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Enough has been written about the impact of Budget 2023 on REITs and InvITs. Through this piece, Resolut Partners tries to succinctly capture the what, why, and what next of the proposed changes – keeping it germane mainly to global financial investors.

Key Takeaways:

• Distributions out of repayment of debt principal could now be taxed as ‘other income’ – at odds with global standards
• Distributions out of debt repayments through redemption of units not treated as ‘income’, but reduce cost of acquisition – InvIT / REIT Regulations do not permit redemption of units
• Major impact on IRRs as distribution structure of most InvITs factored in distributions through debt repayments
• Changes and policy ambiguity could thwart the growth of REITs / InvITs, which were just about seen as ‘bond proxies’

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Rising interest rates are causing buyers to be mindful of the associated costs when transacting a property. For an international buyer, these costs can vary substantially across jurisdictions. Expressed as a percentage of property prices, they range from under 10% in Chinese cities to 35% in Singapore.

In an increasingly competitive market, Singapore’s government has maintained their Additional Buyer’s Stamp Duty (ABSD) at 30% for foreign buyers purchasing any residential property.

In comparison to other regions, North American cities cost of ownership comprises a substantial share of the buying, holding and selling cost of a property. These costs are largely comprised of annual property tax and house insurance.

This report was originally published in https://www.savills.com/research_articles/255800/339112-0

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Despite the rapid change and uncertainty experienced worldwide last year, CBRE retains a relatively positive outlook for the Asia Pacific commercial real estate market in 2023.

From an economic perspective, inflation is expected to ease, and interest rates in the region are set to stabilise in the second half of 2023.

Office demand will be solid, driven by the recovery in mainland China, while retailers will adopt a positive, albeit prudent, approach to expansion.

Logistics demand is forecasted to pull back as e-commerce growth normalises, while hotel performance is expected to surpass pre-pandemic levels.

In the capital markets, investors will stay in wait-and-see mode until there is firm evidence that interest rates have peaked, with purchasing expected to pick up significantly in the second half of the year.

This report was originally published in https://www.cbre.com/insights/books/asia-pacific-real-estate-market-outlook-2023

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In the last five years, Asia’s share of the FTSE EPRA/Nareit Developed Index, the most widely followed real estate index globally, has declined from 25.0% in 2017 to 21.0% at the end of 2022.  This movement can be largely attributed to the growth of U.S. REITs, shifting the balance of power within the listed universe further to North America, whose share of the index rose from 57.1% in 2017 to 64.0% in 2022.

The growth in the U.S. REIT universe has been driven by the emergence of a wide range of alternative real estate sectors that have arisen from structural shifts in the economy and strong demand from equity investors.  The share of these alternatives in the U.S. portion of FTSE EPRA/Nareit Developed Index rose from 34.0% in 2007, to 47.5% in 2017 and 55.0% in 2022.

Growth in the U.S. listed REIT universe has been so prominent, that index constructors such as FTSE introduced capped indices, limiting the size of the U.S. component to avoid global indices being increasingly seen as ‘US & others’ and diminishing their usefulness to investors.

One might ask: Why has Asia been unable to keep pace with the growth in U.S. alternative REITs? In fact, Asia’s alternative REIT universe has grown even faster than in the U.S.. While Asia’s weight in the global REIT index fell – from 27.1% in 2017 to 21.0% in 2022, the weight of Asian alternative REITs increased from 2.3% of the global index to 3.8%, respectively. Looking only at the Asian REIT universe, alternative REITs grew their weight by an impressive 114.7%, from 8.5% in 2017 to 18.2% 2022.

This paper, written by Joachim Kehr, Head of Asia-Pacific and a Senior Partner at CenterSquare Investment Management, investigates the sectors behind the expansion of alternative REITs in the U.S. and Asia over time and explores which sectors offer the biggest growth potential for Asian alternative REITs, proposing additional steps to sustain this growth going forward.

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