How REIT markets differ

In their ninth edition of the annual REIT report, Ernst & Young focusses on the global real estate investment trust (REIT) market. Since 2010, US REITs have grown their market capitalisation by nearly 150% while REITs in the rest of the world doubled their market cap. REITs have thus become a very popular vehicle to invest in real estate. Despite a global market cap of $1.5 trillion, the REIT market development still differs massively.

In nascent markets such as Greece, Israel, Kenya or Brazil, REITs are to yet a common investment tool despite legislature being in place. India, for example, has broad REIT rules in place but remains to be challenging for investors due to restricting tax legislation. With a currently very small market capitalisation of about $1,337 million, changing regulation and legislation can move the market forward quickly.

Emerging REIT markets include many of the younger REIT markets such as South Africa, Mexico, Ireland and Spain. With about $75,778 million in market capitalisation, emerging REIT countries still have a market size of below $10 billion. To grow this market capitalisation, country-level metrics such as risk, real estate transparency and ease of doing business and general corporate governance need to be enhanced.

With REIT legislature being introduced in the US as early as 1960, the US still account for two thirds of the global REIT market capital. EY regards only the US market as mature. But early adopters such as Australia, New Zealand and the Netherlands could grow significantly too, with Australia having the fastest growing REIT market within the last five years. These other countries are considered as established. Debt and equity markets are liquid and deep, and the corporate environment is favourable.

However, these countries differ in regards to their adoption of the REIT concept. Japan and Singapore, and to a lesser extent the UK, are jurisdictions where REITs are important but are just one of the listed structures available. Hong Kong and Germany, on the other hand, are prime examples of regions where non-REIT structures remain the preferred listed concept.

For the analysis of specific countries, please refer to EY’s 2016 REIT report.