The Securities and Futures Commission plans to open the door for mainland and overseas property owners to list real estate investment trusts (reits), paving the way for Hong Kong to catch up with regional rivals.
After an 18-month study, the securities watchdog has proposed the geographic ban restricting reits to Hong Kong properties be lifted from June. The plan is subject to a month's consultation, starting yesterday.
While Hong Kong's first property trust listing, planned for December last year - the Housing Authority's $24 billion Link Reit - remains mired in a legal challenge, other markets are well ahead in the reit game.
Reits - funds pooling rental properties such as offices, car parks, retail outlets and serviced flats - got off the ground in the United States and Australia 40 years ago and have been floated in Japan and Singapore in recent years.
Fund managers have blamed the geographic ban as one reason Hong Kong trails the field. Other markets do not have the same restriction.
Alexa Lam, an executive director of SFC, said: "It has been a worldwide trend to have cross-border reits listing, and it is the right time to lift the ban in Hong Kong.
"In fact, we have already received several potential issuers who have expressed interest in issuing overseas property reits in Hong Kong."
The SFC's proposal, however, has raised concerns as some countries, including China, do not yet have a clear legal framework for land rights and titles. But Ms Lam said China had made significant progress on land rights during the past 18 months.
"It would be the responsibility of the fund management companies of the overseas reits to perform the due diligence and assess the risks of the overseas properties before offering them to Hong Kong investors," she said.
The reit management company would need sufficient resources and experience in the overseas property market to qualify for a licence issued by the SFC.
The SFC would regulate their management and, in extreme breaches of rules, it could revoke the licence and ask the reit trustee to appoint another manager.
Ms Lam believed both mainland and overseas property owners would be attracted to Hong Kong after the geographic relaxation.
Leading Asia reit issuer Macquarie Group welcomed the move. Nick Ridgewell, a division director of Macquarie Fund Management Hong Kong, said his firm would like to launch an overseas property reit and an industrial building reit in Hong Kong later this year.