Reit way for China would reduce cost for developers and offer investors more choice

Andrew Kam, 49, was a manager at the Hong Kong Urban Renewal Authority before he joined Savills in 2008.

He was promoted to valuation director in 2011 with his team serving a clutch of corporate clients including China Merchants Bank, Fuchun Group, HSBC, Bank of East Asia and Shanghai Forte Land.

What is the current status quo of the China’s reit market?

Prototype reits or reit-style investment products are popular in China. But they are different from reits in the West. Here, a reit is a fixed-income products and part of the credit system. In China, investors are paid dividends at a fixed rate from rents earned by the underlying properties. In the west, reits are an equity-based investment, sold through public offerings and publicly traded. More importantly, the high yields of reits are a reflection of their highly-skilled asset managers. Managers are supposed to better arrange the properties to enhance rental rates and occupancy ratios to maximise returns for reit buyers.

Is it urgent for China to give reits a full play in the property sector now that the government is focusing on reining in an overheated housing market?

Reits have been developing in China for two years and we have seen their rapid growth during this period. Before discussing the securitisation of the country’s property sector, it is necessary first to take a look at the macroeconomic situation. China’s foreign reserves recently fell to U$$3 trillion, which is widely deemed as a critical level. Shrinking foreign reserves have been weighing on the property market for a while. I assume capital outflows, rather than the yuan’s exchange rate, is a primary concern for regulators. So, it all comes down to the point of whether the onshore market has lucrative investment products to deter yuan assets from flowing abroad.