Analysis: To hedge inflation, property trusts are the new gold

Fri May 10, 2013 5:32am EDT
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By Nishant Kumar and Elzio Barreto

HONG KONG (Reuters) - As central banks print cash to boost moribund economies, investors in Asia wanting to hedge against rising prices are dumping gold and doubling down on property.

They are driven by the search for yield as surprisingly benign inflation dims the appeal of bullion, but it's a risky play given lofty valuations for real estate.

The trend is most visible in the frenzy around real estate investment trusts (REITs) in Asia, where issuance ex-Japan more than quadrupled to $4.33 billion through early May from the same period last year and valuations are at their highest since before the 2008 financial crisis.

"I have been saying for the last two years that REITs are a good inflation hedge," said Charlie Chan, one of the best-known hedge fund managers in Asia, who made a killing by betting on them in 2012.

"They are easier to value, you get what you see and you own the building and if there is inflation, the building price will just go up," added Chan.

His $200 million hedge fund returned 63 percent last year and is up a further 35 percent in 2013. Asia hedge funds, by comparison, returned 10 percent last year and are up about 9 percent this year, according to Eurekahedge figures.

REITs such as Cambridge Industrial Trust made up more than half his portfolio at one point last year, Chan said.

Since REITs hold various kinds of properties, from factories to shopping malls and hotels, they benefit from higher rents when economies boom and prices rise.   Continued...

A man leaves with a prospectus of the Mapletree Greater China Commercial Trust real estate investment trust (REIT) at a marketing booth in Singapore, in this March 4, 2013 file picture. REUTERS/Edgar Su/Files