Developers Get New Funding Source as China Announces First REIT

A new channel for fundraising may be on the way for China’s real estate developers, as the government recently approved the country’s first real estate investment trust (REIT).

According to a report today in the South China Morning Post, Citic Securities has been given approval to launch a prototype REIT, which will be listed on the Shenzhen Stock Exchange and pay dividends to investors based on rental income from two office buildings owned by Citic.

The state-owned brokerage house said that the China Securities Regulatory Commission (CSRC) had approved the REIT in January of this year.

China has been discussing the potential for REITs for nearly ten years, with the goal of giving individual investors the ability to buy into the country’s real estate market without having to purchase an apartment or other property directly.

New Funding for Starved Developers

The establishment of REITs would also provide a new funding source for the country’s real estate developers, many of whom are currently caught in a credit crunch caused by restricted bank lending, rising land prices and slowing demand for new properties.

REITs had previously been put off by the government, with many observers believing that the authorities were reluctant to allow more funds to flow into the country’s overheated housing market.

Last month the government allowed state-run Greenland Group to list on a mainland exchange, and two more developers received regulatory approval for new stock sales. All three moves were seen as signs that the government was shifting its focus away from reducing housing price inflation, to propping up the market by making additional funding available.

Now with developers needing to discount properties in many third and fourth tier cities across the country, and a Ningbo real estate company defaulting on RMB 3.5 billion in debts last month, the government may see a need for opening up REITs as a new funding channel for the industry.