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 its 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 per cent in 2013. Asia hedge funds,by comparison,returned 10 per cent last year and are up about 9 per cent 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. Unlike gold,which doesnt pay any dividend,REITs also provide a steady flow of income. Yields for REITs in Asia stand at 4.4 per cent on average,according to data from StarMine. Spot gold fell 13 per cent this year to May 7. By comparison,the MSCI Asia Pacific REITs index rose 14 per cent,according to data from Thomson Reuters Datastream. Yield-hungry investors are increasingly being squeezed out of the sovereign bond markets by central bankers everywhere, said David Baran,co-founder of hedge fund Symphony Financial Partners in Tokyo. REITs are an increasingly compelling asset class. REIT indices in Singapore and Hong Kong rose 13 per cent and 17 per cent respectively year-to-date,with both reaching all-time highs in the past two weeks. In response to the red-hot demand,companies are flooding the market with new offerings. Mapletree Greater China Commercial Trust is a prime example,raising $2.06 billion in Singapores largest ever REIT IPO in February. The 5.6 per cent yield offered saw institutional investors bid nearly 30 times the units on offer. Issuance of REITs in Asia ex-Japan has more than quadrupled so far in 2013 from the same period last year to $4.33 billion,according to Thomson Reuters data,and there is no sign of a slowdown given a $4 billion pipeline in the coming two to three months from IPOs alone.
