Chinese Leased Housing REITs Expected in 2H 2018

Reuters: Chinese rental apartment firms issue REITs, but some may struggle to make payouts
Chinese real estate companies have found a new tool to raise money - selling units in real estate investment trusts (REITs) backed by rental apartments. There is just one problem - in some cases the rental income may not be enough for the returns that REITs issuers indicated they will pay investors.

...But the rental apartment REITs market, and the home rental market itself, have not developed fully - and there is a mismatch between the cost of developments and what renters are willing to pay.

George Yang, a veteran investor in the U.S. apartments market, said he is concerned that rental income would fail to satisfy investors, given China’s frothy property prices.

“Whether in the U.S. or Singapore, a net rental yield of 7 percent is the make-or-break threshold for REITs,” said Yang, managing director of JIC Capital Management Ltd.

But in China, average rental yields - the rate of income return over the cost of investment - are merely 2-3 percent, lower than the financing cost of 5-6 percent. In some cases, they are lower, or even negative.
SCMP: China to pilot real estate investment trusts, moves a step closer to US$1.8 trillion market
China moved a step closer to standard real estate investment trusts (Reits) on Wednesday, after the government said it would pilot a product to support the residential leasing market, kick starting a market that could potentially be worth US$1.8 trillion.
iFeng: 中国版公募REITs框架浮现,最快下半年试点推出
The securitization of China's leased housing assets is accelerating. An interview with a reporter from the China Securities Journal has revealed that various real estate companies and asset management agencies are currently researching stockpiling and launching related projects. The gradual maturity of the domestic asset securitization (ABS) market and the gradual improvement of the basic system have also made the launch of China's public equity real estate investment trusts (REITs) closer and closer. Insiders pointed out that from a time point of view, it is expected that the first half of this year or next year in the long-term rental apartments and infrastructure pilot launch, the basic framework is likely to be real estate securities investment funds plus ABS model. The types of real estate public funds in the future may refer to Penghua Qianhai Vanke REITs Fund, which is a large-scale closed-end hybrid securities investment fund.

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