OPINION to decarbonize its economy by 2060 .
Efforts to develop a conducive ecosystem for REITs are also being pushed out . Its finance and insurance watchdog , the China Banking and Insurance Regulatory Commission , late last year gave a nod to insurers to add C-REITs to its investment portfolios . Additionally , a C-REIT focused mutual fund has been launched .
These have set the stage for an overwhelming response to its second batch of IPOs , which were reportedly 47-times oversubscribed by institutional investors . So far , two of four slated offerings – China Yuexiu Expressway REIT and CCB Principal Zhongguancun Industrial Zone REIT – have debuted ; both counters have surged 50 % on average . The new REITs also featured more liberal use of leverage , which will be supportive of growth .
The process to liberalize the C-REIT market , with moves to include other sectors , will continue to be guided by strategic necessity . There is still a long runway to securitize its infrastructure sector , about US $ 10 trillion currently by APREA ’ s estimates that will likely double by the end of the decade due to its rapid economic growth . The authorities ’ heavy hand will no doubt be maintained but it is in good hands . Progress has been palpable and there is now more visibility on what lies ahead for the asset class . Like no other government before it , China had leveraged on the structure and elevated REITs into an effective policy tool and a lucrative asset class .
SUSTAINED MOMENTUM
In the aftermath of the listing frenzy , momentum on the policy front continues to be sustained . Earlier this year , tax relief for new C-REITs were announced . Corporate tax related to asset transfers will be exempted before the REITs are set up and can be deferred during the process . The National Development and Reform Commission urged its local bureaus to step up publicity , cut red tape , and improve services , so that more infrastructure projects can be listed .
The set of developments appears promising , and we can expect more C-REIT listings this year . We can also look forward to another measure that could lie on the horizon . As of now , only domestic A-share investors can buy C-REITs , as these are not yet available on Stock Connect , which is typically how international investors access these shares . We believe this to be an eventuality as it is an important step in the development of C-REITs . Aside from allowing Chinese developers to tap global capital in Hong Kong , it will also internationalize the RMB . In the longer term , REITs will revolutionize the real assets market on the mainland , provide new funding sources and boost growth in the financial and asset management sectors .
Amid heightened regulatory scrutiny of property markets in China , C-REITs represent a sustainable avenue to gain exposure to the sector ’ s vast potential . The final push to include conventional commercial real estate and the wave of listings that follow will undoubtedly be a massive investment opportunity . But it will be measured , which will likely occur only when prioritized sectors achieve a critical mass of listings that are deemed to have adequately hit strategic milestones . The launch of rental housing C-REITs will therefore be a critical target .
ABOUT THE AUTHOR
Sigrid is the Chief Executive Officer of Asia Pacific Real Assets Association ( APREA ). Based in Singapore , she is responsible for overseeing the strategic direction , initiatives and operations of the association across Asia Pacific . Under her leadership , APREA repositioned to an industry trade group focusing on real estate and infrastructure .
Sigrid joined APREA ’ s executive team in January 2019 .
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