China launches commercial property REITs pilot to back new real estate model

China has launched a pilot program for commercial property real estate investment trusts (REITs), a key step toward using market-based mechanisms to support a new model of real estate development and promote innovation in asset securitization.

On Wednesday, the China Securities Regulatory Commission (CSRC) released an announcement on rolling out the commercial property REITs pilot, taking effect immediately, with the Shanghai and Shenzhen stock exchanges releasing supporting rule sets. With the framework now in place, market participants can submit applications to the CSRC as well as the exchanges.

Commercial property REITs are defined as closed-end publicly offered securities investment funds that hold commercial real estate to generate stable cash flows and distribute returns to fund holders.

The move is seen as China's latest step to support the building of a new development model of the real estate sector — by activating existing assets, mitigating financial risks in the sector and raising the share of direct financing — while meeting residents' wealth management needs.

According to the announcement, commercial properties to be held by REITs must align with national strategies, development plans and industrial policies, have clear ownership, a well-defined scope, complete key compliance procedures, and a track record of sustained, stable cash flows.

Supporting rules from the exchanges specify that proceeds from REITs issuance should not be used to purchase land for commercial residential housing. They also introduce market-oriented return requirements linked to the yield on 10-year government bonds.

Sources said the initial phase of the pilot will proceed prudently, prioritizing quality over speed and maintaining strict standards for issuance, compliance and risk control.

Priority will be given to high-quality, representative projects aligned with national policy goals, including commercial complexes, retail properties, office buildings and hotels. Project reserves are considered relatively ample, with overall quality assessed as solid, the sources said.

The launch of the pilot marks a new phase for China's REITs market, with commercial property and infrastructure REITs developing in parallel, moving toward a more comprehensive and mature market covering a broader range of assets.

The CSRC also said it will expand REITs-related indices, support eligible public funds in including REITs in their investments, and explore innovative products such as exchange-traded funds tracking REITs indices to broaden investors' asset allocation options.