China to Launch $4.9 Billion of REIT Products in Pilot

China has approved the country’s first batch of public real estate investment trusts, giving local governments another tool to finance infrastructure projects.

The nine projects, involved in sectors ranging from toll roads to wastewater treatment, were approved by the China Securities Regulatory Commission on Monday, raising an estimated 31.2 billion yuan ($4.9 billion) in total, according to calculations by Bloomberg.

The move is set to expand fundraising channels for debt-laden local governments, and allow retail investors to tap into what Goldman Sachs Group Inc. has estimated may become a $3 trillion market should the trial be expanded to include traditional real estate.

Unlike other countries, China is introducing a framework that allows individuals to buy shares in a mutual fund, which then invests in asset-backed securities that indirectly hold the infrastructure assets.

Bloomberg earlier reported regulators’ plans to authorize the first REIT products, including a waste-to-energy electricity generator by Shougang Group and other public transportation projects.

The trial has so far focused on infrastructure initiatives like highways and utilities. Mostly traditional real estate, such as malls and office buildings, are excluded from first batch. Policy makers may have done so to maintain home-market stability and reduce financial risks, market watchers have said.

Talks about starting a REIT market in China had been ongoing since 2008 but didn’t came to fruition on concerns they may further fuel home prices, which have risen exponentially over the past 20 years.

©2021 Bloomberg L.P.

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