By Peter Mitchell, CEO, APREA

REITs have had a stunning introduction in Asia. In June 2001, just before the launch of the first Japanese REIT, the market capitalization of REITs in Asia was approximately $2 billion. Five years later, it was approximately $50 billion and approximately $87 billion in August 2007.

The growth has been phenomenal, but Asia still remains at the beginning of its REIT journey. Major investment banks confidently predict that by 2010 market capitalization will comfortably exceed $100 billion and continue to grow exponentially.

There are a number of compelling underlying factors for this expectation. To start, the bulk of real estate in Asia is held in corporate hands that weighs heavily on company balance sheets. This is not sustainable long term. Additionally, regardless of when India and China introduce their own REIT markets, their strong growth alone will have cascading effects on the regional economies. Lastly, Asia has the lowest level of securitized real estate in the world. In September 2006, UBS estimated that only approximately 4 percent of investment grade real estate in Asia was held in REIT-type structures.

Taking that last point, assuming an ultimate level of securitization of investment-grade real estate of 25 percent suggests a market that could grow to at least $500 billion.

Recently, growth has not been even, however. Currently, Japan accounts for approximately 67 percent of the market, followed by Singapore at approximately 19 percent. Those countries have led the region’s growth in this sector and will continue to do so for the foreseeable future. For instance, the number of REITs in Singapore is expected to increase from the current 17 to around 30 by the end of 2008.

Japan and Singapore are the more mature REIT markets in the region and possess the general economic characteristics that make REITs so attractive to institutional investors. Additionally, they also provide solid regulatory foundations, an important factor for REIT investors.

Change for the better is expected elsewhere. Hong Kong, South Korea and Thailand look to keep up their regulatory regimes, which should kick-start their markets for REITs. We will also see many other Asian countries introduce their own REIT systems—Pakistan and the Philippines are well progressed and India is not far behind. Momentum is also building in China and Indonesia.