China is set to introduce the very first batch of public Real Estate Investment Trusts (REITs), according to officials. Asia Times reported that the Shanghai Stock Exchange convened a meeting about pilot public REIT projects, with fund managers and brokers attending, back in March this year.
Wang Fang, a Development Research Center of the State Council researcher, shared his thoughts on the matter, saying that authorities have been at work on these for over a decade. The securities regulator only reached a high point in February this year, when they hope to launch the first batch of products. Insiders, however, see April as a more likely month.
In China, the first cities to release REITs are Hainan province, the Xiong'an New Area, and other first-tier cities. Reuters reported that investment bank DBS VIckers is looking to launch the first batch of REITs in April, or even later. Regulators are looking to provide investors an additional platform for investment through these REITs. Companies will also gain an additional funding channel.
That, however, doesn't come without obstacles. High transaction taxes and punitive regulations are seen by insiders as hurdles to be overcome, restricting mutual funds from being used by commercial properties. The Chinese REITs would have come earlier, had these issues been resolved all those years ago.
China had seen many 'pseudo-REITs' come and go over the years, which were regulated by private equity funds. These REIT forms were also not opened to the public to invest in. DBS Vickers' Carol Wu, the head of research, sees the first batch of these REITs opened to the public through investments in mutual funds. A single mutual fund also gains the power to invest in many pre-REITs.
The Chinese government reportedly is speeding up things, as the latest revised draft of the REITs code is already good for legislation. According to Carol Wu, DBS has asked officials from the banking and securities watchdog as well as the Shanghai Stock Exchange. She further shared that she feels China will launch the REITs in April. If not, then they will surely launch by next year.
Public REITs will likely have an operating structure that looks like this: public funds are supported by asset-backed securities. This shows that while the funds are publicly raised and traded as well, most of the assets available for trade are securitized. Those properties could be anything from infrastructure, public utilities, to commercial and residential properties.
