The Market Monitor Minding the Nation's Business
Asia-Pacific real-estate investment trust (REITs) have built up strong credit foundations that will stand them in good stead to withstand a market shock, Standard & Poor’s (S&P) Global Ratings said in a report.
The report, titled “Asia-Pacific REITs’ Large Buffer Will Bear A Downturn,” said Asia-Pacific REITs have financial profiles that include a rating buffer, enabling them to fund their expansion and weather cyclical commercial real estate markets.
S&P Global Ratings credit analyst Craig Parker said the REITs’ strong asset quality, solid market positions, and sound operating strategies put them at the forefront to take advantage of a potential disruption in their local real-estate markets.
Nevertheless, the region’s major commercial real-estate markets of Australia, Hong Kong, and Singapore are likely to see dampening income as rental growth remains subdued.
In fact, rental growth for Australian commercial property has been sluggish for the past few years, while Hong Kong’s retail properties are wrestling with reducing consumer consumption and waning tourist spending.
Singapore, meanwhile, is suffering from softening demand with the financial services sector downsizing and oil-dependent industries cutting costs amid new supply coming into the market.
Japan’s REITs, on the other hand, will continue to expand moderately because equity financing, including new listings, remains active. What’s more, the Bank of Japan’s negative interest rate policy will ensure funds will continue to flow into the sector.
“Global investment managers are pouring funds into the real estate sector in the hunt for yield, lifting asset prices to lofty levels across the four markets. Amid subdued rental income growth, the substantial capital appreciation is distorting rated Asia-Pacific REITs’ gearing ratios,” Parker added.