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Real Estate Investment Trusts in Hong Kong

Real Estate Investment Trusts in Hong Kong

Real Estate Investment Trusts in Hong Kong, or REITs are a collective investment scheme used for investments in real estate, as the name suggests.

Real estate investment trusts (REIT) are publicly traded on the Stock Exchange but they can also be private or simply not listed. REIT listings in Hong Kong have become more popular since they were launched.

Foreign investors who want to buy shares in a REIT in Hong Kong are looking for an initial public offering (IPO) and are also considering other particularities. The experts at our Hong Kong law firm can help you understand more about real estate investments and specific trusts.

Investing in REITs in Hong Kong

Hong Kong has a dynamic property market, with demand both in the residential sector and in the office sector. Real estate investment trusts in Hong Kong can be just as versatile as the demand on the market with owners buying office or apartment buildings to other types of structures like warehouses. 

Because REITs are collective investment schemes, they generally focus on large commercial buildings or large residential projects. Examples include malls, hotels, office buildings, etc. When investing in a real estate investment trust, entrepreneurs enjoy the financial benefits of owning real estate, with the actual management processes being handled by a professional trust manager.

Profits derived from investing in a real estate investment trust are paid to the individuals in the form of dividends.

The REIT Code offers instructions on the investment scope of the real estate investment trust. As such, a REIT in Hong Kong needs to be structured to include:

  • at least 75% of its gross assets investment in real estate that provides recurrent rental income at all times;
  • investments in property development projects (and other non-core investments) must not exceed 25% of the gross asset value;
  • aggregate holding shall not exceed 10%.

Our lawyers in Hong Kong can give you more details about the REIT Code and how the investments under the real estate investment trust should be divided.

The benefits of a REIT in Hong Kong

A real estate investment trust set up in Hong Kong offers several important benefits:

  • the fund will be accessible to a wide range of investors; in fact, the possible pool of investors extended to a global level;
  • the HKSAR is a recognized wealth management center, making it ideal to base such a fund;
  • The HK REIT is subject to transparent procedures for licensing and listing on the stock exchange;
  • the overall regulatory regime for a real estate investment trust is in line with the ones applicable (and beneficial) in other recognized jurisdictions.

In addition to the key benefits briefly listed above, the Securities and Futures Commission also implements a grant scheme applicable to the HK REIT. This is funded by the Government, and it offers subsidies for Hong Kong incorporated real estate investment trusts.

If you are interested in setting up a REIT in Hong Kong, our attorneys in Hong Kong will give you more details about this scheme and the types of expenses that can be covered. A common example of such a covered expense is the cost related to listing the REIT.

REITS particularities in Hong Kong

The HK REIT is a collective investment scheme and the manner in which it is set up is in the form of a trust, and with having a trustee. In accordance with the REIT Code, it must allow for certain investor protection measures. The experts at our law firm in Hong Kong can give you more information about trust creation and management.

real estate investment trust is subject to authorization from the Securities and Futures Commission in Hong Kong. The Code on Real Estate Investment Trusts includes the regulations for these types of structures. 

Investors who want to submit an application for authorizing a REIT must do so with the Securities and Futures Commission (SFC). The procedure requires the applicant to submit a set of documents. These can include the following:

  • the filled-in application form;
  • the copy of the confirmation to list the REIT on the Stock Exchange;
  • details about the fund’s trustee (including the certificate of registration for the trustee where applicable);
  • details about the fund’s management company; investors who need information on the rules for setting up a company in Hong Kong can reach out to our team beforehand;
  • listing arrangements: information about the IPO, listing timetable, confirmation from the listing agent, etc;
  • financial information, details on the appointed auditor, and other documents.

Applicants who want to register a REIT in Hong Kong should present a proposal scheme to the SFC. The SFC will verify the accuracy of the statements as well as the documents submitted for registration.

One of our lawyers in Hong Kong can give you complete information on these requirements.

Property management and leasing under a HK REIT

A real estate investment trust can be used to hold many different types of properties. At the same time, it can be structured to serve different purposes, such as to be used for hotel leases or for investing in retail of office properties.

For the purpose of differentiating between the activities of the REIT in Hong Kong, our team highlights some of the possible types of activities below.

Leasing properties under a REIT: the investment trust will lease hotels, office or rental spaces to a single lessee or to several companies. The properties are leased under different agreements, therefore different lease terms and lease durations can be decided according to each tenant.

Differences in these agreements are common when the leased space is a hotel, versus a retail space or an office. Our attorneys in Hong Kong can give you more details as needed about the lease agreement clauses.

Managing properties under a HK REIT: the properties are managed according to the lease agreement and, in the case of hotels held under a REIT, they are managed by a hotel manager. The REIT manager and the property manager sign a property management agreement in the case of retail or office REITs in Hong Kong.

Hong Kong REIT fees and other setup cost considerations

When applicants decide to list their REIT according to the SFC, they need to meet the document application conditions, as well as the table of fees. The following amounts should be taken into account:

  • the authorization application fee of HKD 20,000;
  • the authorization fee of HKD 10,000;
  • the annual fee of HKD 6,000.

Our lawyers in Hong Kong can give you more information about the fee requirements, as well as the existing grant schemes for these types of funds.

At the moment, the Government provides a subsidy for real estate investment trusts in Hong Kong, and the types of eligible expenses that can be reimbursed concern those costs for incorporation and re-domiciliation, if this is the case.

You can ask our attorney in Hong Kong for more detailed information according to your situation, however, in principle, the types of expenses that can be claimed under the REIT Grant Scheme in Hong Kong include:

  • fees related to valuation services;
  • marketing and advertising fees;
  • audit, tax, and accounting fees (subject to conditions);
  • the fees for underwriting services and the listing agent’s fees;
  • as may be the case, other expenses can be claimed in relation to the setup of the REIT in Hong Kong.

When making an application for this grant, the information provided to the authorities will include the type of item, along with the name of the service provider, and a short description of the services that were offered for the incorporation and/or the listing of the REIT.

Including all the relevant expenses is useful for investors who wish to benefit from this scheme to the highest degree possible. The experts at our law firm in Hong Kong can help you with more information about the Grant Scheme when you open a real estate investment trust in Hong Kong.

If you are an investor in HKSAR looking for different types of services, our team will give you a complete list of our solutions, and we can also assist you if you are interested in immigration to Hong Kong.

You can contact our Hong Kong law firm for more details on investment funds in the city and the specific legislation for foreign investments.