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REIT plan gets set for finishing touches

By Hu Yuanyuan (China Daily)
Updated: 2009-01-07 11:54

China's central bank is drafting proposals to set up real estate investment trusts (REITs), as part of the government's efforts to ease the cash constraints of property developers, officials said yesterday.

"We are formulating a plan on REITs and inviting views from other arms of the administration," Huo Yingli, deputy director in the financial market department of the People's Bank of China, told a news conference by the State Council Information Office yesterday in Beijing.

Chinese developers now tend to rely on commercial banks as the primary source of funds.

"In light of the lessons of the US sub-prime crisis, we would try to keep China's REITs as simple and as transparent as possible, with an emphasis on risk control," Huo said.

Special Coverage: Housing in China Related readings:  Pilot units to test REIT waters  REITs may bloom after removing taxation thorns  Link REIT sets malls timetable  Shanghai REIT exchange faces hurdles

However, as the designing of REITs involves a number of departments and intermediaries, it will take some time for the central bank to submit the proposal to the State Council for approval, she added.

According to Qin Xiaomei, research chief at CB Richard Ellis' Beijing branch, China's REITs may debut later this year when investor confidence returns, the stock market stabilizes and the economy recovers.

"Developers with a stable rent revenue are likely to benefit from the new policy, but in the short term, it is better to consider cutting prices to boost home sales so as to raise money," said Qin, adding this round of price adjustment may last two quarters at least.

"But the price can't be adjusted as low as it was in the beginning of 2007," Qin said.

The non-performing ratio of Chinese banks' property loans remains low, especially for residential mortgages, said Huo.

Commercial banks had extended 2.95 trillion yuan in home loans at the end of November, up 10.6 percent from a year earlier and accounting for about 10 percent of their local currency lending.

"In spite of a correction in the property market last year, the quality of property loans, especially home loans, is still good, with the non-performing loan ratio far below that of other types of loans," Huo said.