China studying REITs to support affordable housing construction
January 13 - China may turn to REITs (real estate investment trusts) to help fund an RMB 1.4 trillion investment in 10 million public rental housing units in 2011.At the request of Ministry of Housing and Urban-Rural Development, Renmin University of China has started research into ownership registration for REITs, which will play an important role in determining which products can be traded on China’s stock exchanges, a researcher from the university said.
Wu Chunqi, a postdoctoral student at Renmin University, said a draft plan for interbank traded REITs has been finished, but plans for securitized and market-traded REITs are not ready.
Wu said China’s existing securities law could pose an obstacle to REITs, including restrictions on types of securities and methods of issuance.
Guo Jun, president of property management company China Hiamc Ltd., said an imperfect tax system and the absence of trust registration were also problems for REITs.
China’s State Council, the cabinet, has already given permission to Tianjin and Shanghai to use REITs to pay for economically affordable housing.
Tianjin, a major city in the north of the country, has submitted a plan to raise up to RMB 3.8 billion from REITs for social housing.
China’s local governments are eager to use REITs because they may be unable to continue relying on income from land transfer fees to support the construction of affordable housing units this year.
Chen Baocun, general secretary at the National Real Estate Manager Alliance, said China’s land transfer fees reached RMB 2.7 trillion in 2010, adding that government departments including the Ministry of Land and Resources have started implementing controls on the growth of such fees.
Therefore, land transfer fees are not a long-term solution to funding affordable housing projects, Chen added.
The official People’s Daily reported at the end of December that land transfer fees have become the major source of local governments' fiscal revenue
In addition to Tianjin and Shanghai, the city of Suzhou and Hainan province also plan to launch REITs to pay for affordable housing projects.
Faced with financing pressures for affordable housing construction, REITs, which used to be seen as channels for hot money inflows, could be open in a limited way, while solving registration issues will open the way for the complete marketzation for REITs in China, said Guo.
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