China sells fund linked to property rental income

Closed-end fund to raise 3 billon yuan with half to be invested in an office project

PUBLISHED : Friday, 26 June, 2015, 2:57pm
UPDATED : Saturday, 27 June, 2015, 12:09am

China on Friday started selling its first public fund linked to property rental income in a step towards the long-awaited launch of real estate investment trusts.

The 10-year closed-end fund aims to raise  up to 3 billion yuan and will invest half  in an office project built by China Vanke, the country’s top homebuilder. It will reap full rental income from the project from the start of the year to July 2023.

The rest of the funds will be invested in stocks, bonds and money market products.

After 10 years, it will become a listed open-ended fund.

“This marks China’s efforts to gradually push ahead with the public trading of real estate investment trusts,” said Fred Wang, the secretary-general of China Reits Alliance.  

Penghua Fund Management will manage the fund, which will start trading on the Shenzhen Stock Exchange next month.

China has been discussing the launch of reits for more than a decade. Reits are listed entities investing in income-producing real estate assets, the earnings of which are mostly distributed to shareholders. They first started more than 50 years ago in the United States and have gained popularity in Asia, Australia and Europe in recent years.

Wang said the China Securities Regulatory Commission had been drafting rules on  the listing  of reits  but a final law would need cooperation from other government departments including the tax and finance ministries.

Lin Fan, a deputy head of the Shenzhen exchange, said the Penghua-Vanke reit was a milestone in China’s capital market development and was part of the  financial market reform in the Qianhai special economic zone.

The Shenzhen exchange has been researching reits since 2003 and has launched two private reits – one last year and the other in February.  

The breakthrough with the latest reit is that it can be traded in the secondary market with a much lower threshold –  10,000 yuan – to increase liquidity and allow  wider participation from institutional and retail investors.