China keen to taste big property in bite-sized chunks April 19, 2008

China keen to taste big property in bite-sized chunks

April 19, 2008

REAL ESTATE investment trusts (REITs) may make their debut in China within one or two years if efforts by the Chinese Government and industry players to promote a new form of investment instrument bear fruit.

As the fastest growing real estate market, with substantial commercial property assets that are of investment grade, China has the potential to be an REITs phenomenon if the legislation for such a market is put in place.

REITs is already the latest investment fad to catch on in a big way, with countries around the world rushing to establish such markets.

One fund manager called it "the hottest new asset class in Asia, after having proven its worth in other parts of the world, especially in the US, Australia and Singapore. It augurs well for industry players as it will add depth and promote greater professionalism and growth of the real estate industry."

REITs offered property owners a means to realise their capital investment and to hold their investments in a more liquid form.

"Real estate is an illiquid asset. By dividing the ownership of the asset into smaller units, they are turned into liquid assets and the owners can unlock their investment to venture into other business opportunities, including building more good investment-grade properties," the fund manager said.

CapitaLand, with extensive exposure to China's real estate, is an industry player eager to see a China REIT market taking off.

The deputy chief executive officer of CapitaLand (China) Investment Co Ltd, Jason Leow, said there had been much discussion on the subject. Chinese authorities have shown great interest and gone on study trips in successful REIT markets, including Singapore.

"REITs will provide an excellent alternative investment product for the Chinese public, who have until now been limited to just real estate and equity," he said.

The public was familiar with the residential sector, but "there is an increasing demand for retail and commercial spaces. REITs allow the general public to enjoy the growth in the various property sectors without having to physically own and manage these assets."

CapitaLand's rapid expansion in China led to the listing of CapitaRetail China Trust on the Singapore Exchange Securities Trading Ltd in December 2006. The first pure-play China retail REIT in Singapore has seven malls in five cities across China that are anchored by Wal-Mart, Carrefour and Beijing Hualian Group.

At February 29 CapitaRetail China Trust's market capitalisation was about $S1.01 billion ($742.05 million), with total assets of $S1.1 billion.