Mainland can adopt latest reits developments to help house ageing population

Real estate investment trusts, which generate steady income streams, can help the mainland fund the retirement of its ageing population and free up the central government's balance sheet, said Peter Verwer, chief executive of the Asia-Pacific Real Estate Association.

His remarks followed media reports that the housing ministry would soon allow Beijing, Shanghai, Guangzhou and Shenzhen to launch reits on a trial basis to finance state-subsidised affordable homes for rent to low-income families.

"That's indicating it's no longer a slow burn," Verwer said, referring to almost a decade of debate on the mainland about the adoption of reits.

The non-profit association has been advising the central government on reit best practice around the world.

"The advice we've provided in the past is to adopt the most flexible model for reits so that the reits model is going to remain versatile and serve China's long-term needs," Verwer told the South China Morning Post.

Noting the rapid reit diversification to provide nursing homes, senior living and aged-care premises in the United States, where reits started more than 50 years ago, and their growing popularity in Australia and Europe, Verwer said: "There is an opportunity for China to take all of these innovations on board without having to go through the long journey that is part of the US, European or Australian experience.

"That will free up the government's balance sheet, allowing the government to focus on setting strategic priorities."

Financing has long been a bottleneck for the central government in building sufficient affordable homes and senior housing, giving the authorities a strong incentive to test reits in such areas first before extending them to commercial property. The mainland set a target of building 36 million affordable homes in the five years to the end of next year, of which 14.4 million would be for rent and would cost 1.5 trillion yuan (HK$1.8 trillion) at the most conservative estimate. In the three years since 2011, it has spent 412 billion yuan on such state-backed homes for rent.

Funding shortages have prompted some cities, including Shanghai and Tianjin, to consider financial innovations such as reits.

Apart from affordable homes, the mainland faces an even harder job to support its retired workers. There were more than 200 million mainlanders over the age of 60 last year and the number will grow by 10 million a year over the next two decades.

A rising number of developers and insurers have been building senior living or aged-care centres in recent years, but have yet to find a model offering sustainable profits.