Zhang Zhaoxing, one of deputies to the NPC (the National People’s Congress) and president of Yuexiu Group, received an exclusive interview with Xinhua Net on March 8.
News of Xinhua Net in Beijing on March 15 (reporter: Wang Wenpin) At the end of this February, the appeal made by Hong Lei, the party committee secretary and chairman of Asset Management Association of China for development of public offering REITs has attracted market attention to the investment goods of REITs and stirred a heated debate among the industrial delegates. For this, Zhang Zhaoxing, a deputy to the NPC and president of Yuexiu Group, suggested piloting public offering REITs in China as soon as possible. He analyzed that at present the conditions such as legal framework, regulatory environment and market preparations have been basically mature enough for piloting REITs public offering in China and suggested that China Securities Regulatory Commission to carry out pilot work in quality and mature basic assets and publishers(managers) with rich operating and management experience in REITs and real estate and facilitate the settlement of piloting public offering REITs in China.
REITs, the abbreviation of Real Estate Investment Trusts, was initiated by the US as early as 1960, which raises funds by issuing shares of trusts (funds) to the investors and is invested by a specialized institution in real estate projects. Investors will gain benefits generated in the real estate projects proportionally. By buying shares of REITs, it can lower the threshold for common investors to participate in the investment of real estate assets and share the benefits. As a "popular" category in the overseas mature markets, it is considered as the fourth type of assets beyond stock, security and cash.
In overseas markets, REITs has already been very mature, which has been rolled out in succession in the last century and earlier this century in around twenty countries and regions such as the US, Australia, Canada, Singapore, Japan, Korea and Hong Kong. As estimated, the scale of REITs in the aforesaid countries and regions has exceeded a trillion US dollars. After decades of practice, As a high-quality and mature financial product, public offering REITs not only can provide stable investment returns, but also can play a role of stabilizer when there are fluctuations in the financial market and boasts a wonderful function of hedging and avoiding risks after decades of running.
Zhang Zhaoxing reckoned that the piloting of public offering REITs can help further promote the supply side structural reform of China's financial market and real estate providing high-quality and mature financial products.
The government work report of 2017 pointed out that financial institutions should be facilitated to strengthen their capability to serve the real economy. In recent years, the de-stocking pressure has still been accumulating in the real estate sector of China, especially in commercial real estate. Zhang Zhaoxing told the reporter that public offering REITs can meet the requirement of macro policy to "de-stock and de-leverage", promote the healthy and stable development of real estate sector and help prevent systematic financial risks. By converting real estate assets with a relatively poor liquidity into shares of publicly offered funds with a strong liquidity, also by relying on primary and secondary markets, the public offering REITs can achieve orderly and efficient flow and transfer. Through the reasonable release of asset values and return of equity share, it will effectively relieve the liability pressure.
He expressed that public offering REITs can also help relieve the investment pressure of PPP projects (Public—Private—Partnership) and infrastructure and guide social capital to support the real economy. In recent two years, the PPP projects are rising in the field of public infrastructure construction. Government at each level shouldered a heavy pressure in the investment in PPP projects and infrastructure. At present, the construction of public infrastructure including PPP projects are beset by problems such as a large investment scale, singular exit channel and a long payoff period (usually more than 10 years), as a result of which it is not actively participated by social capital. Through REITs, it can convert real estate with a steady cash flow into tradable assets with a small amount and a strong liquidity, so that PPP projects or real estate projects can exit quickly after they are mature.Forming new capital that is generated for people’s livelihood.
Besides,it can effectively lower the leverage ratio of real economy, particularly the liability ratio of local governments and enhance the sustainable investment capacity of local finance (or enterprises).
In fact, at present the raised REITs in domestic exchanges has laid down a good foundation for the introduction of public offering REITs. Since 2014, with "assets backed security (ABS)" as the carrier, with mature real estate as underlying assets, the "raised REITs" products issued and listed in exchange markets have achieved a long-term development. Zhang Zhaoxing pointed out, after the practice and preparation in recent years, at present conditions such as legal framework, policy environment and market preparation have been mature for the introduction of public offering REITs into the domestic market. So the China Securities Regulatory Commission should work with other related departments to jointly establish a complete supporting and regulatory system helpful for the establishment, issuing and operation of public offering REITs so that facilitate the piloting of public offering REITs as soon as possible.
Data indicates that Yuexiu Group, the largest state-owned enterprise in Guangzhou, has taken the lead in the field of REITs. Yuexiu REIT Asset Management Limited under Yuexiu Real Estate owns the globally first REITs invested in property of Chinese mainland. Yuexiu Real Estate has also become the only company with double platforms of "real estate + REITs" in China.