Real estate investment trusts (REITs) have performed strongly across the globe over the past year amid recent stock market downturn.

More and more investors are attracted to the liquidity of REITs, the low-minimum investment, a stable income stream from dividends and seeing where their money is being placed.

While the American real estate market stagnates to its lowest volume in the last 20 years, investors are looking to put their asset-allocation funds elsewhere. Interestingly enough, real estate on the mainland is primed for growth. And despite its already large percentage gains, there still remains additional growth potential.

However, for many foreign investors, the choices for traditional real estate purchases are limited by the government. Having to pay higher land fees, combined with lower property options for foreigners, it can be monetarily risky for a foreign investor to purchase real estate on the mainland.

However, with that said, a new breed of REITs have sprung up on the mainland, providing an excellent financial instrument for those looking for proper asset allocation, as well as full diversification internationally.

These REITs generate not only income, but also the possibility of capital appreciation over time.

The GZI REIT operating out of Hong Kong was the first successful fund to gain a foothold in the asset-management industry on the mainland. Following the success of GZI, numerous REITs have sprung up, many with operations in Singapore and Hong Kong.

Since capital repatriation is still restrictive on the mainland, Hong Kong REITs provide a mechanism to hold properties on the mainland. The rapidly growing mainland economy, coupled with the presence of a strong middle class, are indicators that the demand for real estate on the mainland may outstrip supply - giving REIT holders a nice profit in the interim.

There are two legs of investment strategies for mainland REITs. For short run profits, the Beijing 2008 Olympics provides an excellent opportunity for investment - but only when it comes to income - as many REITs already have the capital gain priced into the share price.

Of course, for the investor seeking both income and the potential for capital appreciation, the long-term strategy for REITs may be most profitable. The continued population and economic growth on the mainland both set the foundation for high demand of real estate.

The mainland's issues of transparency and changing rule of law pose greater risks for investors.

With that said, investors who have lower risk tolerances may want to consider investing through Hong Kong REITs, which are traditionally more open and subject to international financial transparency and regulations.

At a time when the US economy is facing a possible recession, an exposure to international REITs can provide a hedge and safety valve against potential slumps in US stocks.

The author is the managing director at Vigers Asia Pacific.

(HK Edition 04/17/2008 page3)