%
1.06
16.95
%
Tangency Portfolio
6%
0%
0%
8%
0%
0%
86%
0%
0.40
5.40%
Note. Author Compilation
187
Figure 63: Efficient Frontier of domestic portfolio with subsector MREITs
Portfolio Frontier
18.00%
16.00%
Portfolio Return
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Portfolio Risk
Note. Author Compilation
6.2.6 China
As the CREITs market was established in June 2021, the mean variance analysis for the
Chinese market applied data from June 2021 to January 2023. With an exceptional return-tovariance ratio of the Chinese bond markets, bonds dominate the efficient portfolio with
returns ranging from 2.43% to 7.44%. For the domestic stock market, lackluster performance
since 2021 has led to nearly 0% allocation in the efficient mixed-asset portfolio. Concerning
the allocation of subsector REITs, both infrastructure and industrial REITs gain moderate
weightings as the expected return increases. While residential REITs have delivered negative
returns since their first listing, they are not included in any efficient portfolios. Therefore,
infrastructure and industrial REITs can play a vital role in portfolios with medium to highrisk return levels, considering the data since June 2021.
Table 111: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
Industrial CREITs Total Return Index
1.21%
115.37%
1.05%
Infrastructure CREITs Total Return Index
0.65%
104.61%
0.62%
Residential CREITs Total Return Index
-1.30%
48.58%
-2.67%
S&P China Bond Index
0.30%
6.76%
4.44%
S&P China BMI (Total Return)
-1.80%
133.97%
-1.34%
Note. Author Compilation
188
Table 112: Efficient Allocation of China subsector REITs in domestic portfolio
Industrial
Infrastructure
Residential
Bond
Stock
Portfolio SD
Portfolio Return
0%
0%
0%
0%
100%
1.16
-19.56%
0%
0%
39%
0%
61%
0.93
-17.60%
0%
0%
79%
0%
21%
0.71
-15.56%
0%
0%
79%
10%
11%
0.66
-13.49%
0%
0%
68%
22%
10%
0.61
-11.36%
0%
0%
57%
34%
9%
0.56
-9.19%
0%
0%
46%
46%
8%
0.51
-6.97%
0%
0%
35%
58%
7%
0.45
-4.70%
0%
0%
24%
70%
6%
0.39
-2.37%
0%
0%
13%
82%
5%
0.31
0.00%
1%
0%
2%
93%
3%
0.24
2.43%
9%
5%
0%
86%
0%
0.33
4.91%
27%
15%
0%
58%
0%
0.57
7.44%
46%
24%
0%
30%
0%
0.75
10.06%
64%
34%
0%
2%
0%
0.89
12.70%
100%
0%
0%
0%
0%
1.07
15.50%
1%
0.24
3.74%
Tangency Portfolio
2%
2%
0%
95%
Note. Author Compilation
Figure 64: Efficient Frontier of domestic portfolio with subsector CREITs
Portfolio Frontier
20.00%
15.00%
Portfolio Return
10.00%
5.00%
0.00%
0.0%
-5.00%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
-10.00%
-15.00%
-20.00%
-25.00%
Portfolio Risk
Note. Author Compilation
189
6.2.7 Philippines
Similar to the conclusion made in the previous section analyzing domestic portfolios with
REITs, subsector REITs in the Philippines also play an important role in mixed asset
portfolios. This analysis is conducted using data since the establishment of the PREITs
market. During the study period, diversified PREITs exhibited the highest level of riskadjusted return, with a 1.64% return-to-variance ratio. Another asset that demonstrated high
risk-adjusted performance is Philippines Bonds, with a return-to-variance ratio of 1.37%.
Given that the risk-adjusted performance of other assets substantially lagged behind bonds
and diversified REITs, the efficient portfolio across all risk levels only consists of bonds and
diversified REITs. For efficient portfolios with low levels of risk and return, the portfolio is
dominated by bonds, while portfolios with higher levels of risk and return are dominated by
diversified REITs. The results show that diversified REITs are the main contributor to the
resounding performance of the PREITs market and are important for investors who want to
construct a portfolio with PREITs.
Table 113: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
Diversified PREITs Total Return Index
2.72%
165.63%
1.64%
Office PREITs Total Return Index
-0.46%
111.50%
-0.42%
Infrastructure PREITs Total Return Index
0.10%
119.31%
0.09%
Retail PREITs Total Return Index
-0.65%
71.00%
-0.92%
S&P Philippines Bond Index
0.39%
28.83%
1.37%
S&P Philippines BMI (Total Return)
1.20%
147.61%
0.81%
Note. Author Compilation
190
Table 114: Efficient Allocation of China subsector REITs in domestic portfolio
Diversified
Office
Infrastructure
Retail
Bond
Stock
Portfolio SD
Portfolio Return
0%
0%
0%
100%
0%
0%
0.84
-7.54%
0%
0%
0%
86%
14%
0%
0.79
-5.84%
0%
0%
0%
38%
62%
0%
0.63
0.00%
0%
0%
0%
14%
86%
0%
0.56
3.04%
5%
0%
0%
0%
95%
0%
0.58
6.17%
15%
0%
0%
0%
85%
0%
0.69
9.38%
26%
0%
0%
0%
74%
0%
0.79
12.68%
37%
0%
0%
0%
63%
0%
0.88
16.08%
47%
0%
0%
0%
53%
0%
0.96
19.56%
58%
0%
0%
0%
42%
0%
1.03
23.14%
69%
0%
0%
0%
31%
0%
1.10
26.82%
80%
0%
0%
0%
20%
0%
1.17
30.60%
90%
0%
0%
0%
10%
0%
1.23
34.49%
100%
0%
0%
0%
0%
0%
1.29
38.05%
0%
1.29
38.05%
Tangency Portfolio
100%
0%
0%
0%
0%
Note. Author Compilation
Figure 65: Efficient Frontier of domestic portfolio with subsector PREITs
Portfolio Frontier
50.00%
Portfolio Return
40.00%
30.00%
20.00%
10.00%
0.00%
0.0%
20.0%
-10.00%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Portfolio Risk
Note. Author Compilation
191
6.2.8 Section Summary
Based on the empirical results, subsector REITs are significant in constructing domestic
portfolios. As shown in Table 115 below, subsector REITs have a 30% weighting in the
tangency portfolio of various APAC regimes, with the highest allocation in the Philippine
market (100%). Concerning the allocation of subsector REITs, they are particularly
important if investors want to construct a domestic portfolio with an annual return over 10%.
As shown in Table 116 below, subsector REITs are the asset with the highest allocation in
the efficient portfolio when the annual average return is greater than 10%. However, it should
be noted that the empirical results for China and Philippines analysis may be inaccurate as
they only cover the period after the COVID pandemic. Previous trends in these markets may
not be captured by the analysis. Therefore, readers should be aware of the limitations and
potential biases of these analyses.
Table 115: Summary of the result of mean variance analysis on tangency portfolio
APAC Country
Sampling Period
Allocation of REITs in Tangency Portfolio
Japan
02/2013 – 01/2023
49%
Australia
02/2013 – 01/2023
31%
Singapore
02/2013 – 01/2023
17%
Hong Kong
02/2013 – 01/2023
0%
Malaysia
02/2013 – 01/2023
14%
China
06/2021 – 01/2023
4%
Philippines
08/2020 – 01/2023
100%
Note. Author Compilation
Table 116: Summary of the result of mean variance analysis on allocation of REITs
Asset with highest
Asset with highest
Asset with highest allocation
allocation in low return
allocation in medium
in high return level (> 10%)
level (0%-5%)
return level (5%-10%)
Japan
Bond
Industrial REITs
Hotel REITs
Australia
Bond
Bond
Agricultural & Residential
APAC Country
REITs
Singapore
Bond
Data Centre REITs
Data Centre REITs
Hong Kong
Bond & Retail REITs
-
-
Malaysia
Bond
Bond
Diversified REITs
China
Bond
Bond
Industrial REITs
Philippines
Bond
Bond
Diversified REITs
Note. Author Compilation
192
6.3
Optimal Allocation with Regional and International Portfolios
Constructing a portfolio with APAC REITs become more and more prominent among international
investor, since APAC REITs can provide benefit of diversification and exposure to Asia growing
real estate market. Similar to previous section, mean variance analysis will be applied to determine
the optimal allocation of a portfolio consist of APAC REITs. However, since some APAC regime
covered in this study have established in recent years, the relative short dataset may make the
analysis unable to capture all relevant factors and may not be representative. Unlike domestic
portfolio, regional and international portfolio is strategically more important to investor portfolio
construction. To prevent the problem of short dataset, the mean variance analysis of regional and
international portfolio will be constructed by the use of 10-year monthly data to ensure no bias is
present in the analysis.
