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China mulls introducing real estate investment trusts

(Xinhua)
Updated: 2009-01-06 17:59

China is considering introducing real estate investment trusts (REITs) to help increase financing channels for real estate developers, Qi Ji, vice-minister of the housing and urban-rural development, told a press conference Tuesday.

The move would help the country's real estate developers raise money by means other than commercial bank loans, which are now the primary source of funds, Qi said.

According to Qi, the People's Bank of China (PBOC), the central bank, is working on the scheme.

"The central bank has formulated a pilot scheme, which will be submitted for approval to the State Council after consulting relevant ministries," Huo Yingli, deputy director of PBOC's financial markets bureau, said at the same conference.

Risk resistance and simple management are PBOC's major considerations when working on the proposal, she said.

The REITs, originated in the US in 1960, has been introduced to many countries and regions, including Australia, Germany, Singapore and Hong Kong. It securitizes property projects into traded units sold to investors.

According to Qi, falling demand is pounding China's real estate industry with total sales in 2008 expected to drop more than 21 percent year-on-year to 600 million sq m.

The country's residential sales will reach 500 million sq m in 2008, falling from 691 million sq m in 2007.

The outstanding loans of property companies totaled 5.24 trillion yuan ($766 billion) by the end of November, up 10.3 percent year on year. But the growth rate was 1.9 percentage points lower than in October and 20.6 percentage points lower compared with the same period in 2007.