China details a series of measures to encourage the development of REITs | Latest Updates

China has taken several measures to develop real estate investment trusts (REITs) as part of efforts to revive existing assets and promote efficient investment.

The country will expand the pilot scheme for REITs to cover the areas of new energy, water conservancy and new types of infrastructure, according to sources at the China Securities Regulatory Commission (CSRC).

China currently allows REITs to list infrastructure projects such as highways, industrial parks, sewage treatment, storage and logistics, clean energy and affordable rental housing.

According to a research report by CITIC Securities, a leading Chinese brokerage firm, the continuous expansion of the scope of REITs will maintain the healthy growth of the market, channel more incremental capital into the infrastructure sector and provide more options for investors.

Apart from expanding into new sectors, CSRC is also planning to increase placements of existing infrastructure REITs.

Since China’s first batch of nine REITs went public in 2020, its REIT market has grown rapidly. By the end of October 2022, a total of 23 REITs were approved for issuance and 20 were listed on the Shanghai and Shenzhen exchanges – this in just under two years.

The 20 REITs listed have raised a total of 61.8 billion yuan (about US$8.68 billion), which is mainly used to address deficiencies in areas such as technological innovation, green development and people’s well-being . This recovered money has helped increase investment in new projects to more than 330 billion yuan.

Infrastructure REITs allow companies to monetize their infrastructure assets and apply the sale proceeds to finance future projects or reduce debt, according to a report by Moody’s Investors Service.

Experts believe that infrastructure REITs in China will be well suited to efficiently utilize the country’s high-quality infrastructure assets, reduce local government debt risks, and promote economic growth.

In the secondary market, 20 listed REITs reached an average market value of 70.6 billion yuan at the end of October, with an average increase of 22.93 percent compared to the public offering price.

For investors, the asset’s operating record and ability to generate positive cash flow — as well as its low correlation to major categories of financial assets such as stocks and bonds — will reduce investment risk.

The current limited supply of the REIT is also helping attract investors willing to take advantage of the limited offering at this stage. Three newly listed REITs based on affordable rental properties, for example, were oversubscribed more than 100 times among investors.

A bond research team at CITIC Securities said, “The move to increase placements of existing REITs will provide vitality to the REITs market by improving the revenue generating potential of existing properties and raising valuations of REITs with strong operating efficiencies.” ,

In addition, the CSRC will encourage eligible privately owned projects to be listed as REITs, while also paving the way for private enterprises to participate in the pilot scheme.

These specific measures followed China’s decision to join the REIT drive. China’s outline of the 14th Five-Year Plan (2021-2025) clearly proposes to promote the healthy development of infrastructure REITs, effectively utilize existing assets, and promote sound circulation between existing assets and new investments .

The guidelines issued by the State Council in May this year will promote the healthy development of REITs while establishing a multi-tiered infrastructure REIT market.

REITs have already been a popular asset class for some time for investment in major economies such as Singapore, Japan and the United States. Globally, the REIT market was established in 43 countries or regions by June 2021, with over 900 REIT products with a market value of nearly US$2.4 trillion, the data showed.

Although China is a newbie on the REIT route, experts believe that with infrastructure spending being a major growth pillar for China, the world’s second largest economy holds great potential for investors in REITs .

Looking ahead, the scale of REITs in China, backed by infrastructure assets worth about 100 trillion yuan, is expected to top 1 trillion yuan, said Zhang Yu, managing director of the investment bank, and its value is ahead of other Asian REIT markets. can come out CICC.

A report from UBS Investment Bank said, “Global investors can access REITs in the Chinese market through the Qualified Foreign Institutional Investor Program, but we believe their access could broaden as China expands its financial markets.” continues to open.”

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