China changes property law to allow setting up of REITs
China's securities regulator granted approval for the first public sale of units by a real-estate investment trust, broadening financing channels for developers facing a prolonged housing market slump.
The move will make China the latest country to allow the real estate investment trusts. Ireland began allowing REITS two years ago.
The China Securities Regulatory Commission on Monday approved the REIT managed by Penghua Fund Management which will list in Shenzhen following the offering, according to a person at the company who asked not to be identified. The trust will be made up of commercial properties from China Vanke in the southern city of Shenzhen and receive cash flows from rental income, the developer said in an e-mailed statement.
Chinese developers are looking to raise cash as home sales remain weak after a more than yearlong housing market slump. China Resources Land Ltd. and Evergrande Real Estate Group Ltd. are among listed Chinese homebuilders that raised funds in Hong Kong through share sales last month.
Vanke has been exploring different asset management models, including REITs, Vanke President Yu Liang said at a May 14 briefing in Beijing. The builder tapped the bond market in December after regulators allowed more property companies to access the onshore note market.
The approval came after China's housing ministry in January called for active pushing ahead on trial of REITs, amid a housing market slowdown dragging on the economy. In countries including the US and the UK, REITs enable both developers to diversify portfolios and investors to gain exposure to the kinds of real estate that would otherwise be too expensive.
REITs are positive for developers with high investment properties as they can enhance return on equity, Du Jinsong, Hong Kong-based analyst at Credit Suisse Group AG, wrote May 3.
While the Vanke product has a REIT structure, it doesn't offer the tax benefits that similar securities in overseas markets enjoy, eroding its appeal to the market, Du said.
"At least it shows that the direction is the government is becoming more and more open with REITs," Du said by phone.
"But is it a major breakthrough? Maybe not yet," the analyst added. (Bloomberg)