China has approved its first onshore real estate investment trusts, in an attempt to channel fresh capital into infrastructure projects and give its ailing economy a much-needed boost.
A pilot scheme will be rolled out in the second half of 2020, after final guidelines are published at the end of June by the National Development and Reform Commission (NDRC), the state asset regulator. It will focus on infrastructure projects in five parts of the country: the industrial belts around Shanghai, Hong Kong and Beijing, the southern island of Hainan, and the new Xiong’an economic zone south of the capital.
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Eng-Kwok Seat Moey, DBS |
The scheme will be limited in scale at first. Only mutual funds will be allowed to sell Reits on the Shanghai and Shenzhen exchanges. Issuers will be permitted to include infrastructure assets with long payback periods – industrial parks, data centres, toll roads – but must preclude traditional real estate like malls, offices and hotels.
Even so, it marks a step-change for China’s capital markets. It lets onshore investors engage in an asset class that tends to generate steady income streams in good times and bad, and it offers authorities a chance to release air from an overinflated property sector.
