Epra 2008: FTSE EPRA/NAREIT expands into emerging markets

Investors in the listed property stocks will soon have a benchmark index to enable them to track the performance of the world's emerging markets for the first time. The European Public Real Estate Association (Epra) announced at its annual conference in Stockholm on Thursday that the FTSE EPRA/NAREIT Global Real Estate Index series is to be expanded to cover 20 developing countries. The bulk of the emerging markets index series will made up by the future economic heavyweights known as the 'BRIC countries', Brazil, Russia, India and China.

At the moment the FTSE EPRA/NAREIT Global Real Estate Index covers 21 developed countries. Epra's research director Frasier Hughes said it is estimated 75% of real estate investors use the index series, which about EUR 200 bn in market capitalisation.

Hughes said demand for information about the real estate markets in emerging markets had built up dramatically over the last 24 months. 'The huge demand for real estate investment in the fast-growing emerging market countries has propelled the sector onto the radar screens of investors as one of the more interesting asset classes of the future.' The two main drivers, Hughes said, for the growth of listed real estate in emerging markets are population and GDP growth.

In a statement, Steve Wechsler, CEO of the National Assocaition of Real Estate Investment Trusts (Nareit) also welcomed the 'bolting on' of the emerging markets component to the global index. 'The Emerging Markets Index Series is an important step in our ongoing efforts to provide investors with access to the entire opportunity set of global estate investment using the efficiency of publicly traded real estate securities.'

The criteria for inclusion in the new emerging markets index are similar to the methodology for the developed market indices. Hughes said the emerging markets index series will include a minimum free float market capitalisation and liquidity to 'ensure investors can get in and out quickly' and requirement that real estate activities such as buying and selling properties make up 75% of the company's EBITDA.

Hughes said that about half of the 20 countries in the emerging market index series have real estate investment trust (REIT) structures. But South Korea is under-represented as many of the countries listed property companies did not publish their accounts in English - another requirement for inclusion in the EPRA/NAREIT Global Real Estate Index.