In cases where the available data for a mean variance analysis is too short,
a proxy index Is applied to represents the performance of the REITs markets. The property
company index is a suitable proxy, as it represents the performance of real estate companies in
those markets, which are closely related to REITs. The following index will act as the proxy for
the market with missing data.
-
India: Nifty Realty
-
China: FTSE China A 600 - Real Estate Investment & Services
-
Philippines: Philippine SE Property Index
6.3.1 APAC REITs Portfolio
With the property companies index as proxy, the long-term risk adjusted performance of
various APAC markets can be compared fairly. From the empirical result, PREITs market
show the highest level of return-to-variance ratio, followed by MREITs. The high riskadjusted ratio allows these two developing countries to take a significant portion in efficient
portfolio in different risk level. On the other hand, Hong Kong, China and India market have
a neglectable allocation in efficient portfolio along different risk level, owing to their poor
performance in the previous decade.
The tenancy portfolio also shows no allocation in
Hong Kong, China and india REITs regime, which indicate that investor should focus on
others APAC REITs market if they would like to invest in APAC REITs. As the tenancy
portfolio provide an annualized return of 9%, it is believed that investor with moderate riskaversion could applied the allocation shown to constructed an portfolio with APAC REITs.
193
Table 117: Descriptive Statistic
Securities
Monthly Return
Variance
Return / Variance
JREITs Total Return Index
0.50%
84.63%
0.59%
AREITs Total Return Index
1.03%
130.99%
0.78%
SREITs Total Return Index
0.54%
69.56%
0.78%
HREITs Total Return Index
0.50%
102.54%
0.49%
MREITs Total Return Index
0.58%
65.66%
0.88%
IREITs Total Return Index + Nifty Realty
0.57%
162.81%
0.35%
CREITs Total Return Index + FTSE China
0.46%
125.66%
0.36%
1.27%
114.64%
1.11%
A 600
PREITs Total Return Index + Philippine SE
Property Index
Note. Author Compilation
Table 118: Efficient Allocation of REITs in APAC portfolio
JPN
AUS
SGP
HK
MAS
IND
CHN
PHP
SD
Return
0%
0%
0%
0%
0%
0%
100%
0%
1.12
5.63%
30%
0%
11%
18%
14%
0%
27%
0%
0.73
6.23%
14%
0%
25%
4%
41%
3%
7%
6%
0.64
7.24%
12%
0%
23%
3%
41%
1%
4%
15%
0.65
8.16%
10%
2%
20%
2%
41%
0%
2%
24%
0.69
9.12%
7%
5%
16%
0%
40%
0%
0%
32%
0.74
10.10%
4%
8%
11%
0%
38%
0%
0%
40%
0.80
11.09%
0%
11%
5%
0%
36%
0%
0%
48%
0.86
12.10%
0%
14%
0%
0%
30%
0%
0%
56%
0.92
13.09%
0%
16%
0%
0%
19%
0%
0%
66%
0.98
14.06%
0%
18%
0%
0%
8%
0%
0%
75%
1.05
15.05%
0%
13%
0%
0%
0%
0%
0%
87%
1.12
15.92%
0%
0%
0%
0%
0%
0%
0%
100%
1.18
16.35%
0%
30%
0.73
9.92%
Tangency Portfolio
8%
4%
17%
0%
40%
0%
Note. Author Compilation
194
Figure 66: Efficient Frontier of APAC portfolio with APAC PREITs
Porfolio Frontier
18.00%
16.00%
Portfolio Return
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Portfolio Risk
Note. Author Compilation
6.3.2 International REITs Portfolio
To analyze the composition of an international REITs portfolio, the return of US and Europe
REITs are added to the mean variance analysis to determine the weighting of APAC REITs
in such a portfolio. Similar to the conclusion in the APAC REITs portfolio construction, the
Philippines and Malaysia occupy a significant part in the efficient portfolio with different
risk and return levels, while Hong Kong, China, and India have negligible allocations in
efficient portfolios across the entire risk spectrum. Surprisingly, even though US REITs
provides the second-highest risk-to-variance ratio, they only occupy around 5% of the
efficient portfolio on average. The low allocation of US REITs in a diversified portfolio may
be due to their high correlation with other assets in the portfolio, which leads to a poor
diversification benefit. Therefore, from the international analysis, APAC REITs play a
significant role in the construction of an international REITs portfolio, which can be
exemplified by an over 90% allocation to APAC REITs in the tangency portfolio.
195
Table 119: Descriptive Statistic
Securities
Monthly
Varianc
Return /
Return
e
Variance
JREITs Total Return Index
0.50%
84.63%
0.59%
AREITs Total Return Index
1.03%
130.99%
0.78%
SREITs Total Return Index
0.54%
69.56%
0.78%
HREITs Total Return Index
0.50%
102.54%
0.49%
MREITs Total Return Index
0.58%
65.66%
0.88%
IREITs Total Return Index + Nifty Realty
0.57%
162.81%
0.35%
CREITs Total Return Index + FTSE China A 600
0.46%
125.66%
0.36%
PREITs Total Return Index + Philippine SE Property
1.27%
114.64%
1.11%
REITs Europe (Total Return)
0.14%
90.86%
0.16%
S&P U.S. Equity All REITs Index (Total Return)
0.76%
82.79%
0.92%
Index
Note. Author Compilation
Table 120: Efficient Allocation of REITs in International REITs portfolio
JPN
AUS
SGP
HK
MAS
IND
CHN
PHP
EUR
US
SD
Return
0%
0%
0%
0%
0%
0%
0%
0%
100%
0%
0.95
1.75%
1%
0%
0%
1%
8%
0%
4%
0%
86%
0%
0.88
2.43%
6%
0%
3%
3%
20%
2%
4%
0%
61%
0%
0.75
3.66%
9%
0%
14%
3%
31%
3%
4%
0%
37%
0%
0.64
4.91%
10%
0%
21%
2%
38%
3%
4%
4%
19%
0%
0.60
6.17%
10%
3%
19%
2%
40%
2%
3%
11%
11%
0%
0.62
7.44%
8%
7%
16%
1%
40%
0%
2%
17%
5%
4%
0.67
8.73%
6%
11%
11%
0%
39%
0%
1%
24%
0%
9%
0.72
10.03%
0%
16%
1%
0%
35%
0%
0%
32%
0%
16%
0.79
11.35%
0%
25%
0%
0%
22%
0%
0%
42%
0%
10%
0.86
12.68%
0%
35%
0%
0%
9%
0%
0%
52%
0%
4%
0.95
14.03%
0%
29%
0%
0%
0%
0%
0%
71%
0%
0%
1.04
15.39%
0%
0%
0%
0%
0%
0%
0%
100%
0%
0%
1.18
16.35%
16%
6%
3%
0.66
8.47%
Tangency Portfolio
9%
6%
17%
1%
40%
0%
2%
Note. Author Compilation
196
Figure 67:: Efficient Frontier of International REITs portfolio with APAC PREITs
Portfolio Frontier
18.00%
16.00%
Portfolio Return
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Portfolio Risk
Note. Author Compilation
6.3.3 International Mixed-Asset Portfolio
To construct an international mixed asset portfolio with APAC REITs, the performance of
stocks, bonds, and REITs in the US, Europe, and Asia are analyzed with APAC REITs to
determine the optimal allocation of these investment assets. Based on the empirical results,
among the eight APAC REITs regimes covered in the study, MREITs and PREITs play
important roles in the global mixed asset portfolio. MREITs has a weight of 15%-25% in the
expected return level of 7%-14%, while PREITs allocation increases from 11% in the 7%
expected return level to 100% in the 17.03% return level. The empirical results show that
APAC REITs can play a vital role if investors aim to construct a mixed asset portfolio with
high single-digit to double-digit percent expected returns. Additionally, US stocks were the
greatest contributor to the mixed-asset portfolio, with a weighting over 10% in nearly all
risk/return levels. The analysis also suggests a substantial weighting on APAC bond markets
when investors are looking for low-risk and low-return investments.
