At the beginning of 2006, the Citigroup Global Property Research team released a report predicting more tightening of property markets around the world as REIT expansion continues and more legislation to enact real estate investment trusts passes. Specifically, the Citigroup analysts expect the total property returns in Asia to vary widely based on the country, ranging from 0 percent to 25 percent. In the U.K. a 15 percent to 20 percent total return is expected given the potential for elevated shares following the formation of the U.K. REIT. In total, Citigroup anticipates global property stocks to deliver a 10 percent total return, a median from the above average gains in Asia and less than average gains expected in Hong Kong, Continental Europe, and the U.S.
Global Property Return Forecasts
| Country/Region |
Expected Total Return
|
Comments |
| United States |
-5% to 5% |
Support from improving fundamentals, low interest rates and M&A, but valuations stretched |
| Canada |
N/A |
Not covered by Citigroup. |
| Hong Kong |
0% to 5% |
Despite the recent correction, valuations are still rich. Return likely yield only, as prices are flat. |
| China |
10%+ |
New regulations made China’s property market more investor friendly. Influx of foreign capital. |
| Singapore |
10% to 15% |
Solid outlook. Recovering fundamentals, monetization of assets, and capital entering for IPOs. |
| Japan |
10% |
Property companies should outperform J-REITs in expanding economy, given structure. |
| Malaysia |
0% to 5% |
Recent 2006 budget was disappointing for REIT tax reform. |
| Thailand |
0% to 25% |
Outlook strong as supply is in check, margins are improving, and confidence/demand is higher. |
| Australia |
5% to 10% |
Stable property income augmented by fee income. Some upside potential, on a per case basis. |
| New Zealand |
0% |
Valuation stretched, as yield spread moves back to historical levels. Fundamentals are strong. |
| United Kingdom |
15% to 20% |
Potential REIT status should lift shares based on tax efficiency. |
| Continental Europe |
0% to 5% |
More risks to the downside than to the upside. Germany presents excellent future potential. |
| Total |
10% |
|
Source: Citigroup
