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China may not be ready for more REITs
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CHINA’S first real estate investment trust may not be a catalyst for such product to be popular as the commercial property market is nascent and there are regulatory barriers to consider, analysts said.
CITIC Securities, China’s largest brokerage, is said to have received a regulatory nod to raise more than 5 billion yuan (US$803 million) through a private offering of a REIT, the Securities Daily reported earlier.
The REIT, the first of its kind in China, is backed by CITIC’s two office buildings in Beijing and Shenzhen, according to the report. It may trade publicly on the Shenzhen Stock Exchange in five years and offer retail investors a way to buy into the real estate sector without purchasing a property directly.
Yuan Yichao, analyst with China Real Estate Information Corp, said REITs will provide property developers with a new funding channel and cut their reliance on bank loans.
The approval of the REIT signaled the latest move the government is easing control on property financing after two listed developers last month received the go-ahead to offer new shares.
But Yang Hongxu, vice director at E-house China R&D Institute, said the massive securitization of China’s real estate assets would be a slow process because commercial property, the most common underlying asset of REITs, is still being built massively and it would be too soon for them to generate stable returns.
An immature policy environment in taxation, asset valuation and listing and trading mechanism would also hinder the development of REITs, said Shuai Guorang, analyst with User-Trust Studio, which specializes in the trust industry.
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