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BEIJING (MNI) - China may launch its long-waited first real estate
investment trust (REIT) in a public offering by the end of the year amid its
campaign to curb skyrocketing housing prices and improve the country's housing
The Economic Information Daily, a financial newspaper under the official
Xinhua News Agency, reported earlier this month that the China Securities
Regulatory Commission is forming rules governing the issuance of REITS, which
individual investors would be allowed to invest in. The newspaper also said the
CSRC would first encourage the establishment of REITS involving apartment rental
REITs, investment vehicles in real estate that are similar to mutual funds,
do not yet exist in China due to an immature market. But as the past decades
have seen Chinese citizens increasingly holding large amount of savings, they
are now eager to capitalize on the investment tool.
This is shown by the increasing trade in quasi-REITs -- asset-backed
securities similar to REITs that only financial institutions can invest in and
which have limited liquidity, can't be traded on the secondary market and offer
limited investment returns. According to CITIC Securities, the volume of
quasi-REITS traded so far this year through July 24 totaled CNY42.7 billion.
"The next step is [to determine] how to engage individual investors to
participate" in REITS, Che Yang, an expert on REITS who works for a private
equity fund, said in an interview with MNI.
As the Chinese government tightens regulations in the property market,
REITs are seen as a potential outlet for investors who would otherwise be
deterred from putting money into real estate, where speculation has driven up
prices beyond the means of ordinary buyers.
The CSRC move would come as the government is trying to advance China's
housing rental market as it seeks to provide housing in overpopulated cities.
However, property companies are still hesitant about investing in the rental
market because of perceived low returns on investment.
Che said the CSRC's possible stance of first encouraging the establishment
of REITs based on rental housing could drive property companies toward investing
in rental units. "Only when such investment is linked to financial frameworks
such as REITS could [property companies] have a chance to make a profit."
But Che noted that even if the CSRC loosens restrictions on establishing a
nationwide REIT market, it would not have a major immediate impact on the
"Actually it's more about [the CSRC] showing its attitude" toward REITS as
a first step, then guiding the market to develop REITs products in line with the
government's desire to develop the housing rental market, then seeing what the
market reaction is, Che said.
He predicts China would first use infrastructure projects or rental houses
as base assets for the REITs.
Based on MNI interviews, property developers -- especially those providing
long-term rental housing -- are excited about the possibility that REITs could
come to market. Some said such a move could ease pressure to raise funds and
enable them to capitalize on fixed-income assets that had previously not been
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--MNI Beijing Bureau; +86 (10) 8532-5998; email: email@example.com