China Close to Kick Start REITs Market
China is close to kicking off its long-awaited public REITs market, with regulators approving the first batch of nine real estate investment trusts that will raise an estimated 30 billion yuan ($4.7 billion) for infrastructure projects.
China Securities Regulatory Commission (CSRC) approved the registration of the nine REITs, which will channel investors’ money into projects ranging from tollways and warehouses, to industrial parks and sewage plants.
The green light, which will allow China’s first REITs to be sold and traded on stock exchanges, comes a year after Beijing announced plans for a pilot scheme. But unlike other markets such as Hong Kong, Singapore or the United States, China only allows REITs – investment vehicles that are backed by income-producing properties – to be invested in infrastructure initially. Eligible underlying assets don’t include commercial properties such as shopping malls or offices.
REITs widen the financing channel for infrastructure projects and provide more investment options for investors, said the Shanghai Stock Exchange, where five of the approved REITs will be traded. The instrument will help reduce China’s macro leverage ratio, and fend off financial risks, the Shenzhen Stock Exchange, where four REITs will be traded initially, said.
A broader China REITs market that eventually covers commercial properties could reach over $3 trillion, according to a Goldman Sachs estimate – surpassing the United States as the world’s largest. But China’s REITs market faces numerous challenges including a lack of sufficient returns, stakeholder reluctance as well as legal and tax issues, analysts have said.
One of the approved REITs invests in Chinese warehouses owned by logistics property developer GLP, while another will channel money into an industrial park in Shenzhen, according to the prospectuses. The nine projects will raise an estimated 30 billion yuan, according to brokerage Shenwan Hongyuan Securities.