The future development of REITs in China

• Main Author: SUN, Jia
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2019
• Subjects: China; Development; Comparative Studies; Asian Studies; Growth and Development; International Economics
• Online Access: https://ink.library.smu.edu.sg/etd_coll/270; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1270&context=etd_coll
• Institution: Singapore Management University

Real Estate Investment Trust (REIT) is a type of trust fund or corporation that pools the funds of a large number of investors by issuing a certificate of income and invest the raised funds in real estate projects that are managed by a specialized investment institution. The real estate investment risk is moderate, and the rent is stable, but the capital threshold is high, and it is difficult for small and medium investors to enter the market. The invention of REITs aims to solve this problem, through the collection of funds, so that small and medium investors can enter the field of real estate investment. Specialized managers use the raised funds to build up real estate investment portfolios to diversify investment risks. The shares or units of REITs held by investors can be transferred in the open market with good liquidity. As of 2018, there are about 39 countries around the world that have established REITs market. The total market value of global REITs is around $2 trillion. Most of these countries choose to launch REITs when their economic growth slows down, and the real estate market is sluggish. From a macro perspective, China's economy is facing downward pressure, and domestic housing prices are also strictly regulated by the government, showing a slowdown in growth. In general, the domestic macroeconomic conditions and the real estate industry environment provide favorable conditions for the launch of REITs in China. In recent years, Chinese investors have become increasingly demanding for investment and wealth management services. Based on the total size of investable assets, China has now become the world's second-largest investment market after the United States. However, domestic investors lack medium-risk, medium-income investment options, and there is an urgent need to fill this gap. The primary real estate holders in the country are also looking forward to the launch of REITs. Through launching REITs, developers expect to revitalize their real estate assets and accelerate their business transformation. The Chinese government hopes to dispose of some infrastructure assets by launching REITs, recover funds and reduce debt level of itself. From the perspective of supply and demand, the market conditions for the launch of REITs have gradually matured. Although there are many favorable conditions, China has not launched public REITs yet. But, why? What obstacles does China face on the road to launching REITs? To launch REITs, what strategy should China adopt? How can the REITs market in China take off? To find the answers to these significant questions, I conduct a comparative study on the significant international REITs markets. Considering the current domestic policies and economic environment, I attempt to propose a practical and feasible strategy for China to launch and develop the REITs market.