197
Table 121: Descriptive Statistic
Securities
Monthly
Varianc
Return /
Return
e
Variance
JREITs Total Return Index
0.46%
84.63%
0.55%
AREITs Total Return Index
1.14%
130.99%
0.87%
SREITs Total Return Index
0.58%
69.56%
0.84%
HREITs Total Return Index
0.57%
102.54%
0.56%
MREITs Total Return Index
0.62%
65.66%
0.95%
IREITs Total Return Index + Nifty Realty
0.55%
162.81%
0.34%
CREITs Total Return Index + FTSE China A 600
0.44%
125.66%
0.35%
PREITs Total Return Index + Philippine SE Property
1.32%
114.64%
1.15%
REITs Europe (Total Return)
0.14%
90.86%
0.16%
Euro Stoxx 50 (Total Return)
0.52%
77.59%
0.67%
S&P Eurozone Sovereign Bond Index
0.10%
22.43%
0.44%
S&P U.S. Equity All REITs Index (Total Return)
0.76%
82.79%
0.92%
S&P 500 (Total Return)
1.11%
73.23%
1.52%
S&P U.S. Aggregate Bond Index
0.12%
18.01%
0.67%
S&P Asia Pacific BMI (Total Return)
0.51%
69.04%
0.74%
S&P Pan Asia Bond Index
0.22%
21.25%
1.02%
Index
Note. Author Compilation
198
Table 122: Efficient Allocation of APAC REITs in International mixed-asset portfolio
MREITs
PREITs
EUR Stock
EUR Bond
US Stock
US Bond
APAC Bond
SD
Return
0%
0%
0%
100%
0%
0%
0%
0.47
1.18%
4%
0%
2%
1%
1%
56%
35%
0.38
2.43%
7%
2%
3%
0%
6%
41%
40%
0.39
3.59%
9%
5%
4%
0%
10%
26%
46%
0.42
4.73%
12%
8%
5%
0%
14%
11%
50%
0.46
5.88%
15%
11%
5%
0%
18%
0%
52%
0.51
7.04%
17%
14%
7%
0%
22%
0%
40%
0.55
8.19%
19%
17%
9%
0%
26%
0%
28%
0.60
9.36%
22%
21%
10%
0%
30%
0%
17%
0.65
10.53
%
24%
24%
12%
0%
34%
0%
5%
0.69
11.72%
22%
30%
9%
0%
39%
0%
0%
0.74
12.84
%
17%
36%
2%
0%
45%
0%
0%
0.80
13.92
%
6%
43%
0%
0%
50%
0%
0%
0.86
14.99
%
0%
57%
0%
0%
43%
0%
0%
0.94
15.80
%
0%
77%
0%
0%
23%
0%
0%
1.05
16.37
%
0%
100%
0%
0%
0%
0%
0%
1.18
17.03
%
Tangency Portfolio
15%
11%
6%
0%
18%
0%
50%
0.51
7.20%
Note. Author Compilation
199
Figure 68: Efficient Frontier of International mixed-asset portfolio with APAC PREITs
Portfolio Frontier
18.00%
16.00%
Portfolio Return
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Portfolio Risk
Note. Author Compilation
6.3.4 Section Summary
By performing mean variance analysis, the optimal allocation of APAC REITs in regional
and international portfolios was determined. The results show that APAC REITs play a
significant role in both regional REITs portfolios and international mixed asset portfolios.
Among them, PREITs and MREITs have a high weighting in both regional and international
portfolios, which once again demonstrates their resounding performance in the recent
decade. Therefore, investors can use the results from the above section to construct portfolios
based on their own risk tolerance.
200
7 The Dynamic of Correlation and Volatility Spillover Effect
between Different APAC REITs Markets
Understanding the dynamics of correlation and volatility spillover effects between APAC REITs markets
is critical for investors who seek to establish diversified portfolios and manage overall risk. With
economic growth and rapid urbanization, the APAC region has become an influential player in the global
real estate industry, and investors have increasingly turned to APAC REITs markets for attractive returns
and diversification benefits. However, the interdependence of different APAC REITs markets can present
challenges for investors, as shocks in one market can spread to others, potentially increasing volatility
and risk. As a result, analyzing the dynamics of correlation and volatility spillover effects between
different APAC REITs markets is critical for understanding the potential risks and opportunities of
investing in these markets and making informed investment decisions.
In the following sections, the dynamics between APAC REITs markets will be analyzed using correlation
(both static and rolling) analysis and Vector Autoregression (VAR) models. Static correlation aims to
access the diversification benefit between APAC REITs market. Rolling correlation analysis aims to
observe changes in correlation over different time periods, while the VAR model aims to model the
magnitude and transfer of volatility spillover effects between markets.
As mentioned in the previous chapter, some APAC markets do not have a long history, and using only
present REITs data is not sufficient to carry out a conclusive analysis. Since volatility spillover effects
and correlation are phenomena that occur over time, it is essential for the study period to cover different
market conditions and economic cycles to capture the dynamics between markets. Additionally, the use
of long historical data in the analysis can ensure statistical significance and the robustness of the analysis.
Therefore, the performance of these new markets is proxied by the property companies market index of
the market. However, since the performance of property companies is not identical to REITs, the results
will be interpreted with caution to prevent incorrect interpretation.
201
7.1
Correlation analysis
With the property companies index as a proxy for the performance of India, China and Philippines
markets, the correlation matrix of between various APAC REITs regime is constructed. By the use
of data from February 2013 to January 2023, it is observed that China and India REITs market have
a low correlation with other market since 2013. For other markets combination, the correlation
coefficient is mostly greater than 0.7, which indicate a strong positive correlation between two
markets. Therefore, investor should invest in China and India market if they aims to diversify their
risk exposures.
Table 123: Correlation Matrix of APAC REITs market
Hong
Japan
Australia
Singapore
Malaysia
India
China
Philippines
Kong
Japan
1.00
0.90
0.79
0.80
0.80
0.39
0.42
0.85
Australia
0.90
1.00
0.81
0.78
0.73
0.43
0.48
0.89
Singapore
0.79
0.81
1.00
0.64
0.43
0.58
0.09
0.79
Hong Kong
0.80
0.78
0.64
1.00
0.76
0.58
0.43
0.79
Malaysia
0.80
0.73
0.43
0.76
1.00
0.20
0.65
0.63
India
0.39
0.43
0.58
0.58
0.20
1.00
0.05
0.51
China
0.42
0.48
0.09
0.43
0.65
0.05
1.00
0.32
Philippines
0.85
0.89
0.79
0.79
0.63
0.51
0.32
1.00
Note. Author Compilation
The rolling correlation analysis is only conducted on developed markets since developing markets
are subject to more volatility and uncertainty, which makes it difficult to draw insightful
conclusions by observing the correlation plot. Additionally, the developed market has a longer
dataset spanning from 2005 to 2023, which allows for a more thorough analysis. The figure below
shows the 36-month window rolling correlation between developed markets from October 2008 to
January 2023. The following trends can be summarized from the results: Firstly, the rolling
correlation between APAC REITs markets decreases substantially when there are major shocks in
the financial markets. Most of the rolling correlation plots show a significant decrease in value
during the periods of 2009-2012 and 2021-2023, which were the periods of the international
financial crisis and the COVID-19 pandemic, respectively. This implies that APAC REITs are less
interdependent during market stress and financial disruption, which may provide diversification
benefits to investors to hedge against market volatility. Additionally, the correlation between APAC
markets remains at a high level when the international financial condition remains stable, with
correlations consistently over 0.6 for most market combinations. This implies that investors may
not benefit from diversification with developed APAC market REITs since they are highly
correlated.
