The talk of the conference was that a number of mainland property-based real estate investment trusts, or reits, will list on the Hong Kong and Singapore stock exchanges in the near future. The conference's cheerleading mediators said mainland reits were the 'right product in the right market at the right time.'

A reit is a trust that operates like a property management company but, according to laws in most countries where they exist, must return at least 90 per cent of net income to shareholders and obtain approval for additional funding. It usually includes a large number of commercial or industrial properties that generate regular income and provide stable and long-term returns for investors.

Essentially, it provides a liquid investment in large-scale property projects by creating a kind of 'landlords' collective', through which ordinary retail investors can participate in real estate booms.

The concept was pioneered in the US and launched a bit later in Australia, with the number of reits in those countries rising from virtually nil in the early 1990s to almost 400 by the end of last year.

Outside of Japan, which introduced reits four years ago, Singapore has been the pioneer in Asia with five reits listed and at least two more expected in the next month.

Hong Kong is yet to host a reit listing. Indeed, Fortune Reit, though based entirely on Hong Kong properties and 30 per cent owned by Li Ka-shing's Cheung Kong Holdings, is listed on the Singapore exchange.

'The first mainland property reit will be listed in Hong Kong within this year,' says Shui On Holdings chairman Vincent Lo Hong-shui. 'It will be a commercial building or shopping mall, with a clear rate of return.'

'I expect the four big Hong Kong developers with major assets on the mainland to issue reits in the future and for Hong Kong to overtake Singapore,' adds Stanley Chan, managing director of a Shanghai-based investment management company. '[Hong Kong] is the natural place for the big four to issue.'

Reit listings on the mainland's floundering markets are also expected but not in the near term.

'The last thing [China's] equity markets need is yet another product that just goes bust,' says David Edwards, national director at Lasalle Investment Management.

When the time does come, China's first overseas-listed reit will confront a host of obstacles. The first proper mortgage was not issued in China until 1997; the State Council has yet to ratify the country's first bankruptcy law; and all land in China is still owned by the state or village collectives.

'One of the critical issues for Reits and offshore funds is whether investors enjoy the necessary degree of legal protection in relation to property rights,' says Andrew Godwin, a partner at Linklaters. 'In China, certain issues are still not settled, even after the recent publication of the draft Property Rights Law. The question is how easily rights can be protected through the courts, which is also a major issue for banks when they take security in the form of mortgages over real property in China.'

When one delegate began discussing mortgages, an otherwise competent translator was at a loss for the word's Chinese equivalent. Moreover, securitisation regulations are still untested in China while an unconvertible currency and complicated tax laws will delay the process of listing reits offshore.

The entire industry is therefore closely watching both China Development Bank, which has said it will issue asset-backed securities by the end of the year, and China Construction Bank, which plans to issue the country's first mortgage-backed securities. Those developments will set important precedents for future reits that hope to issue secured debt.

Foreign investors are also continuing to bulk up their China property portfolios. For them, reits will provide a useful exit vehicle. Lasalle, for one, intends to commit US$500 million to US$800 million to the mainland property market in the near future. ING is already exposed to the tune of US$500 million in China and plans to at least double that. Of Carlyle's US$1 billion in China investments, US$100 million is in property.

For all the enthusiasm among conference delegates, the studiously ignored gorilla in their midst was the very real possibility of a property crash in China.

As the reit model relies on long-term rental streams, it should be a welcome stabilising factor in a highly speculative market. 'China definitely needs reits as alternative financial instruments,' said Hu Bing, a researcher at the China Securities Regulatory Commission. But that still begs the question about how reits would fare in a sustained downturn.

A property collapse could impact share prices and reduce dividends, which are derived from the rental yields. In the race to attract mainland reits, both the Hong Kong and Singapore exchanges are raising the legal proportion of debt on which reits can leverage.

Hong Kong-listed reits will be allowed to borrow 45 per cent of their investment capital, while Singapore is considering raising its limit from 35 per cent to 60 per cent. 'It becomes a bit more dangerous,' says Wit Solberg, Fitch Ratings' head of structured finance for Asia ex-Japan. 'Bankruptcy in a downturn gets more likely as you get less experienced and more leveraged players in the market.'

A glance at Shanghai's residential property market suggests a downturn could already have begun. After doubling or tripling over the last three-four years, average sales prices in Shanghai dropped as much as 30 per cent between May and June and analysts expect prices to come down even further.

A lone voice of caution was sounded by China Real Estate Association secretary general Gu Yunchang, who stressed the government's determination to cool investment in the sector.

Conference delegates were not about to let any carping Cassandras rain on their reit parade, however. As one analyst said: '[Market] value is an opinion, cash flow is real.'

The reit results

Cheung Kong Harbour Plaza Metropolis in Hunghom.

Rents from retail outlets in the Metropolis complex feed revenues at Singapore-listed Fortune Reit