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Pudong to spearhead launch of REITs

SHANGHAI is set to launch real estate investment trusts this year to help developers expand channels of funding although a senior government official yesterday said the timing of the launch may be a bit late due to the sluggish real estate market.

The Pudong New Area government will spearhead the introduction of the REIT, said Fang Xinghai, director of the Shanghai Financial Services Office.

For real estate developers, a REIT provides a more effective access to capital markets while allowing investors to actively participate in the real estate market as they can opt out or rotate portfolios within the REIT.

However, Fang said he didn't have high expectations for a warm market response to REITs as the best time to launch them may have been two or three years ago when the domestic real estate market was in a better shape.

However, "innovation is more needed in a tough market," Fang said, trying to explain why REITs will be launched this year. He declined to give more details of the launch this year.

The central bank earlier this month said it has completed major preparations for trial operations of REITs to begin. "A proposal for REIT will be submitted to the State Council for approval," Huo Liyin, deputy director for financial markets at the People's Bank of China, said on January 5. "Trial operations will be conducted after approval is granted."

China's real estate developers, most of which rely on commercial banks as their primary source of funds, have long faced capital shortages due to a tightened credit policy implemented by the central bank.

The introduction of REITs is one of the initiatives the central government may likely tap this year to help boost the domestic real estate market, Albert Lau, managing director of Savills Property Services (Shanghai) Co, said earlier.


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