REITs may debut in China in one to two years

[photopress:property_CapitalLands.jpg,full,alignright]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. (Strangely, the writer thought this had already happened but these must have been modified or experimental REITs.)

There could be a huge REIT boom if the legislation for a REIT market is put in place.

Without wishing to second guess the government of China it would seem pretty daft to be introducing all sorts of measures to cool down the real estate market while approving REITs which have become the latest investment fad to catch on in a big way in the global real estate arena.

A foreign fund manager said, ‘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.’

Any sane investor reading those words especially ‘augurs well for industry players’ — what about the mug punters putting up the money? — would run screaming in the opposite direction.

The foreign fund manager said REITs offered property owners a means to realize their capital investment and to hold their investments in a more liquid form.

He said, ‘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.’

Meanwhile, he went on, 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.

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 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.

He said, ‘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.’ Yeah, right.

The illustration is of CapitaLand’s Summit Residences in Ningbo.
Source: The Star Online