Could real estate be a new form of investment on PNGX? | Ezine Daddy

Papua New Guinea’s major property developers and investors recently established the PNG Property Developers Association.

Rupert Bray, managing director of Steamships Trading Company, is said to have said that the association wants to make it easier to buy and sell property in PNG. One way to achieve this is through property trust structures. He reportedly points out that PNG doesn’t have the big real estate trusts that allow foreign investors access to the real estate market.

These types of property trusts are known as real estate investment trusts, or REITs. They are the result of the so-called securitization of real estate assets. That is, to create securities that can be traded on the stock exchange from an asset such as real estate that cannot be traded on the stock exchange.

A REIT generally owns one or more commercial or industrial properties that it leases and manages to tenants. This can be office buildings, hotel buildings, warehouses, factories, shopping centers or similar. REITs generally do not invest in residential real estate, so they will not affect the price of residential real estate.

What does that have to do with the stock market? Why are REITs important to PNG investors?

REITs can be either listed or unlisted, and both have advantages and disadvantages, but listed REITs are generally preferred as they can generate slightly higher returns. They are also generally more liquid, meaning investors can sell and receive their money quickly when needed.

In 2019, the cumulative market capitalization of REITs worldwide in 35 countries with active REIT markets approached US$2 trillion (Kinas 7 trillion). Currently, REITs listed on the ASX have a market capitalization of A$24.15 billion (Kinas 60 billion).

REITs are common in many overseas markets and offer local retail investors the opportunity to invest in properties they would not otherwise have access to. A retail investor would not be able to buy an office tower or a mall or a hotel building or a large warehouse. But for a Kina 2,000 investment through a REIT, they could buy and own a small portion of that property, just as an investor buying shares in a company buys and owns a small portion of that company.

REITs also provide a mechanism for foreign investors to invest in local real estate. This brings more investment into the real estate market, which allows more real estate development to take place.

Attracting new investors to the market is important for the overall economy. For example, in Australia it is estimated that for every $1 million in non-residential construction, $2.49 million is generated in economic activity. This makes real estate development one of the biggest engines of economic activity, which means more employment and more tax revenue. The same multiplier effect may or may not apply in Papua New Guinea, but the government should be interested in what might be achieved.

REITs are also important for large investors who need to hold some level of cash, such as B. Pension funds. When a bond fund needs money quickly to meet investor needs, it takes a long time to sell a building to meet those needs. However, if they hold shares in a REIT, they can sell all or part of their holding more quickly on the stock exchange. What is currently an illiquid asset can be turned into a liquid asset by a REIT. For this reason, the Bank of PNG, as the regulator of pension funds, should support the development of a listed REIT market in PNG.

For risk-conscious investors, investing in REITs is generally less risky than investing in companies, but more risky than investing in a bank account. They generally offer a stable form of income and modest growth, making them attractive for your investments.

There are currently a number of barriers to incorporating REITs, including tax and stamp duty laws. But these can and should be overcome. According to Bray, one of the PNG Property Developers Association’s subcommittees is currently studying how REITs can be introduced into PNG, and they will hire consultants to assist. For that they should be commended.

Real estate securitization is a strong trend worldwide that will continue. It’s a powerful way for emerging markets (like PNG) to rapidly grow the public market, quickly develop a more active exchange to benefit investors, and create new investment opportunities.

A listed REIT market would present exciting new opportunities.

The information in this article is general in nature and you should carefully study the specifics of any particular investment before making any investment decision. PNGX recommends discussing your investment goals and needs with a stockbroker or qualified financial advisor. In PNG, you can contact either JMP Securities Limited or Kina Securities Limited.

By following these articles and reading more information available on PNGX website (www.pngx.com.pg), you can build your wealth and invest in PNG

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