202
-0.2
-0.4
2022-10-01
2022-04-01
2021-10-01
2021-04-01
2020-10-01
2020-04-01
2019-10-01
2019-04-01
2018-10-01
2018-04-01
2017-10-01
2017-04-01
2016-10-01
2016-04-01
2015-10-01
2015-04-01
2014-10-01
2014-04-01
2013-10-01
2013-04-01
Rolling Correlation MAS-SGP
0.8
0.8
0.6
0.6
0.4
0.4
0.2
0
0.2
-0.2
-0.6
-0.4
-0.6
-0.8
-0.8
-1
-1
2016-04-01
2016-10-01
2018-04-01
2017-10-01
2017-04-01
-1
1.2
Rolling Correlation SGP-HK
0.8
1
0.2
0.6
0
0.4
0.2
0
Rolling Correlation MAS-HK
0
2014-10-01
2015-04-01
2018-04-01
2017-10-01
2017-04-01
2016-10-01
2016-04-01
2015-10-01
2010-04-01
2010-10-01
2011-10-01
2012-04-01
2018-04-01
2017-10-01
2017-04-01
2016-10-01
2016-04-01
2015-10-01
2015-04-01
2014-10-01
2014-04-01
2013-10-01
2013-04-01
2012-10-01
2020-10-01
2021-04-01
2021-10-01
2022-04-01
2022-10-01
2020-10-01
2021-04-01
2021-10-01
2022-04-01
2022-10-01
2020-10-01
2021-04-01
2021-10-01
2022-04-01
2022-10-01
2021-10-01
2022-04-01
2022-10-01
2020-04-01
2021-04-01
2019-10-01
2020-10-01
2019-04-01
2019-10-01
2020-04-01
2019-04-01
2019-10-01
2020-04-01
2019-04-01
2019-10-01
2020-04-01
2019-04-01
2018-10-01
1
2013-04-01
0
2018-10-01
1
2013-10-01
Rolling Correlation JPN-SPG
2018-10-01
-0.6
2014-04-01
-1
2018-10-01
-0.4
-1
2018-04-01
-0.8
2017-10-01
-0.2
2017-04-01
-0.6
2016-10-01
0.4
2016-04-01
0.6
2014-10-01
0.8
2015-04-01
Rolling Correlation JPN-HK
2015-10-01
-0.8
2015-10-01
-0.6
-0.8
2015-04-01
1
-0.4
2014-10-01
-0.6
2013-04-01
-1
-0.2
2013-10-01
0.2
2014-04-01
0.4
0.2
2014-04-01
0.6
0.4
2013-10-01
0.8
0.6
2013-04-01
0.8
2011-10-01
1
2012-04-01
Rolling Correlation JPN-MAS
2012-10-01
1
2011-10-01
-0.8
2012-04-01
-0.6
-0.8
2011-04-01
Rolling Correlation AUS-SGP
2012-10-01
0
-0.4
2010-04-01
-0.6
2010-10-01
-1
-0.2
2011-04-01
0.2
2010-04-01
0.4
0.2
2010-10-01
0.6
0.4
2011-04-01
0.8
0.6
2008-10-01
0.8
2009-04-01
1
2009-10-01
1
2008-10-01
-0.8
2009-04-01
-0.6
-0.8
2009-10-01
0
2020-10-01
2021-04-01
2022-10-01
2022-04-01
2021-10-01
2022-10-01
2022-04-01
2021-10-01
2021-04-01
2020-10-01
2020-04-01
2019-10-01
2019-04-01
2018-10-01
2018-04-01
2017-10-01
2017-04-01
2016-10-01
2016-04-01
2015-10-01
2015-04-01
2014-10-01
2014-04-01
2013-10-01
2013-04-01
2012-10-01
2012-04-01
2011-10-01
2011-04-01
2010-10-01
2010-04-01
2009-10-01
2009-04-01
2008-10-01
-0.4
2008-10-01
-0.6
2009-04-01
2022-04-01
2022-10-01
-1
-0.2
2009-10-01
2022-04-01
2022-10-01
2020-10-01
2021-04-01
2021-10-01
2019-04-01
2019-10-01
2020-04-01
Rolling Correlation AUS-JPN
2012-10-01
2022-04-01
2022-10-01
2020-10-01
2021-04-01
2021-10-01
2019-04-01
2019-10-01
2020-04-01
2017-10-01
2018-04-01
2018-10-01
0.2
2012-04-01
2020-10-01
2021-04-01
2021-10-01
2019-04-01
2019-10-01
2020-04-01
2017-10-01
2018-04-01
2018-10-01
2016-04-01
2016-10-01
2017-04-01
0
2011-10-01
2019-04-01
2019-10-01
2020-04-01
2017-10-01
2018-04-01
2018-10-01
2016-04-01
2016-10-01
2017-04-01
2014-10-01
2015-04-01
2015-10-01
0.4
0.2
2011-04-01
2017-10-01
2018-04-01
2018-10-01
2016-04-01
2016-10-01
2017-04-01
2014-10-01
2015-04-01
2015-10-01
2013-04-01
2013-10-01
2014-04-01
0.6
0.4
2010-10-01
2016-04-01
2016-10-01
2017-04-01
2014-10-01
2015-04-01
2015-10-01
2013-04-01
2013-10-01
2014-04-01
2011-10-01
2012-04-01
2012-10-01
0.8
0.6
2010-04-01
2014-10-01
2015-04-01
2015-10-01
2013-04-01
2013-10-01
2014-04-01
2011-10-01
2012-04-01
2012-10-01
2010-04-01
2010-10-01
2011-04-01
0.8
2009-10-01
2013-04-01
2013-10-01
2014-04-01
2011-10-01
2012-04-01
2012-10-01
2010-04-01
2010-10-01
2011-04-01
2008-10-01
2009-04-01
2009-10-01
1
2009-04-01
2011-10-01
2012-04-01
2012-10-01
2010-04-01
2010-10-01
2011-04-01
2008-10-01
2009-04-01
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1
2008-10-01
2010-04-01
2010-10-01
2011-04-01
2009-04-01
2009-10-01
π
2012-10-01
2012-04-01
2011-10-01
2011-04-01
2010-10-01
-0.4
2010-04-01
-0.2
2008-10-01
-0.4
2008-10-01
-0.2
2009-04-01
-0.4
2009-10-01
-0.2
2009-10-01
-0.4
2009-04-01
-0.2
2008-10-01
Figure 69: Rolling Correlation analysis between developed REITs markets
Rolling Correlation AUS-MAS
0
-1
Rolling Correlation AUS-HK
0
Note. Author Compilation
203
7.2 Volatility Spillover Analysis
7.2.1 Data and Preliminary Analysis
v In order to estimate the volatility of the APAC REITs market, a rolling standard deviation
with a 6-month window was calculated to reflect the changing volatility of each market. The
following figure illustrates the fluctuation of volatility in the markets covered in the study.
Using data from January 2011 to January 2023, most markets displayed a volatility shock in
2020, with the exception of Malaysia and China. This suggests that the property markets in
these countries may be relatively immune to economic shocks. Furthermore, developing
markets, including India, China, and the Philippines, have historically exhibited higher levels
of volatility, as shown in the data graph. It is common for equities in developing countries to
exhibit higher volatility due to their higher exposure to external shocks and greater likelihood
of structural problems in their economies (Centre for Global Development, n.d.).
Figure 70: Volatility of APAC REITs market (2011 – 2023)
Note. Author Compilation
204
The table below presents the descriptive statistics for the REITs volatility, including the
Jarque-Bera test results. The Jarque-Bera test is a statistical tool that assesses whether a
dataset exhibits a normal distribution. The null hypothesis of the Jarque-Bera test can be
rejected (that the dataset has a normal distribution) if the p-value is less than a selected
significance level (0.05). According to the table, only the China and India datasets have pvalues greater than 0.05, indicating that the other APAC REITs regime volatility data series
have non-normal distributions. The VAR model is an appropriate approach that can handle
non-normal distribution of time series data, enabling it to accurately capture underlying
patterns and dependencies in the data.
Table 124: Summary Statistics of APAC REITs volatility
JPN
AUS
SPG
HK
MAL
IND
CHN
PHP
Mean
0.04
0.06
0.04
0.06
0.04
0.09
0.07
0.06
Median
0.04
0.05
0.04
0.06
0.03
0.09
0.07
0.05
Maximum
0.18
0.18
0.08
0.12
0.09
0.18
0.14
0.15
Minimum
0.01
0.02
0.01
0.02
0.01
0.02
0.01
0.02
Std. Dev.
0.03
0.04
0.02
0.02
0.02
0.04
0.03
0.03
Skewness
2.66
1.69
0.74
0.93
0.77
0.32
-0.03
1.33
Kurtosis
10.82
4.85
2.91
3.96
2.81
2.51
2.81
3.95
Jarque-Bera
518.99
85.91
12.84
25.20
13.86
3.75
0.24
46.48
Probability
0.00
0.00
0.00
0.00
0.00
0.15
0.89
0.00
Sum
6.20
8.66
5.65
8.33
5.29
12.47
9.68
8.24
Sum sq. Dev.
0.13
0.23
0.04
0.06
0.06
0.19
0.09
0.12
Observations
139.00
139.00
139.00
139.00
139.00
139.00
139.00
139.00
Note. Author Compilation
7.2.2 Static Spillover Analysis
The spillover analysis was conducted using EVIEW 13. Prior to the model
estimation, it was necessary to select the lag length of the model. As recommended
by Ozcicek and McMillin (n.d.), the lag length of the VAR model is commonly
determined using lag length selection criteria such as the Akaike Information
Criterion (AIC) and Schwarz Information Criterion (SC). Based on the figure below,
both AIC and SC recommended a lag length of 1 for the model. Consequently, the
VAR (1) model was employed to estimate the spillover effect of volatility between
markets.
