There were high hopes for China’s economy to spearhead a significant comeback in 2023, yet the anticipated revival turned out to be brief and below expectations. A resurgence of issues in the real estate sector added further complications, leading foreign investors to pull out of Chinese stock investments.
In fact, since the protests in 2019, investing in Hong Kong’s stock market has proven challenging. Hong Kong Real Estate Investment Trusts (HK-REITs) have suffered in particular and the sector has been on a downward trend since. However, those who invested in these REITs from their initial public offerings might find themselves pleasantly surprised by the outcomes.
Despite the pessimism, for investors of REITs and dividend stocks (of which Hong Kong offers a substantial selection) it’s important to factor in the dividends received when evaluating your total returns.
Like how we’ve done withS-REITsandM-REITs, we are going to measure the performance of HK-REITs that have been listed for at least 10 years and evaluate their total return including dividends over the long term. As we all know, the market can be driven by sentiment in the short term, but fundamentals dictate performance in the long term.
Once again, we assume that David (a fictional character) investsHK$10,000 in each Hong Kong REIT from the day it listed. Since David is a hard-core income investor, he doesn’t want to come out with any more money to subscribe to rights (if any) and is prepared for any share dilution. Let’s also assume that he neglects to sell his nil-paid rights from which he can make a profit from.
For example, if David invested in Fortune REIT during its IPO, his initial investment of HK$10,000 would’ve only slightly increase to HK$10,400 (+4% in capital gains) by 31 December 2023. But when we include the dividends he’s received over the years, David’s initial investment of HK$10,000 would have grown to $27,000 (+170% in capital gains and dividends). Overall, his total compound annual growth rate (CAGR) in Fortune REIT from 2003 to 2023 is 5.08%.
If David invested HK$100,000, then his investment would’ve grown to HK$270,000. Basically, the more money he invests, the more he makes. And the longer he holds, the more dividends he receives. So after investing for more than ten years, here are the top three best-performing Hong Kong REITs for David.
Note:We’ve excluded brokerage costs, currency exchange gains/losses and taxes that might be applicable to foreign investors.
3. Sunlight REIT (CAGR: +4.96%)
Since 2006, every HK$10,000 investment in Sunlight REIT would’ve shrank HK$8,400. It is a capital loss due massive foreign fund outflows in recent years. But when we include dividends, every HK$10,000 investment would have more than doubled to HK$22,800.
2.Fortune REIT (CAGR: +5.08%)
Since 2003, every HK$10,000 investment in Fortune REIT would’ve grown into HK$10,400. Including dividends, every HK$10,000 would cumulatively become HK$27,000.
1. Link REIT (CAGR: +11.83%)
And the most prosperous REIT in Hong Kong is not Prosperity REIT but… Link REIT. Since 2005, every HK$10,000 investment in Link REIT would’ve turned into HK$42,600. Including dividends, every HK$10,000 invested would cumulatively become HK$74,800!
In summary, here is David’s overall performance:
Similar to many Singapore and Malaysian REITs, Hong Kong REITs have also delivered positive returns, except for Hui Xian. Hui Xian is down 83% in price but when we include dividends received throughout the years, the overall return is a more palatable negative 35%.
Due to the current negative sentiment in the Hong Kong and China markets, many Hong Kong REITs show a capital loss (except for Fortune REIT and Link REIT). But when we include dividends, we get a better picture of their overall performance, mitigating the impact of losses from capital gains.
Note that David didn’t need to come up with any additional capital to subscribe to any right issues; the table above is his actual score. His investment loss in Hui Xian can be easily offset from the gains of his other REIT investments. However, if he had subscribed to any rights, he would have made more money since rights are usually sold at a discount. More importantly, David continues to receive regular dividends from his investments in Hong Kong REITs rain or shine.
As you can see, REITs continue to stand out as an excellent choice for those looking to generate a stable and consistent flow of passive income. However, please note that you shouldn’t buy or avoid a REIT solely based on the data above as past performance is not necessarily indicative of future results. Having a proper investment strategy is crucial to help you select and invest in the right REITs that will give you a steady flow of passive income and potential capital gains in the future.
Announcement!Enrolment to joinDividend Machinesis open until 17 March 2024, 11:59PM. If you’re looking for a way to learn how to invest in dividend stocks and REITs and build multiple streams of passive dividend income, then we highly recommend you check out Dividend Machines before applications close! Once the deadline has passed, Dividend Machines will only reopen in 2025. We hope to see you inside!
Tags
Fortune REIT Link REIT REITs
