More REITs to help stimulate economic growth

Efforts will be made to advance more trials regarding publicly traded real estate investment trusts, or REITs, to revitalize existing assets, expand financing channels and further boost economic growth with the help of the capital market, the China Securities Regulatory Commission said in an announcement.

Preparations to launch publicly traded REITs for government-subsidized rental housing projects have been accelerated, the country's top securities watchdog said late Friday. More social capital will participate in subsidized rental housing by introducing REITs, which will help the industry build new development models and realize stable development.

REITs will also work as an effective tool to address the nation's housing policies, which stress diversified and enriched supplies as well as equal importance of rental and home purchases, said the CSRC.

The Shanghai Stock Exchange said on Friday that it had conducted market research into more than 10 subsidized rental housing companies in Beijing and Shanghai so that REIT trials can be conducted among professional and large-scale companies. Leasing apartment project Youtha under property developer CR Land, Beijing Public Housing Center and Chongqing Real Estate Group are among the surveyed companies.

Also, by working with Shenzhen Talents Housing Group and Shenzhen Capital Group, the Shenzhen bourse has completed the screening of subsidized rental housing assets in the city. Official applications for such REITs are expected to commence soon, said the Shenzhen exchange on Friday.

Modeled after mutual funds, shares of publicly traded REITs are listed on a national securities exchange where they are bought and sold by individual investors. Construction efficiency is improved with public financing while individual investors can earn dividends without buying or managing any properties.

According to the Ministry of Housing and Urban-Rural Development, a total of 6.5 million government-subsidized rental homes will be added in 40 major Chinese cities by the end of the 14th Five-Year Plan period (2021-25), of which 942,000 have been built in 2021 and another 2.4 million will be completed this year.

At present, financing for subsidized rental homes mainly comes from investment from the central government budget, local government special bonds, corporate bonds, asset-backed mortgages and REITs.

Chris Yang, leader of the asset securitization business line at Cushman & Wakefield, said subsidized rental housing REITs may be pursued in the market, especially after rental housing taxes were lowered from Oct 1 last year. With such fiscal policy support, yields from rental housing units will be increased accordingly, he said.

The CSRC also released plans in the latest announcement to increase placements of existing infrastructure REITs. This move will help market entities acquire assets, optimize investment portfolios and facilitate mergers and acquisitions with the financing, said the CSRC.

The first nine publicly traded infrastructure REITs, covering industrial parks, logistics, highways and environmental protection projects, were listed on the Shanghai and Shenzhen exchanges in June 2021. At the end of last year, 11 such products were traded on the two exchanges, with their prices up by an average 25 percent from initial public offering prices.

Analysts from China International Capital Corp Ltd said that these 11 REITs are relatively smaller in scale and less influential compared to their counterparts in mature markets. Apart from increasing the number of REITs, it is just as important to increase placements, which will be conducive to constant capital inflows to existing projects. Market liquidity will be elevated and more long-term capital will thus be injected, they said.