205
Figure 71: Lag Length Selection Criteria
Note. Result Extract from EVIEW 13
The estimated coefficients in empirical analysis indicate the relationship between
variables. A positive coefficient indicates that an increase in one variable is
associated with an increase in another variable. Due to the limited data length, some
coefficients may be statistically insignificant. As long as the model is stable and pass
the residual diagnostic test, these insignificant coefficients are still considered in the
analysis of the overall directional spillover effect as they provide information on the
relationship between variables.
The empirical results in Table 125 shows the estimation of coefficient of VAR model
with its corresponding p-value. The coefficient is considered as statistically
significant if the p-value is less than 0.05.
206
Among various APAC REITs regimes, Hong Kong and China were the primary
contributors to spillover effects, with absolute values of 0.41 and 0.32, respectively.
It has been established in previous literature that developed REITs markets typically
contribute the most to volatility due to their size and integration with other markets,
as noted by Pham (2013). However, the market dynamics have changed considerably
since then, with the Hong Kong and China property markets now ranking among the
top 10 largest real estate markets as of 2023. These markets have experienced
significant volatility shocks in recent years, given the uncertainty they have faced.
As they are among the largest and most important in the region, with high levels of
investment activity and integration with other APAC economies, any changes or
shocks in these markets can have a significant impact on other markets in the region.
Because the value of REITs is closely tied to the value of its underlying real estate
asset, the volatility shock of Hong Kong and China property markets can transmit to
their respective REITs markets and spread to other countries, making these two
countries the largest net transmitters in various regimes.
The results also show that developed REITs markets (with the exception of
Singapore) are less likely to be affected by volatility in other markets. Developed
markets commonly have a coefficient of their own lag greater than 0.85, while
developing markets like China, India, and the Philippines only have coefficients of
their own lag at 0.76, 0.79, and 0.79, respectively. Therefore, the volatility of
developed REITs markets is more strongly influenced by their past volatility
compared to developing REITs regimes, and developed markets are relatively
independent from other markets. Additionally, the net spillover figure of developed
REITs market is relatively lower compare with the developing REITs regime. For
instance, Japan and Australia have -0.05 and 0.00 net spillover, while China and
India have a net spillover of 0.53 and 0.58 respectively. The higher net spillover
means that developing REITs regime has a greater impact on the volatility of other
markets in the region. The higher independence of developed REITs markets can be
explained by the higher transparency and lower risk premium of these markets. In
the face of sudden shocks or volatility events in the market, the stability of developed
markets can reduce the spread of volatility, making them more independent and less
susceptible to spillover effects.
207
Although all coefficients, including those that are statistically insignificant, are used
to analyze the overall directional relationship of spillover effects in the APAC
market, insignificant coefficients cannot be considered when analyzing the spillover
effects between individual markets. This is because insignificant coefficients do not
contribute much to the model's explanatory power on their own. Therefore, when
constructing a spillover effect diagram between APAC markets, only statistically
significant figures are considered. The spillover diagram shown below indicates that
developing REITs markets are more likely to be impacted by volatility spillover
effects, which aligns with the observations made in the overall model analysis.
Figure 72: Spillover Diagram constructed by statistically significant coefficients.
AUS
PHP
JPN
CHN
SGP
IND
HK
MAS
Note. Author Compilation. Red Arrow represent negative spillover while Green
Arrow represent the positive spillover
208
Table 125: Empirical Result of VAR (1) Model
AUS
CHN
HK
IND
JPN
MAL
PHP
SGP
From
AUS (-1)
0.85
0.01
0.05
-0.04
-0.02
-0.02
0.02
0.02
0.01
P-value
0.00
0.42
0.03
0.19
0.26
0.14
0.33
0.03
CHN (-1)
0.04
0.76
0.05
0.22
0.07
0.02
-0.01
0.02
P-value
0.32
0.00
0.13
0.00
0.08
0.29
0.45
0.18
HK (-1)
-0.09
0.04
0.81
-0.06
0.02
-0.05
-0.19
0.01
P-value
0.20
0.29
0.00
0.29
0.40
0.13
0.01
0.36
IND (-1)
0.04
-0.02
-0.02
0.79
0.03
-0.03
-0.12
0.00
P-value
0.24
0.28
0.39
0.00
0.24
0.16
0.00
0.50
JPN (-1)
-0.02
0.07
-0.05
-0.08
0.90
0.01
0.07
0.07
P-value
0.42
0.11
0.14
0.14
0.00
0.40
0.11
0.01
MAS (-1)
-0.07
-0.06
0.03
0.21
-0.02
0.89
0.03
-0.06
P-value
0.26
0.22
0.28
0.02
0.41
0.00
0.33
0.06
PHP (-1)
0.19
-0.14
0.07
0.08
0.08
-0.03
0.79
0.06
P-value
0.01
0.00
0.04
0.14
0.07
0.20
0.00
0.01
SGP (-1)
-0.08
-0.01
0.10
0.11
-0.14
0.11
0.08
0.76
P-value
0.32
0.46
0.14
0.25
0.12
0.10
0.28
0.00
To
0.01
-0.12
0.23
0.45
0.02
0.00
-0.12
0.13
Net
0.00
0.53
0.55
0.58
-0.05
-0.08
-0.43
-0.04
R-squared
75%
70%
74%
73%
82%
79%
73%
84%
Adj. R-squared
74%
68%
72%
71%
81%
78%
71%
83%
0.41
-0.32
-0.13
0.07
0.08
0.31
0.17
Note. Author Compilation
“To” represents the total spillover from other markets to one certain market, and the
column “From” represents the total spillover contributed from one certain market.
“NET” represents the net spillover from one certain market to other markets, which
calculates “To” minus “From”.
The model is said to have a moderate fit to the data, with the adjusted R-squared
value of each equation greater than 65%. This indicates that over 65% of the
variability in the dependent variable data can be explained by the independent
variables included in the model. The adjusted R-squared value is a modified version
of the R-squared value that adjusts for the number of independent variables in the
model. It provides a more accurate measure of the proportion of the variation in the
dependent variable that is explained by the independent variables and is therefore a
better indicator of model performance.
209
In addition to analyzing the goodness of fit of the dataset, a residual diagnostic is
also performed to ensure that the model can capture the most information in the
dataset and detect outliers that may distort model estimation. The VAR Residual
Serial Correlation Lagrange Multiplier (LM) Test is applied to assess whether there
is serial correlation in the model. As shown in the figure below, the LM test reports
a p-value of 0.3299 for a lag-length of 1, which is less than the conventional 5%
significance level. Therefore, the null hypothesis is not rejected, indicating that there
is no serial correlation in the model.
Figure 73: Series Correlation LM Test
Note. Result Extract from EVIEW 13
210
Furthermore, a stability check is conducted on the VAR model to ensure that it is
stable. An unstable model can lead to unpredictable behavior in its forecasts, as an
unstable model often exhibits explosive behavior. As shown in the figure below, the
absolute values of the modulus lie within the unit circle, which implies that the VAR
model is stable.
Figure 74: S VAR Stability Condition Check
Note. Result Extract from EVIEW 13
211
7.2.3 Granger-Causality Test
As previously mentioned, Granger-causality statistics are used to determine whether
the past value of one variable can help to predict other variables. If one variable
Granger-causes another variable to change, the null hypothesis would be rejected.
From the empirical results shown in the table below, developed markets including
as Japan, Australia and Malaysia have a p-value substantially greater than 0.05,
which suggests that the volatility of other markets cannot help to predict the value
of volatility in these developed REITs markets. Conversely, for developing markets
(with the exception of China), they show a p-value smaller than the 5% significance
level, indicating that changes in the volatility of other countries do cause changes in
their market. This observation is aligned with the conclusion made in the VAR model
analysis, which suggests that developed markets are less likely to be affected by
spillover from other countries. However, it should be noted that the p-value of the
analysis is high, which hinders the explanatory power of the result. The high p-value
may be due to the small sample size, which reduces the power of the test to discover
significant results.
Table 126: Granger-Causality Test
Dependent Variable
Tested Variable
P-value
Japan REITs volatility
All variables beside the dependent variable
0.6031
Australia REITs volatility
0.3599
Singapore REITs volatility
0.1121
Hong Kong REITs volatility
0.0240
Malaysia REITs volatility
0.5999
India REITs volatility
0.0431
China REITs volatility
0.1368
Philippines REITs volatility
0.0282
Note. Result Extract from EVIEW 13
212
7.2.4 Impulse Response Function
The impulse response function is designed to measure the response of one variable
to a shock on another variable. The diagrammatic result of the impulse response
function is presented in Appendix A. From the results, it is evident that a shock from
the own market lag data will cause a substantial increase in the volatility of the
present market, with the impact decreasing if the lag length increases. In other
words, a period of substantial volatility in a market is commonly followed by a
further period of high volatility. In addition to the impact from the own lag, it is
observed that there is a lag effect on the volatility impact. This implies that the
impact of a shock in one market may not be immediately reflected in other markets
but may occur over a period of time. The lag effect may possibly be due to the time
needed for information transmission. Investors should be aware that the lag effect of
spillover effects may occur between markets, which can create opportunities for
profit or loss.
