Successful start for first batch of REITs

Huang Yixuan
Real estate investment trusts provide an investment opportunity, like a mutual fund, that makes it possible for everyday investors to benefit from valuable real estate.
Huang Yixuan

China's first batch of nine publicly traded real estate investment trusts, all focusing on infrastructure, debuted on Monday, bringing a new investment channel for this industry with high potential.

Five of the funds started trading on the stock market in Shanghai, the other four in Shenzhen.

Real estate investment trusts, or REITs, are companies that own, and in most cases operate, income-producing real estate, which provide an investment opportunity, like a mutual fund, that makes it possible for everyday investors to benefit from valuable real estate, present an opportunity to access dividend-based income and total returns, and help communities grow, thrive, and revitalize.

At the closing bell, all the nine REITs posted gains, among which the fund issued by Bosera Asset Management soared the most by 14.72 percent, with CMSK Industrial Park in Shenzhen as the underlying asset.

The Shougang Biomass fund issued by AVIC Fund Management Co surged over 20 percent to hit an intraday high, and closed with a 9.96 percent rise for the day.

According to the previous announcement in May, the first batch of public REITs drew wide attention and attracted nearly 1.5 million accounts to conduct effective public subscription, with the net amount of funds raised exceeding 31.3 billion yuan (US$4.84 billion). 

The launch of publicly traded REITs can help correct the structural contradictions in the credit markets and perfect the risk pricing mechanism of the capital market, according to the top securities regulator.

It can be an important way to optimize asset allocation as it is conducive to the diversification and decentralization of asset allocation, while also provide a convenient channel for all types of investors to participate in infrastructure investment.

Chen Fei, director of the corporate bond supervision department of the China Securities Regulatory Commission, said the commission will adhere to strict regulation, draw on the experience of the pilot program and optimize the key mechanism to bolster healthy development of the market.

Previously, he said that the pilot project of publicly traded REITs highly met the needs of China's financial industry development, as REITs have the attributes of both stocks and bonds.

With proper arrangement such as building a price anchoring mechanism and an optimized information disclosure mechanism, it will further enhance the efficiency and operational potential of China's financial market, Chen said.

With development of the domestic REITs market, experts estimated, based on the country's real estate assets and overseas REITs market development experience, that the scale of China's publicly traded REITs market can reach 5 trillion yuan to 14 trillion yuan.

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