The Chinese central government hopes to use real estate investment trusts (REIT’s) to foster the growth of the home rental market, as part of efforts to alleviate housing pressure and burgeoning real estate prices in the nation’s key urban centres.
The expansion of the home rental market is one of the primary planks of Beijing’s effort to improve China’s housing situation, alongside various market control policies and trials of joint property rights.
The Chinese government is now pushing for the increased use of REIT’s to spur the growth of the home rental market, having just approved China’s first long-term rental apartment REIT in the form of the “Xinpai Apartment Rights Model Housing Entrusted Asset Special Support Plan” (新派公寓权益型房托资产支持专项计划) as well as the first central state-owned enterprise home leasing REIT in the form of the “Zhonglian Qianhai Kaiyuan Poly Real Estate Rental Home No. 1 Asset Special Support Plan” (中联前海开源-保利地产租赁住房一号资产支持专项计划”).
The approval of these two REIT’s is expected to make a key contribution to efforts to standardise publicly offered REIT’s in China, as well as drive long-term growth the home rental sector.
Economic Information Daily now reports that a number of other home leasing companies are planning to launch REIT’s of their own, and anticipate garnering approval in the near-term.
Zhou Yisheng (周以升), specialist consultant to the Asset Management Association of China, said to Economic Information Daily that the rental apartment market has the potential to reach several trillion yuan in scope, and that asset securitisation in the form of REIT’s could serve as a key means for expanding financing channels for the sector as well as cutting down on capital costs.
According to Zhou the use of REIT’s could enable home leasing companies to invigorate their asset stock, reduce debt ratios and optimise balance sheets, as well as greatly raise the active participation of private enterprise in the rental market, and abet the implementation of Beijing’s mandate that “homes are for occupation not speculation.”
China’s policymakers believe that the success of REIT’s in developed economies such as the US, where they account for 33% of all commercial property financing, bodes well for their deployment domestically.
Beijing first launched research into REIT’s over a decade in 2006, culminating in the launch of several privately offered REIT’s and REIT-type products over the past several years.
China has yet to form its own mature REIT system, however, or engage in true standardisation of publicly offered REIT products. The commercial property sector, as with much of the Chinese economy, remains almost wholly dependent upon bank loans for financing.
Since the start of the year, however, real estate developers have made increasing use of asset securitisation to obtain financing.
Data from the China Asset Back Securities website (中国资产证券化分析网) indicates that a total of 12 REIT’s were launched during the first ten months of 2017.
Industry observers nonetheless point out that there remain certain impediments to the growth of rental home REIT’s in China, chief amongst them low rates of return on the home rental market, which tarnishes their appeal in comparison to other financial products.