The real estate investment trust (REIT) business will see continuous growth even if global interest rates rise, as related investment returns remain attractive compared with corporate bonds and bank deposits, say industry experts.
Charasrit: Limitations to small-sized REITs
Sawit Srisaranyapong, head of the investment banking department at Kasikornbank, said 2018 will be another good year for both issuers and investors.
"The market has been talking about interest rate normalisation for a couple of years but, in practice, the interest rate adjustment also depends on economic conditions. If the economy grows less, the government will not increase the interest rate because it will affect GDP growth," said Mr Sawit.
He said that REITs or property funds will be a popular investment instruments in the coming year as the yields will not climb up and issuers will continue using these financial tools to raise funds.
He said the businesses expecting to raise funds from REITs next year will be diverse, including warehouses, hotels, offices and the retail sector.
Small businesses that want to raise funds from their properties but are unable to use this financial instrument because the underlying assets are mid or small-sized will see opportunities if asset quality is on the investment radar of independent REIT managers who are a third party and not related to the asset owner, said Mr Sawit.
At present, there are two independent REIT managers -- AIM REIT and Strategic Property Investors. But new REIT manager players may need some time to educate the market because Thailand is familiar with REITs that are sponsored by asset owners.
Charasrit Voravudhi, managing director at AIM REIT, said the present REIT and property fund market belongs to the sponsors, identified as former owners of the assets that were converted into REITs and property funds.
Mr Charasrit said investors are not familiar with small-sized REITs. The limitations of REITs managed by independent managers is a result of poor investor understanding.
"Institutional investors understand us, but they do not invest in small-sized REITs as they would rather rely on [asset] brands, while retail investors do not understand us and rely on institutional investors [for investment decisions]," he said.
"Investors should consider underlying assets rather than brands. Actually, REITs are an interesting alternative investment choice for retail investors with small amounts of money."
Meanwhile, 2017 is the last year for property fund conversion because tax privileges from the Finance Ministry are set to expire. Existing property funds are unable to acquire additional assets and asset transfers will not be tax exempt if those assets are converted into REITs.
There have been five REITs that were converted from or integrated into existing property funds this year: Sub Sri Thai REIT; Dusit Thani REIT; CPN Property Fund, which was converted into CPN REIT to acquire new assets by debt-financing; Ticon REIT, which was integrated into three property funds of Ticon Industrial Connection; and WHA Property Fund, that was converted to WHA Premium Growth REIT.
This excludes Sri Panwa REIT, the first and only property fund that converted into a REIT last year.
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