Could China’s rental property Reits provide debt-ridden developers with an alternative funding channel?

Reits have proved to be popular among investors because of high returns during an earlier successful experiment involving infrastructure-backed trusts

Current problematic projects are not mature enough to be securitised into Reits, they are not even generating incomes, analyst says

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A residential building is under construction in China’s Jiangsu province, in this file photo from July 2018. The new launches will add to China’s 13 existing Reits worth 58 billion yuan. Photo: Reuters

Published: 12:30pm, 14 Aug 2022

The first batch of China’s subsidised rental property real estate investment trusts (Reits) will be issued as soon as next week and has sparked hopes that it could come to the rescue of the country’s debt-ridden property developers.

The 1.3 billion yuan (US$193 million) CICC Xiamen Anjufang Reit, with each priced at 2.6 yuan, will be issued on August 16. Hotland Innovations Asset Management’s 1.24 billion yuan Shenzhen Talents Anju Reit will also be launched on the same day, while China Asset Management’s Beijing Rental Property Reit was priced on Friday. Their launch will add to China’s 13 existing Reits worth 58 billion yuan.

Reits are funds that own, operate and finance real estate projects, generating a stable flow of rents, service fees and other income as dividends for investors. Their expansion to rental property projects has been spearheaded by the government, but some people hope that they can also provide a new funding channel for developers.

Chen Hongfei, the president of Shanghai-listed property investment and development company Everbright Jiabao, for example, on Wednesday called for regulators to “push out commercial [property] Reits as soon as possible, which can at the same time provide funds for ensuring the delivery of housing units”, according to a report by financial news provider Hexun on the 2022 Boao Real Estate Forum.

Reits, during an earlier successful experiment involving infrastructure-backed trusts, proved to be popular among investors because of high returns. Beijing was try to diversify funding channels for infrastructure investment to ease local governments’ financial pressure, which has raised hopes the current iteration could help developers, which are currently embroiled in a debt crisis whose impact has spilled over to the financial system through a mortgage boycott by homeowners.

China Asset Management’s Yuexiu Expressway Reit, for instance, had jumped almost 18 per cent to 8.374 yuan as of Friday since its launch in November last year.