7.2.5 Variance Decomposition
Variance Decomposition is a quantitative technique for determining the relative
importance of various sources of variation in a time series dataset. The technique
entails breaking down a time series' variance into individual components that can be
attributed to different independent variable (Zaefarian et al., 2022). This approach
allows researchers to observe the relative importance of each factor in explaining
the variability of the dependent variable. The figure below shows the variance
decomposition table of each market. The x-axis of the table represents the percentage
of forecast error variance contributed to specific variable, while the y-axis represents
the length of forecast conducted by the test. As shown in the figure below, Japan,
Australia, Malaysia market forecast error variance is mainly attributed to their own
lag value, which indicated that they are relatively unaffected by other markets
volatility spillover. While Singapore and Philippines show the highest percentage of
forecast error variance attributed to the lag value of other country when the period
length increase.
213
Figure 75: Result of Variance Decomposition Analysis
Note. Result Extract from EVIEW 13
214
7.3
Chapter Summary
The first section of this study examines the correlation between APAC REITs markets using static
and rolling correlation analysis. The results show that APAC REITs markets exhibit a high
correlation during stable periods but a low correlation during periods of extreme volatility. This
suggests that there may be good hedging opportunities for investors.
The latter section of the study explores the spillover effects of REITs markets in the APAC region
using a VAR model. The analysis reveals that Hong Kong and China are the primary contributors
to spillover effects due to their large size and integration with other markets. Additionally, the VAR
model and Variance Decomposition test demonstrate that developed REITs markets, including
Japan, Australia, and Malaysia, are less likely to be affected by volatility in other markets due to
their higher transparency and lower risk premium.
On the contrary, other APAC REITs markets are expected to be impacted by the volatility of other
APAC REITs regimes, as demonstrated by the results of the VAR model, Granger-causality test,
and variance deposition analysis. Among these, Singapore and the Philippines show the greatest
tendency to receive volatility from other markets. It is important for investors to take this
information into account when making investment decisions.
215
8 Conclusion
Since the early 2000s, REITs have experienced significant growth in the APAC region, with a total of 14
countries currently listing REITs on their stock exchanges. Despite this growth, research on APAC REITs
regimes has been limited. Therefore, the aim of this study is to determine the performance and dynamics
between REITs markets, as well as the optimal allocation of APAC REITs in a mixed-asset portfolio. To
achieve this, the study focuses on eight APAC REITs markets, including Japan, Australia, Singapore,
Hong Kong, Malaysia, India, China, and the Philippines, based on their strategic significance and the
availability of data. This chapter will discuss the empirical results of each section and provide investment
strategies based on these results.
8.1
Discussion of Empirical Result
8.1.1 Performance of APAC REITs
The analysis presented both the nominal performance and risk-adjusted performance of
APAC REITs. The nominal performance of the REITs market measured by CAGR showed a
positive trend for all markets except India, with most APAC REITs markets performing better
than their own stock markets. However, when compared to the US equity market, the APAC
REITs market showed an inferior performance compared to the S&P 500 total return index,
except for the MREITs and SREITs markets which outperformed the S&P 500 index in the
last year. Despite the lackluster performance of the APAC REITs market compared to the US
equity market, some subsectors of REITs showed a trend of continuously delivering a
resounding nominal performance, such as the Japan hotel REITs sector, which grew by
53.9%, 18.3%, and 22.2% in the 1-year, 10-year, and 20-year timeframe, respectively.
However, the nominal return does not accurately reflect the performance of an investment
asset as it fails to account for the level of risk involved in achieving those returns. Therefore,
the risk-adjusted performance of APAC REITs was analyzed to show whether the market is
a desirable investment asset. The analysis compared both short-term and long-term riskadjusted performance with other investment instruments. Over half of the APAC REITs
markets, including Singapore, Hong Kong, Malaysia, China, and the Philippines, had a better
risk-adjusted performance than their domestic stock markets. Only the risk-adjusted
performance of the Philippines beat the performance of the US market in the same period.
Therefore, the analysis shows that the overall APAC REITs market performs moderately,
with some successfully beating domestic and US equity markets.
216
The moderate return of the APAC REITs market can be explained by several factors. Firstly,
the market lacks diversification in terms of the types of sector-specific REITs that investors
can choose from, which increases investment risk and makes it more challenging to attract
international capital. Additionally, the APAC REITs market faces various regulatory issues
due to the distinct regulatory frameworks, taxation treatment arrangements, and reporting
standards across different REITs regimes. Furthermore, REITs in some developing
economies operate in less stable economic environments and are subject to greater risk,
including political uncertainty and currency fluctuations, which can contribute to increased
market volatility. For instance, the tech crackdown in China since 2021 has triggered
significant volatility in the Chinese financial market.
Among various APAC regimes, Australia shows the best long-term risk-adjusted
performance, while the Philippines market shows the best short-term risk-adjusted
performance. This is not surprising as the Australian market is well-developed and has a
long-term resounding track record, while the Philippines market rebounded strongly after the
pandemic, contributing to its strong risk-adjusted performance. Therefore, potential these
two markets should be further investigate by investor to decide on the investment allocation.
Although the board REITs market only show a similar performance compare with domestic
stock markets, the risk-adjusted performance of particular sector-specific REITs
outperformance the board market significantly. For instance, the industrial REITs and
diversified REITs in Singapore provide a superior risk-adjusted performance even comparing
with US equity.
It has been also observed that sector-specific REITs have provided better risk-adjusted
performance compared to diversified REITs in the APAC REITs markets. It is conventionally
expected that diversified REITs provide better risk-adjusted returns due to the risk mitigation
provided by owning various property types. Diversified REITs are also expected to reduce
the impact of sudden shocks on a specific property sector. However, this statement is not
applicable to the APAC REITs market, as diversified REITs show only moderate riskadjusted performance and even have the worst risk-adjusted performance in the Australian
and Hong Kong markets compared to all sector-specific REITs. Since the benefits of
diversification cannot be observed from investing in diversified REITs in the APAC market,
investors are including more sector-specific REITs in their portfolio to enhance their riskadjusted returns.
217
8.1.2 Diversification Benefit of APAC REITs
The correlation between APAC REITs and stock and bond markets of the US and domestic
markets has been analyzed. Investing in assets with low correlation with each other can
reduce portfolio risk while increasing portfolio return.
For investors aiming to construct a domestic REITs portfolio, some subsectors such as Japan
– Hotel, Malaysia – Industrial, and Singapore – Data Centre have low correlation with other
REITs sectors. Therefore, by utilizing these sub-sector REITs, investors can construct a
portfolio with substantial diversification. For investors aiming to construct a domestic
portfolio, the empirical evidence shows that only AREITs, JREITs, and HREITs markets
have a strong correlation with their domestic assets, with a correlation coefficient greater
than 0.6. Other REITs markets show only a slightly positive or negative correlation with their
domestic stock and bond markets, which implies potential diversification benefits in
constructing a domestic mixed-asset portfolio.
From an international perspective, the
APAC REITs market generally has a high correlation with the US stock and bond market,
with the exception of Malaysia (0.25), China (-0.34), and India (-0.32). The markets with
low correlation with the US market are some emerging markets, and the low correlation can
be explained by the difference in property market and economic structure of developed and
emerging countries. Therefore, international investors can receive substantial diversification
benefits by including these developing economy REITs in their portfolio.
8.1.3 Optimal Allocation of APAC REITs
The analysis of the optimal allocation of APAC REITs in domestic portfolios with stocks and
bonds has found that REITs are a significant asset class that should be considered as part of
a well-diversified domestic portfolio. The results suggest that all REITs market have a
significant allocation in domestic mixed asset portfolio, indicating their potential as a
profitable investment opportunity. Among these markets, JREITs, SREITs, HREITs, and
PREITs are included in the efficient portfolio across all risk levels, while other markets also
show a considerable allocation to REITs in the efficient portfolio, especially in the mid and
high-risk levels of the risk spectrum. Therefore, REITs are an important asset class in the
respective domestic market and can provide substantial diversification benefits to investors.
However, the allocation of REITs in the tangency portfolio is minimal, with most markets
having less than a 5% allocation of REITs, due to a comparatively poor risk-adjusted
performance of stocks. Investors can use this information to allocate their investment
portfolio to align with their investment objectives and risk tolerance.
