Residential real estate investment trusts are expected to soon make their debut on the Chinese market following reports that the China Securities Regulatory Commission is drafting new policies and regulations in preparation for their launch.
Xinhua’s Economic Information Daily reports that China’s securities regulator is currently in the process of researching and drafting laws and regulations in relation to residential REIT, as the central government seeks to expedite the growth of the rental market to deal with constrained housing supply and overheating urban property markets.
REIT’s that focus on rental operations, apartment complexes as well as public rental housing are expected to be the initial focus for regulators and policymakers.
Meng Xiaosu, director of the China National Real Estate Development Group, had previously revealed that CSRC had teamed up with the Asset Management Association of China to form a specialist commission for driving real estate securitisation, while long-term apartment leasing companies are also actively working with the securities regulator.
Several local governments, including Shenzhen and Hangzhou, have also recently unveiled new policies to shore up financial support for the residential leasing market.
The development of the residential leasing market has become a key focal point for Chinese real estate policy this year, as the central government endeavours to expand housing supply to cater to a rapidly urbanising population cool down overheating urban property markets.
The State Council issued its “Several Opinions on Accelerating the Cultivation and Development of the Residential Leasing Market” ( 关于加快培育和发展住房租赁市场的若干意见) last year, signalling a major shift in the focus of central government housing and real estate policies.
In July of this year nine central government departments, including the Ministry of Housing and Urban-Rural Development, the Ministry of Finance and the National Development and Reform Commission, jointly issued the “Notification on Accelerating the Development of Residential Home Leasing Markets in Large and Medium-sized Cities with Net Population Inflows” (关于在人口净流入的大中城市加快发展住房租赁市场的通知), which encourages the expansion of rental home supply, as well as designates 12 cities for residential home leasing trials.
As a consequence industry analysts anticipate huge growth in the residential leasing market, with some forecasts expecting it to reach 1.6 trillion yuan by the end of the decade and 4 trillion yuan by 2030.
First-tier cities with strong net population growth such as Beijing, Shanghai and Shenzhen are on track to see their home leasing markets expand by 15% per annum.
Lack of financing channels continues to remain a key impediment to efforts to develop the residential rental market in major urban centres, however.
“With the exception of large traditional real-estate developers that possess ample financing channels, other apartment operators are mainly dependent upon three forms of financing,” said Guo Yonggan, head of the structural finance department of credit ratings agency Golden Credit Rating International, to Economic Information Daily.
“[These] are bank loans or off-balance sheet financing, the issuance of wealth management products via online platforms, and equity financing, shareholder loans or private placement.
“These financing channels generally suffer from the problems of restricted scale and high costs.”
Members of industry within China have long pushed for the introduction of REIT’s as well as asset-backed securities to the domestic real estate sector, on the grounds that they have the potential to become a highly effective source of funds for residential leasing concern.
Earlier this year in January long-term rental apartment operator Mofang issued China’s first asset-backed security for the apartment sector, which was followed by an issuance by real estate developer Lianjia in August.
According to the China Real Estate Association REIT’s will enable China’s small and medium-sized investors to enjoy returns from property that are derived from rental income and asset appreciation, which is little affected by the stock or bond markets and promise comparatively high earnings over the long-term.