The SFC Code on Real Estate Investment Trusts (REIT Code)
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The REIT Code sets the terms on which the SFC authorises a real estate investment trust for sale to the Hong Kong public. Each such REIT must list on the Exchange. Its core rules are a 75% floor on income-producing real estate, a 50% borrowing cap and a 90% payout of net income. It also requires an independent trustee and annual independent valuations. Connected-party transactions follow Chapter 14A of the Listing Rules. The explanatory notes on page 1 state that the Code does not have the force of law.
Scope and the core mechanism
Every REIT under the Code is a trust. It is a collective investment scheme that invests primarily in real estate, with returns derived from rental income (3.1). Paragraph 3.2 lists six required features. These are recurrent rental income, restricted property trading, rent as the main income source, regular dividends, a defined borrowing limit, and holder approval of connected-party transactions. A stapled structure with another listed entity is possible if equivalent protections apply.
Authorisation is conditional on listing on the Exchange within a period the SFC accepts (3.6). At least 25% of units must normally stay in public hands (3.7). The trustee holds the assets, and must be independent of the management company (4.8 and 4.9). The management company must be licensed under Part V of the SFO and approved by the SFC (5.3). An overseas manager may qualify under Note 1 to 5.3 if licensed for similar business in an Appendix A regime with an SFC memorandum of understanding. It must also show it meets the Code and knows the local property market. It must agree to provide the scheme's books and records on request.
Key provisions
| Provision | What it says | The practical point |
|---|---|---|
| Trustee (4.3, 4.5) | Eligible: a supervised overseas bank or trustee, or a Type 13 depositary. Issued and paid-up share capital plus non-distributable capital reserves of at least HK$10 million. | A lower figure is allowed only for a wholly-owned subsidiary of a substantial financial institution the SFC accepts. The parent must give a capital commitment or a no-default undertaking. The test does not apply to a Type 13 depositary. |
| Manager resources (5.4) | Two responsible officers, each with at least five years in investment or property portfolio management. One must be available at all times. | If the manager runs the properties itself, its property managers need professional qualifications and five years of experience. |
| Core investment test (7.1) | At least 75% of gross asset value must be in real estate that generates recurrent rental income, at all times. | The same 75% floor is repeated in 7.2B(iii). It also applies to the underlying assets of a qualified minority-owned property (7.7C(d)). |
| Property development (7.2A, 7.2AA) | Development costs plus uncompleted units are capped at 10% of gross asset value. Holders can raise this to 25% by resolution if the trust deed allows it and the trustee does not object. | Vacant land is barred unless it forms part of a permitted development (7.2). |
| Maximum Cap (7.2B, 7.2C) | Securities and property funds, non-qualified minority-owned properties, ancillary assets and development exposure together may not exceed 25% of gross asset value. | Relevant Investments under 7.2B from one issuer group are capped at 10% of gross asset value. The manager publishes that portfolio on its website, updated within five business days of each month end. |
| Minority-owned properties (7.7B, 7.7C) | A REIT may hold properties where it lacks majority ownership and control. Those meeting set conditions, such as veto rights, can be excluded from the Maximum Cap with SFC approval. | Each non-qualified minority-owned property is capped at 10% of gross asset value (Note 3 to 7.2C). |
| Holding period (7.8) | Each property, other than a non-qualified minority-owned property, is held for at least two years. An earlier sale needs a special resolution after the rationale is explained to holders. | For developments, the two years run from completion. The rule also covers sales of the special purpose vehicle holding the property. |
| Borrowing (7.9, 7.10) | Aggregate group borrowings may not exceed 50% of total gross asset value. Reports disclose borrowings and gross liabilities as percentages of gross assets. | If falling values alone cause the breach, the REIT is generally not required to sell assets where a sale would prejudice holders. The same applies to other causes outside the manager's control. No further borrowing is allowed, and the manager uses best endeavours to reduce the excess. |
| Dividends (7.12) | At least 90% of audited annual net income after tax is distributed each year. | The trustee decides whether revaluation surpluses or disposal gains form part of distributable income. |
| Valuation (6.2, 6.10) | An independent Principal Valuer values the REIT's real estate once a year, with physical inspection. It retires after three consecutive years of valuations. | For a minority-owned property, the manager may adopt the joint-venture valuer's annual valuation instead (Note 2 to 6.2). The same Principal Valuer can return only after a further three years. |
| Connected parties (8.1, 8.7A) | Connected persons include the manager, the trustee and any holder with 10% or more of the votes. Their transactions follow Chapter 14A of the Listing Rules, as modified by paragraph 2.26. | Deals between two REITs under the same manager count as connected-party transactions for each REIT (8.6). |
| Reports and new units (10.12, 12.2) | Annual reports are due within four months of year end and semi-annual reports within three months. Non-pro-rata issues in a financial year above 20% of units outstanding at the previous year end need an ordinary resolution. | Units issued to a connected person generally need holder approval even within the 20% general mandate. |
Amendment history
| Date | Instrument | What changed |
|---|---|---|
| 15 Aug 2003 | First edition | The original Code. |
| 2005 to 2014 | Second to fifth editions | Revised versions took effect on 17 June 2005, 25 June 2010, 12 April 2013 and 29 August 2014. |
| 4 Dec 2020 | Sixth edition | Superseded by the seventh edition on 5 August 2022. |
| 5 Aug 2022 | Seventh edition | Superseded on 2 October 2024. |
| 2 Oct 2024 | Eighth edition | The current text. Its trustee chapter names a Type 13 depositary as an eligible trustee (4.3). |
What it works with
Section 104 of the SFO is the authorisation power, and section 105 covers advertisements and offering documents. Because the REIT is listed, the Code imports parts of the Exchange's Listing Rules. Connected-party transactions follow Chapter 14A, as modified and to the extent appropriate and practicable (8.7A). The note to 10.3 points to the SFC's inside information guidelines. A fund subject to the UT Code may not hold real estate directly, but UT Code 7.14 lets it hold REITs within its spread limits (summary). The OFC Code governs open-ended fund companies (summary), while a REIT is a trust under 3.1.
In Singapore, authorised property funds, including listed property funds, follow Appendix 6 of the MAS Code on Collective Investment Schemes (summary). That makes it a regional comparator for the borrowing, valuation and payout rules on this page.
In practice: the 50% borrowing cap in 7.9 is measured on the borrowings of the whole group, including special purpose vehicles. A fall in property values can push a REIT over it without any new debt. The manager must then inform holders and the SFC of the size, cause and planned fix, and report progress regularly.
To verify
- Edition changes: what each edition from 2014 to 2024 changed on development, borrowing and minority-owned properties. The SFC consultation conclusions are listed on the codes page.
- Type 13 commencement: the date the Type 13 depositary regime under Part V of the SFO came into operation, and any transition for existing REIT trustees.
- Appendix A regimes: which overseas regulators the current Appendix A of the REIT Code lists for overseas management companies.
- Listing Rules cross-references: the current text of Chapter 14A of the Exchange's Main Board Listing Rules that 8.7A applies.
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