China set to launch Reits in H2

China is expected to launch its version of real estate investment trusts in the second half of this year, giving Chinese developers more access to capital and offering investors another way to put their money in property.

Shanghai could be the first to roll out an unlisted Reit of state-backed government groups such as Waigaoqiao, Lujiazui, Jinqiao and Zhangjiang, which own office buildings and warehouses in free trade zones.

Other cities preparing for a launch of unlisted Reits later this year include Beijing and Tianjin, which will pave the way for China to roll out listed Reits, valued at over US$100 billion in Asia-Pacific.

The first China Reits will be traded among domestic institutional investors in the interbank market, unlike typical listed Reits in Australia and Singapore, such as Westfield Group and Mapletree Logistics, that are open to retail and foreign investors.

‘I expect regulations to be announced at the end of the second quarter and once there is good response for the pilot Reits, more will come,’ said Chiu Kam-kuen, North Asia managing director at property services firm DTZ, which is involved in the valuation of Chinese Reits.

A real estate investment trust is a fund that invests in mainly commercial property. The collected rent from the properties goes to shareholders in the form of dividends. Thanks to this structure, Reit investment returns in Asia are usually in the 5-10 per cent range, much higher than yields of government bonds.

Source : Business Times – 22 Apr 2010
Property