China - Hong Kong - Baker McKenzie Proposes "Making G-REITs Happen" To Support GBA Development.
Legal News & Analysis - Asia Pacific - Hong Kong - China - Construction & Real Estate
28 March, 2019
At a media event held today at the Firm's new Hong Kong office in One Taikoo Place, Quarry Bay, global law firm Baker McKenzie encouraged the market and regulators to consider the development of a Greater Bay Area real estate investment trust (G-REIT).
Lawyers Rico Chan, Milton Cheng and Jeremy Ong from Baker McKenzie's REITs Group commented that real estate investment trusts are one of the desirable and viable tools to help achieve a number of the development goals under the GBA Outline Development Plan. A G-REIT is a REIT with assets primarily in the Greater Bay Area. Initially these would be listed in Hong Kong where a mature REIT market and regime already exists, but in due course it could also include REITs listed in Shenzhen when the relevant PRC regime is also established. A G-REIT can help as an additional means for GBA-based developers to attract and recycle capital, facilitate the supply of quality properties in the GBA, and potentially provide an internationally recognised investment product for retail investors in the GBA to invest in.
Milton Cheng, who also serves as the managing partner of the Hong Kong office, said, "Hong Kong's well established and regulated REIT market has a strong international reputation. The formation of G-REITs would have the dual benefits of facilitating international investors' access to high quality assets in the GBA and vice versa, while at the same time, increasing the critical mass, liquidity and international competitiveness of the Hong Kong REIT market. "
Rico Chan, head of Baker McKenzie's Real Estate Group in Hong Kong, China and Asia (who also leads the Firm's GBA initiative), added that "G-REITs are a very helpful financial and real estate market tool to accomplish the policy goals under the GBA Outline Development Plan. Allowing GBA retail and institutional investors to invest in G-REITs would enable them to share in the GBA growth story. Learnings from the development of REITs in the Hong Kong and international markets can also be helpful for the development of the REIT regime in China (particularly Shenzhen)."
Jeremy Ong continued, "Currently there are some challenges regarding how to manage certain restructuring costs that might disincentivise GBA-based developers from establishing G-REITs. Also, if we want to facilitate access to G-REITs by GBA investors, we need to have the appropriate framework for that. Fortunately on the latter, there is an existing framework for Southbound Trading under Hong Kong - Shenzhen Stock-Connect, and we can consider how G-REITs listed in Hong Kong can be included under that framework."
At the end of Baker McKenzie's media event, Milton Cheng explained that "one of Hong Kong's key roles within the GBA overall strategy is to be an international financial centre for orderly two-way cross-boundary capital flow within the GBA, and we think that G-REITs are one meaningful and innovative way in which Hong Kong can fufill that purpose".