Conducive global developments placed financial markets on a risk-on mode in the final month of 2020. The prospect of widely available coronavirus vaccines, the US bipartisan agreement on fiscal stimulus, and the EU-UK post-Brexit trade agreement’s conclusion provided the necessary fillip to sentiment, sustaining momentum for real estate stocks to conclude on a positive note.
However, for the whole of 2020, real estate stocks continued to lag the wider equity markets, which have been supported by tech and pharma counters. Property cycles will eventually chart the sector’s own way out of the crisis, which although historically it lags an economic recovery, will be longer-lived, sustained by the region’s enduring structural fundamentals.
Listed real estate
The GPR/APREA Listed Real Estate Composite returned 1.6% in December, underperforming both the region’s equity and REIT markets, as the tepid performances in China and Hong Kong weighed on the sector. Among the region’s heavyweights, property stocks in China and Hong Kong posted the largest declines on an annual basis as policy risks amplified the drag on valuations. In addition to the so-called ‘three red line’ limits on developers, mainland regulators made further moves to cap bank loans to the property sector, including curbs on mortgage lending, which will inadvertently subdue home purchases.
In contrast, Asia-Pacific REITs, as tracked by the GPR/APREA Composite REIT Index, advanced over 5% in December with broad-based gains. Still, this could not lift Asia-Pacific REITs into growth territory for 2020. Notably, rotation towards higher-risk segments propelled retail to rise by 6.5% in December. On an annual basis, hotel REITs suffered the biggest contraction, shedding 21.1% for the whole of 2020. This is in contrast with industrial’s strong performance, which chalked up over 20% in gains in the same period as investors sought safety in logistics and digital assets.