The ViewReits with Chinese characteristics: what do they mean for Asia and investors?
- The overarching rationale behind China’s cautious approval of listed Reits is to control leverage in the infrastructure sector
- However, real estate investment trusts backed by logistics and other assets in the world’s second-largest economy could still be a big draw
When Chinese regulators began discussing the possibility of launching real estate investment trusts (Reits) in 2005, 17 Reits had already been listed on the Tokyo Stock Exchange, while five had gone public in Singapore.
Fast-forward 16 years and mainland China is still conspicuously absent from the league table of listed Reits in the Asia-Pacific region. In the MSCI AC Asia-Pacific REITs Index, a gauge of Reits in Asia’s developed and emerging markets, Australia, Japan, Singapore and Hong Kong, have a combined weight of 100 per cent. (Other countries’ listed Reit markets are still not sufficiently liquid to be assigned a meaningful weighting in the index.)
While China has the second-largest weighting in Asia’s main equity index, it has made scant progress in establishing a public market for Reits. Although real estate securitisation has grown rapidly in recent years, with a surge in the issuance of quasi-Reits and commercial mortgage-backed securities, India has made more headway with Reit listings, even in the face of the Covid-19 pandemic.
However, since the beginning of last year, plans to launch publicly traded Reits in China have been given new impetus. In April 2020, Beijing announced a pilot programme for the creation of listed Reits focused on the infrastructure sector.
While the underlying assets range from toll roads to waste water treatment plants, they also include industrial and logistics properties, the commercial real estate segment that has benefited most from the pandemic-induced acceleration in digital transformation.