What can one make of the recent ASX study1 that revealed 75% of investors hold only ASX-listed shares? Personally, I found it shocking. Sensible diversification is perhaps the golden rule in investing and three out of four Australian investors are breaking it.
It’s easy to understand why. In investing as in life we gravitate towards the familiar. We stick with familiar brands in familiar countries, which usually means the one we’re living in.
And so, despite most Australian investors being aware of the Asian growth story, and an acceptance that the region is becoming more politically and economically influential, investors view Asia as a no-go area.
That’s a missed opportunity in my view, based on an outdated understanding of what the region actually offers. The Asian real estate investment trust (REIT) market is a good example of how perception lags reality.
The REIT structure was created in the US in the 1960s and has since been adopted in many countries, including Australia in 1971, now the third largest REIT market in the world. The Asian REIT market was late to the party; Japan had its first REIT listing in 2001, followed by Singapore in 2002 and Hong Kong in 2005.
The late arrival gave Asian regulators the opportunity to develop legislation based on the experience of other jurisdictions.
This is a crucial point. Regulators in Japan, Singapore and Hong Kong want to attract foreign investment. Transparent, open markets and effective legislation that protects investors is a prerequisite. But these countries have taken things a step further.
The Asia Pacific Real Estate Association (APREA), the leading real estate body for the region, was, in part, formed to unify REIT disclosure and act as the agent of change for corporate best practice.
APREA provides widely followed guidelines on reporting requirements and also offers recommendations on issues such as related party transactions, board independence and minority shareholder representation. APREA works with regulators across the region to develop legislation that protects investors’ interests.
Take Singapore as an example. The Monetary Authority of Singapore’s Code on Collective Investment Schemes specifically outlines requirements that Singapore REITs must adhere to in order to retain their REIT status.
The code stipulates that Singapore REITs must cap gearing at 45% of total asset value; ensure that at least 90% of annual income is paid out to shareholders; and limit speculative development to 10% of total assets2. Hong Kong and Japan have followed a similar path, as the table shows.