Chinese officials consider Reits strategy
The Asia Pacific Real Estate Association (Aprea) is organising overseas study tours for Chinese government officials and developers to aid their understanding of affordable housing and Reits.
Three tours are already in the pipeline to nations such as Singapore and Australia, confirms Peter Mitchell, chief executive of Aprea, which announced yesterday it had opened a China chapter, its ninth across the region.
Asked about the potential for real estate investment trusts in China, Mitchell explains that technically Reits already exist in China, although in name only as these structures are not really something an institutional investor would recognise.
He notes that official interest in developing a Reits market in China has waned, given tightening measures to rein in inflation and cool a property market widely seen as overheating.
Last month the China Real Estate Index System found average home prices in 100 Chinese cities fell year-on-year for the first time in 10 months, while average home prices sank for the eighth consecutive month.
AsianInvestor reported last year that in the absence of listed Reits in China, two local fund management firms were to use their QDII status to launch retail funds comprised of overseas Reits to provide a new option for domestic investors.
However, Mitchell notes that an exception in terms of official interest is whether Reits might have a value as a structure for public-private sector participation in affordable housing.
“That is still a major consideration,” says Mitchell. “There are various efforts to look at how a Reit structure might assist with private sector funding of affordable housing, which is very much a priority for the government.”
He confirms that continuing speculation about possible Chinese stimulus measures to stir growth is likely to rekindle broader support for the development of a listed Reits market in the country.
But while he concedes such development will likely occur at some point, he says it is impossible to predict when and at what point that might find favour with institutional investors globally.
Countries in Asia to have brought in Reit rules in recent years include Thailand (this month) and the Philippines, while India’s long-awaited framework is still being developed.
Thailand’s Securities and Exchange Commission approved these rules with the aim of offering a new investment alternative, developing a fundraising framework and investment in real estate in line with international practice and facilitating more flexibility for investment in real estate.
However, rather than focus on Reits, Mitchell says Aprea’s intentions for its China chapter are to press for higher levels of industry transparency, a broadening of the skills base via training and for more information to be made available to investors, particularly for commercial real estate.
Above all, Aprea is setting out to improve linkages between Chinese and foreign companies, with the aim of fostering an understanding of best practice and harmonised operating standards.
“We would like to see higher levels of disclosure and more information made available to the market about real estate transactions, to enable investors to be better informed and to feel more confident about investing their capital,” says Mitchell.
Aprea points out that China accounts for $1.9 trillion of institutional grade real estate at present, which equates to 7% of the global pool and trails only the US and Japan.
Moreover, with a projected growth trajectory of 18% a year over the next decade (based on economic growth, urbanisation and growth in disposable income), the market is expected to hit $9.7 trillion by 2021 (20% global market share).
Aprea has some 180 members, including pension funds, sovereign wealth funds, public and private real estate fund managers and financial institutions. Of late it has seen more developers join.