REITs may debut in China in one to two years

Real estate investment trusts (REITs) may make its debut in China in the next one to two years if efforts by the Chinese government and industry players to promote the new investment instrument bear fruit.

Being the world's fastest growing real estate market with substantial commercial property assets that are of investment grade, China has the potential to be a huge “REIT phenomenon” if the legislation for a REIT market is put in place.

In fact, REIT has become the latest investment fad to catch on in a big way in the global real estate arena with countries around the world rushing to establish REIT markets.

“REIT is now the hottest new asset class in Asia after having proven its worth in other parts of the world, especially in the US, Australia and Singapore. It augurs well for industry players as it will add depth and promote greater professionalism and growth of the real estate industry,” a foreign fund manager said.

He said REITs offered property owners a means to realise their capital investment and to hold their investments in a more liquid form.

“Real estate is an illiquid asset. By dividing the ownership of the asset into smaller units, they are turned into liquid assets and the owners can unlock their investment to venture into other business opportunities, including building more good investment-grade properties,” the fund manager added.

Meanwhile, unit holders get a chance to invest in a professionally managed portfolio of investment-grade real estate properties and receive stable annual yields in the form of dividends.

For a REIT investment to be viable, investors will be looking at net yields of at least 6% to 8% per annum.

CapitaLand, which has an extensive exposure in China's real estate market, is one of the industry players eager to see a China REITs market taking off.

According to CapitaLand (China) Investment Co Ltd deputy chief executive officer Jason Leow, there has been a lot of discussion on the subject and the Chinese authorities have shown great interest and gone on study trips in successful REIT markets, including Singapore.

“REITs will provide an excellent alternative investment product for the Chinese public, who have until now been limited to just real estate and equity.

“The general public are familiar with the residential sector but as China grows, there is an increasing demand for retail and commercial spaces. REITs allow the general public to enjoy the growth in the various property sectors without having to physically own and manage these assets,” Leow said.

CapitaLand's rapid expansion in China has led to the listing of CapitaRetail China Trust (CRCT) on the Singapore Exchange Securities Trading Ltd in December 2006.

The first pure-play China retail REIT in Singapore has seven malls in five cities across China that are anchored by Wal-Mart, Carrefour and Beijing Hualian Group.

As at Feb 29, CRCT's market capitalisation was about S$1.01bil, with a total asset size of S$1.1bil.

Since its initial public offering, CRCT's unit price has risen 90.3%.

Besides the REIT, CapitaLand has also set up private real estate funds for its expanding operations in China.

It now has six private equity funds worth US$2.4bil in China: CapitaLand China Residential Fund, CapitaLand China Development Fund, CapitaRetail China Development Fund, CapitaRetail China Incubator Fund, CapitaRetail China Development Fund II and Ascott Serviced Residence (China) Fund.

By The Star