218
The analysis of subsector REITs (including diversified REITs and sector-specific REITs)
allocation in domestic portfolios also shows that subsector REITs play a key role in the mixed
asset portfolio with local stocks and bonds. Subsector REITs have a presence in the efficient
frontier of all risk spectrums in all REITs markets covered in this study. The allocation of
REITs in the domestic portfolio also increases with the use of subsector REITs, with an
average of a 30% allocation of subsector REITs in the domestic portfolio. Furthermore, the
expected return level can be enhanced with the use of sector-specific REITs. Using the
MREITs market as an example, a maximum of a 16.95% annual return can be achieved if
subsector REITs are added to the portfolio, which is higher than 7.72% with the sole use of
the overall REITs market. Therefore, the extension of the expected return level can cater to
more investors with different investment objectives, even if the risk level is simultaneously
increased with the expected return level. Thus, if investors expect a higher return level from
their investment, they could use the allocation provided by the mean-variance analysis to
construct a domestic mixed-asset portfolio with a significant allocation to subsector REITs.
The analysis on constructing a portfolio based on APAC REITs also shows that, within the
eight APAC REITs markets, MREITs result in the greatest allocation in the APAC REITs
portfolio, with a 40% weighting in the tangency portfolio. On the other hand, three countries,
including Hong Kong, China, and India, were not included in the tangency portfolio due to
their poor risk-adjusted performance in the previous decade. Since the tangency portfolio
provided an annualized return of 9%, investors with moderate risk-aversion can reference
the result allocation to construct their REITs portfolio.
The composition of an optimal international REITs portfolio is analyzed by adding the return
of US and Europe REITs to the mean-variance analysis. The PREITs and MREITs markets
occupy a significant portion in the efficient portfolio at different risk and return levels, while
Hong Kong, China, India, and Europe markets have negligible allocations in efficient
portfolios across the entire risk spectrum once again. The largest REITs market globally, the
US, however, occupies only around a 5% allocation in the efficient portfolio on average due
to its high correlation with other assets in the portfolio. The analysis suggests that APAC
REITs play a crucial role in the construction of an international REITs portfolio, as they
occupy a significant portion in the efficient portfolio at different risk and return levels.
Additionally, APAC REITs occupied over 90% in the tangency portfolio. The high allocation
of APAC REITs in the tangency portfolio indicates their potential as a profitable investment
opportunity.
219
Finally, the performance of stocks, bonds, and REITs in the US, Europe, and Asia is analyzed
with APAC REITs to determine the optimal allocation for constructing an international mixed
asset portfolio. The analysis suggests that APAC REITs can play a vital role in constructing
an international mixed asset portfolio with high expected returns, particularly the MREITs
and PREITs regimes. The high allocation to US stocks across all risk/return levels highlights
their importance in the portfolio, while the substantial weighting on APAC bond markets in
the low-risk spectrum suggests their potential as low-risk, low-return investments. Thus,
investors can make use of these insights to construct a diversified portfolio with APAC
REITs.
8.1.4 Relationship between markets
The study examines the correlations and spillover effects of APAC REITs markets. The
analysis indicates that these markets exhibit a high correlation during stable periods and a
low correlation during times of high volatility, providing investors with good hedging
opportunities. Based on the analysis, Hong Kong and China, owing to their large size and
integration with other market segments, are the primary contributors to volatility spillover
effects. In contrast, developed REITs markets such as Japan, Australia, and Malaysia are less
vulnerable to volatility in other markets due to their higher transparency and lower risk
premium. However, other APAC REITs markets are expected to be influenced by the
volatility of other APAC REITs regimes, with Singapore and the Philippines displaying the
greatest tendency to receive volatility from other markets. By gaining these insights from the
analysis, investors can reduce their risk by investing in REITs markets with low correlation
to decrease their portfolio volatility. Additionally, investors should include developed REITs
markets in their investments since these markets are less likely to be affected by volatility
spillover. By actively managing risks using the information from the analysis, investors could
potentially achieve better returns on their investments.
220
8.2
Suggestion of investment strategy
Although the optimal allocation is produced by the meaning variance analysis, there are number
of limitations existed which make the result from mean variance analysis cannot be directly
adopted. Firstly, the mean variance optimization approach produced unstable result, and the model
is sensitive to adjustments on the input (Belur, 2021). Additionally, the analysis used volatility as
the proxy of the overall risk in investment, which cannot reflect the liquidity risk or the risk in the
ESG aspect (Belur, 2021). More importantly, whether volatility can act as the proxy of risk is
questionable, since risk is referred to the degree of uncertainty or potential financial loss incurred
in an investment according to the US Securities and Exchanges Commissions. Renowned Investors
like Warren Buffet also does not agree to use volatility as the measurement of risk, as he stated that
“volatility only measure the fluctuation of a stock price”. Furthermore, mean variance analysis
used the data in the past to determine the optimal investment portfolio, while past data might not
be reliable indicator to the future performance of stock. Therefore, the figure calculated by mean
variance analysis shall act as a reference. Only if the result combined with other information, the
investment strategy can be formed.
The following section will be divided into two parts. At first, the result from the mean variance
analysis will be evaluated. After that, investment strategy will be advised to four group of investors,
which are:
-
Passive Investor with high risk aversion level
-
Passive Investor with low risk aversion level
-
Active Investor with high risk aversion level
-
Active Investor with high risk aversion level
221
8.2.1 Analysis on the result of mean variance analysis
Since the mean variance analysis advised on the allocation, the allocation of APAC REITs in
both APAC REITs portfolio and international portfolio will be accessed in this section.
Japan REITs: Low Allocation in Regional (0%-10%) and International Portfolio (0%)
Attributable to the poor risk-adjusted performance of JREITs, they do not play a substantial
role in mixed asset portfolios. The JREITs market has a mature regulatory system, stable
markets, and sufficient diversification into different property sectors. The Japanese economy
is expected to grow by around 1% annually in the coming years, and with stable rental levels
in different cities, the JREITs market is considered to be a good investment destination for
investors. However, the yen exchange rate has dropped substantially this year amid the period
of increasing interest rate, so there is huge currency risk in investing in JREITs. Additionally,
according to SimplyWallStreet (2023), the average price-to-earnings (PE) ratio of Japan
REITs is 22.9x as of April 2023. In the meantime, the PE ratio of AREITs is 11.4x. Given
that both markets have similar growth prospects, the high PE ratio of Japanese REITs might
imply an overvaluation of the investment asset. Given the existing currency and valuation
risk, a low allocation is suggested.
Australia REITs: Medium Allocation in Regional (0%-35%) and Low allocation in
International Portfolio (0%)
Australia has long been a stable investment option for investors, having historically delivered
stable capital income. However, AREITs shows the highest variance among APAC markets
in the mean variance analysis, indicating that the risk-adjusted performance of AREITs
market is comparatively low. Despite this, the AREITs market is equipped with a strong
regulatory framework, low average leverage level (average gearing ratio of REITs at 27% as
of March 2023), and a stable external economic condition (expected annual GDP growth of
4%). Therefore, it is unlikely that the AREITs market has delivered such a poor risk-adjusted
performance. As the developed REITs market that delivered the highest nominal return in
the last 10 years period and also unlikely to be impacted by volatility spillover effects from
other countries, the weight of AREITs in the optimal portfolio should be higher.
222
Singapore REITs: Medium Allocation in Regional (0%-21%) and Low allocation in
International Portfolio (0%)
Although SREITs is one of the most transparent markets in APAC, the SREITs market does
not provide resounding return in previous decade. The poor growth of the market can be
attributed to number of factors, the most significant one is the limited growth prospect of the
market due to limited land resources. Moreover, there are oversupply of properties in recent
years, which decelerate the growth of the income of SREITs. Moving onward, there are still
ample opportunities existing in Singapore. For instance, the average price to net asset value
ratio of overall Singapore REITs market remained at 0.8, which is significantly lower than
other developed market (i.e., Japan has a P/NAV ratio of 0.95 as of April 2023). The
undervaluation represents a significant opportunity to investors. Despite such an
undervaluation, the high dependence of Singapore economy on international economic
condition posed worries to investors. Also, the previous analysis proved that the volatility of
Singapore markets is highly dependent on other markets. As SREITs only equipped with a
normal prospect but without substantial diversification benefit to investors, the low
allocation in regional and international portfolio is suggested after the analysis.
