China likely to see first real Reit this year: DBS Vickers

Hong Kong

INVESTMENT bank DBS Vickers said on Tuesday that China is likely to launch the first authentic real estate investment trust (Reit) this year, as regulators seek to provide retail investors an additional investment platform and companies a fresh fund raising channel.

Obstacles such as high transaction taxes and regulations that restrict mutual funds from investing in commercial properties have delayed the Reit market in China from taking off for years.

Instead, over the past few years the market has seen many "quasi-Reits", which are held by private equity funds and not open to public investment.

DBS Vickers head of research Carol Wu expects the first batch of C-Reits would be open to the public via investments in mutual funds, with a single mutual fund able to invest in multiple pre-Reits.

"The latest revised draft of the Reits code shows it is ready to start legislation," said Ms Wu at a press conference, adding that DBS has interviewed officials from banking and securities watchdogs, as well as the stock exchange.

Over the next three to five years, DBS expects the launch of real Reits would trigger a re-rating of the property developers which hold a high portion of commercial properties given they are now much under-valued.

Ms Wu said city-level state-owned firms are likely to be the first batch of issuers, which may include only one or two commercial assets in the first-tier cities in the securities, as city governments are ready to waive local land appreciation tax, or most of the taxes.

The second batch is likely on rental housing, a segment that is currently supported by favourable land price and lending rate policies. The yield rate of the first Reit would be probably between 5.5 per cent and 6 per cent, Ms Wu said. REUTERS