Regional Overview
- Asian RE securities have been recovering from the Iran conflict selloff but remain well off YTD highs, underperforming broader Asian equities led by tech/semiconductors
- The gap reflects concern over higher crude oil prices feeding into inflation across Gulf-dependent Asian economies and the prospect of further central bank tightening
- Asian currencies have recovered but sit below February highs; the AUD is the exception, hitting new YTD highs post the RBA hike
- A ceasefire progressing towards a JCPOA-style agreement should push oil prices lower, support treasuries, and drive a recovery in interest rate sensitive sectors including REITs. Each announcement signalling a reopening of the Straits of Hormuz has produced USD weakness and a treasury rally
Japan
- The BOJ held rates at its April meeting despite market expectations for a 25bps hike to 1%. The vote was 6-3 in favour of a hike, up from just one dissenter at the prior meeting; a summer hike remains likely, with the July meeting (full Outlook report) the probable timing
- Real rates based on short-term rates remain negative; the sooner the BOJ normalises, the better for the J-REIT sector, which trades at persistent NAV discounts despite a strong transaction market. Continued asset sales and buybacks are expected if discounts persist
- Full year results for Mitsui Fudosan (8801), Mitsubishi Estate (8802) and Sumitomo Realty (8830) due May 13th. Sumitomo Realty has outperformed YTD, likely driven in part by its higher Tokyo office exposure relative to peers, and now trades at a PE premium and a slightly smaller NAV discount vs. peers; risk of profit taking if guidance disappoints. Elliott holds 3.5%; a breach of 5% would signal deeper engagement
- Few earnings catalysts expected from the developers after May. A major catalyst for J-REITs is potential inclusion in the Topix, with a decision likely this Fall. One broker estimates the inclusion could generate c.68 days of buying impact (assuming 25% of average trading value), with 47 of 58 J-REITs meeting market cap thresholds
Australia
- A-REITs have been under heavy selling pressure since late 2025 as the RBA reversed course and hiked in February, March and May, unwinding all 2025 cuts; likely the shortest rate cycle in RBA history
- Earnings impact should be contained vs. 2022-23 as most A-REIT debt costs are locked in and interest rate exposures hedged
- The RBA is now likely to pause given potential demand disruption from the Iran war, even if imported inflation rises short-term. AUD strength also helps on the inflation front. A-REITs have historically outperformed after rate peaks
- The Federal Budget on May 12th is the key near-term catalyst. The government will remove negative gearing for existing properties but is expected to retain it for new builds, a net positive for residential REITs and potentially beneficial for the BTR sector
Singapore & Hong Kong
- A landmark transaction is in play: Khazanah and Temasek are marketing Marina One for c.SGD 5.7bn (c.SGD 3,030psf), slightly below the SGD 3,268psf Keppel REIT paid for MBFC Tower 3. Rumoured buyers are CapitaLand and Hongkong Land (HKL)
- If CapitaLand acquires, it would validate the pricing at which HKL injected assets into SCPREF and bode well for office valuations broadly. CapitaLand would most likely need to establish a third-party fund as the acquisition would not be accretive to CICT, which just sold a Marina Bay asset on a similar valuation
- The Singapore government announced EC-specific cooling measures on May 8th (longer holding periods, removal of deferred payment schemes). Near-term impact on developers is limited, but risk of broader measures targeting outside-Central Region residential prices remains a concern for Singapore developers that have outperformed vs. S-REITs.