Hong Kong REITs: Low Allocation in Regional (0%-3%) and Low allocation in International
Portfolio (0%)
After considering the fundamental condition of the HREITs market, the author still suggests
minimizing exposure to the market. The HREITs market faces several challenges, including
limited product offerings and lower taxation benefits compared to other developed REITs
regimes, making it difficult to compete with other overseas REITs regimes (Neil, 2022).
Additionally, the economic growth of the Hong Kong market is uncertain due to political and
economic instability. Furthermore, Hong Kong has some of the highest property prices in the
world, which limit the potential for capital appreciation of the property. As the HREITs
market has an uncertain prospect, investors should not risk their capital in the market.
223
Malaysia REITs: High Allocation in Regional (0%-41%) and Moderate allocation in
International Portfolio (0%-27%)
As the MREITs market was developed in the early 2000s, it is an established REITs regime
with a mature regulatory structure. Additionally, as an emerging market, the Malaysian
economy has shown a rapid rate of economic growth, with an annual GDP growth rate of
8.7% in 2022 (Biswas, 2023). This rapid growth of the economy will enhance the
development of infrastructure and increase consumer spending, which in turn will benefit the
development of the REITs market. Furthermore, the MREITs market is diversified across
multiple property sectors, with exposure in six property sectors. Given that the MREITs
market performed brilliantly in the previous decade, with the relaxation of border
restrictions, the MREITs market is expected to thrive in the coming years. The defensiveness
of MREITs is also evidenced by their performance in mitigating the inflation threat in 2022
and the analysis of correlation and spillover effects in this study. With a low level of
connectivity with developed markets and good future prospects, MREITs are suggested to
own a dominant portion in both regional and international portfolios, same as the conclusion
made in mean variance analysis.
India REITs: Low Allocation in Regional (0%-3%) and Low allocation in International
Portfolio (0%)
According to research by Deloitte (2021), the Indian real estate market is expected to reach
US$650 billion by 2025, accounting for 13% of India's GDP. Such enormous growth makes
REITs investment in India seem attractive. However, as suggested by the results of mean
variance analysis and the author, it is not desirable to invest in the IREITs market due to
multiple challenges. Firstly, the regulatory framework of the market is immature in the
IREITs market. As mentioned in Chapter 2, IREITs can only have ownership of Indian assets,
which restricts the flexibility of IREITs. Additionally, the IREITs market only offers three
office REITs to investors, which may limit investment opportunities and diversification plan
for investors. Furthermore, transparency in the market is also a concern for investors.
According to Transparency International’s annual Corruption Perceptions Index (CPI),
which measures the transparency of a market, India is ranked 85th among 180 countries in
2022, indicating a poor transparency level of the market. Low transparency makes it difficult
for investors to assess the quality and financial health of REITs, posing substantial risks to
investors. In conclusion, although IREITs have an optimistic growth prospect, the risks of
investment outweigh the benefits of investment. Therefore, unless the market becomes more
stable and mature, investors should not be highly exposed to the market.
224
China REITs: Low Allocation in Regional (0%-7%) and Low allocation in International
Portfolio (0%-1%)
Like the condition in India, the CREITs market also suffers from the problem of an immature
regulatory framework and a poor transparency of the market. For instance, CREITs is only
allowed to invest in targeted infrastructure assets specified by the government. Additionally,
China also has a low ranking in the CPI index, with a rank of 79th in 2022. Even if individual
investors are attracted by the promising growth of the Chinese REITs market, foreign
investors still face difficulties in investing in CREITs. Overseas investors can only invest in
the China A-share market via the Qualified Foreign Institutional Investors program, which
allows Foreign Institutional Investors to invest in the Chinese equity market. Therefore, it is
not feasible for individual investors to participate in the growth of the CREITs market at the
current stage. Similar to the condition in the IREITs market, unless the market becomes more
stable and mature, investors should not be highly exposed to the CREITs market, and the
conclusion made in the mean variance analysis stands.
Philippines REITs: High Allocation in Regional (0%-100%) and High allocation in
International Portfolio (0%-100%)
With an extremely resounding risk-adjusted performance delivered by PREITs in the last
decade, PREITs has owned a substantial portion of regional and international portfolios.
Although the PREITs market has a rapidly growing property market and economy, which
represent a huge opportunity for investors, there are still some problems with investing in the
PREITs market. First, the market transparency of the Philippines is low, with a rank of 116th
in the CPI. Secondly, as a developing economy, investing in the Philippines market may
experience currency fluctuations, inflation, and economic instability. Since the PREITs
market provides resounding returns to investors, the portion of PREITs will be lower to
balance the risk-return trade-off of the portfolio, as the variance shown in the mean variance
analysis does not fully reflect the risk faced by the market.
225
8.2.2 Suggestion on investment strategy in constructing a mixed asset
portfolio
Based on the analysis of the results of the mean variance analysis, it is recommended that the
majority of the allocations suggested by the analysis be retained. However, the analysis
suggests a slight modification to the allocation of APAC REITs in different portfolios, with
an increase in the weightage of AREITs and a decrease in the weightage of PREITs.
8.2.2.1 Passive Investor with high risk aversion level
As suggested by mean variance analysis, investor who can only tolerate low level of
risk is suggested to own the following investment assets.
-
Asia Bond (Around 40%)
-
US Bond (Around 20%)
-
US Equity (Around 20%)
-
Europe Stock (Around 5%)
-
MREITs and PREITs (Around 15%)
As the results of the mean variance analysis have been slightly modified by the
previous analysis, the fifth component should now include AREITs, MREITs, and
PREITs. For passive investors who prefer to invest by buying securities that mirror
stock market indexes and holding them long term, it is recommended that they use
passive exchange-traded funds (ETFs) to invest in the above components.
The table below displays the passive ETFs that can be used to invest in each asset
mentioned above. It should be noted, however, that there is no ETF product available
that specifically tracks developing markets. Therefore, it is recommended that the
APAC REITs portion be replaced by AREITs, as AREITs provides a similar level of
return to the other two APAC regimes.
Table 127: ETF available for tracking the investment asset
Investment Asset
ETF
Asia Bond
ABF Pan Asia Bond Index Fund (2821 HK)
US Bond
iShares Core US Aggregate Bond ETF (NYSEARCA: AGG)
Us Equity
Schwab® S&P 500 Index Fund (MUTF: SWPPX)
Europe Stock
Vanguard FTSE Europe ETF (NYSEArca: VGK)
APAC REITs
VanEck Australian Property ETF (ASX: MVA)
Note. Author Compilation
226
8.2.2.2 Active Investor with high risk aversion level
An active investment strategy involves ongoing buying and selling activities as
compared to a passive investment strategy. Since the portfolio composition is the same
as that of the previous section, active investors are recommended to directly invest in
the PREITs and MREITs markets, unlike passive investors who use the AREITs ETF
as a proxy. As the value of their different investment assets changes over time, active
investors are also recommended to rebalance their portfolio periodically to maintain
the desired level of risk and return.
8.2.2.3 Passive Investor with low risk aversion level
As suggested by mean variance analysis, investor who can tolerate higher level of risk
is suggested to own the following investment assets.
-
US Stock (Around 45%)
-
Europe Stock (Around 5%)
-
MREITs (Around 20%)
-
PREITs (Around 30%)
Since an exposure of 50% to emerging REITs markets is considered too high, it is
recommended that investors replace some portion of their PREITs and MREITs
investments with AREITs. Passive investors can then purchase the ETFs for the above
instruments individually and hold them for a long period of time. As there are no ETFs
available for the MREITs and PREITs markets, it is suggested that investors buy the
securities with the largest market capitalization in the MREITs and PREITs markets,
respectively, to reduce the need for rebalancing. These securities have the largest
weight in the market index, so they are expected to deviate less from the market index,
and investors can achieve the expected return with this approach.
227
8.2.2.4 Active Investor with low risk aversion level
For active investors who have a high-risk tolerance level, in addition to following the
portfolio allocation shown above, they can conduct analysis on different subsector
REITs markets that exhibit outstanding risk-adjusted performance. Active investors
can analyze the financial performance, valuation multiples, and property ownership of
sector-specific REITs to determine the best individual securities with growing
prospects and the best price.
By conducting this analysis, active investors can potentially identify opportunities for
higher returns while managing their risk exposure. However, it is important to note that
this approach requires more time and effort compared to a passive investment strategy
and may not be suitable for all investors.
8.3
Final Comment
APAC REITs have experienced exceptional growth since the early 2000s. This thesis demonstrates
that APAC REITs can play a significant role in constructing investment portfolios. With the
availability of more market data, the author believes that future researchers can make further
contributions to this topic.
228
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10 Appendix
Impulse Response function result
238
239
240
Note. Result Extract from EVIEW 13
241