China in renewed Reits push

Chinese officials on Tuesday gave concerted signals that the government is moving towards implementing a long-awaited plan to allow mainland property developers to raise capital through real estate investment trusts.

Qi Ji, vice-minister of housing, told a press conference that banking regulators were working on a plan to introduce Reits to stimulate the sagging Chinese property market, part of a larger effort by Beijing to support the domestic economy.

The listed property vehicles in theory offer investors predictable income streams and the chance for capital appreciation, but cannot be launched in China until the passing of specific legislation governing their structure, tax and other regulations.

Depending on their structure, the Reits could appeal to local retail or institutional investors, or potential foreign investors, and attract billions of dollars in extra capital into the sector.

“The healthy growth of the property sector is very important for the economy’s healthy growth, for fostering consumption and for improving people’s lives,” said Huo Yingli, an official at the central bank’s financial market department, during a briefing with three government agencies on Tuesday.

Faltering real estate investment has hurt related industries such as steel. The introduction of Reits could help cash-strapped developers because it would give them an alternative to bank finance, officials said.

The State Council, China’s cabinet, said last month that it would begin a pilot Reit programme, but gave no timetable.

Government officials admitted that the introduction of Reit legislation was not imminent, and real estate analysts said on Tuesday that the timetable for launching Reits remained unclear.

“The Reits proposal is currently being studied by various regulators,” said Ms Huo. “Because so many departments are will take some time for it to be submitted to the State Council [for approval].”

Eric Wong, UBS real estate analyst in Hong Kong, said the Chinese government could move quickly if it wanted to, but that stimulating the property market might not prove easy. “It’s a big ship to turn round. But the government realises the multiplier effect of the sector on the rest of the economy.”

Peter Mitchell, chief executive of the Asian Public Real Estate Association, a lobby group, said a Chinese Reit market with a purely domestic focus could emerge relatively quickly. “The development of a Reit market that possessed the characteristics that appealed to global institutional investors may be a much longer term project,” he added.

Analysts said that foreign investors who might be willing to invest in Chinese Reits would first need to be reassured about local property valuation standards and the quality of individual trust management. Asia’s listed Reit industry is experiencing its worst period since it caught investors’ attention about a decade ago, when it took off in Australia and Japan before taking root in Hong Kong and Singapore.

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