Global Investing: Seriously, should you buy Reits?

A Reit that is a money-spinner? Pakistan.

It is now obvious that the bull market in commercial real estate is now over. I expect the bear market in GCC property, two years old this June, to accelerate in the next 12 months as excess supply, fall in oil prices and government spending, a contractor debt time bomb, systemic banking stresses (Libor is 0.53 Eibor is 1.10 per cent, Sibor is 2.14 per cent in a pegged currency) and a higher dollar take their toll. I can easily envisage another 30 per cent price falls as this bear market continues in the next two years as the hawkish Fed will mean a higher US dollar, lower oil prices, wider credit risk spreads and lower asset prices.
It is a pity that so few UAE investors know how to create income and profits via a real estate investment trust, or Reit. A global Reit portfolio allows me to invest in economics, property themes and bull market credit cycles across the world, diversify economic risk, hedge inflation risk and generate high cash dividend yields. As investors in Dubai property have learned since 2014, "liquidity is like a cab on a rainy night. It disappears when you need it the most". JPMorgan said these words more than a hundred years ago but liquidity is the single most crucial lodestar of my investment strategy - the ability to go into cash in a microsecond. This is only possible by owning a diversified spectrum of global Reits.
What do I want when investing in a Reit? One, a secular bull market property theme. For instance, after 2010, it was obvious that the new "millennial" generation was not interested in owning illiquid, high-risk leveraged property, like the suburban McMansions whose prices dropped so traumatically from Utah to Umm Suqeim in 2008-09. The big money was betting on multi-family apartments as an attractive property segment and that meant the Avalon Bay Community Reit. In 2006, I desperately wanted to take advantage of the global trade cycle, China's growth and Singapore's phenomenal role as a container shipping, finance and import-export hub. So I went investment hunting in Changi - or, more accurately, Suntec Tower and the Fullerton hotel. The result? Cambridge Industrial Trust, one of Singapore's best performing Reits in the past decade I chronicled so many times in this column.
Global Reits have made 25-40 per cent in the past two years even though ownership of "brick and mortar" apartment and villas in Dubai have meant losses of 15-25 per cent. This is the best performer in the global asset classes I track most years. I have no interest in Emirates Reit listed in the UAE as the office tower vacancy rate is 40 per cent. I have no interest in hotels in the UAE but find extraordinary 10-12 per cent dividends in emerging/frontier markets like Pakistan, Singapore and Australia. Warehouses (big boxes) in Britain are a winner due to the exponential growth of e-commerce. From Manhattan office towers to Japanese condos, from Singapore industrial parks to German shopping malls, global Reits allow even small investors to benefit from the world's top-performing property market via a single dirt cheap trade via an Interactive Brokers account.
While Private Bankerji routinely fleeces NRI clients with $200 minimum trade or 10¢ a share (some Stone Age Bankerji's demand 0.5 per cent of the trade order to buy equities. Shame, shame, puppy shame, Bankerji Boyo!).
A Reit that is a money-spinner? Pakistan. Terrorism is at 10-year lows. The IMF has given Islamabad a $6.7 billion loan. Karachi is a city of 20 million in one of the world's great consumption stories. The rupee is anchored by the most credible inflation, current account and monetary management metrics in South Asia - and, yes, this influences Raghuram Rajan's RBI in India. Bank loan growth, a mere 17 per cent of GDP in Pakistan (news 30 per cent of GDP in Sri Lanka and Bangladesh) has just begun to revive. The Karachi stock market trades at eight times earnings while Mumbai is at 17.8 times and Manila 18 times earnings. Hawkes Bay, Elphinstone Street, Empress Market, Gizri, Sunset Boulevard. The city on the Arabian Sea, the city of my birth I last saw in 1996, is also the city of the world's juiciest frontier market Reit.
The writer is a global equities strategist and fund manager.