The real estate, financial and securities markets in mainland China are going through a transformation. In the real estate market, there is the slower pace of new construction as cities mature and urbanisation slows; the developer market consolidates and professionalises; domestic developers shift their focus to commercial assets; assets are held en-bloc instead of stratified; and investment institutions encourage the development of the asset management field. In the financial market, there is pressure to clamp down on the shadow banking sector and to shift companies from a debt-to-equity position while also striving for increased transparency and efficient allocation of capital. In the securities market, there is the creation of the Shanghai-Hong Kong Stock Connect; the addition of shares to MSCI; development of the STAR market; the funnelling of money through professional managers; and the opening of the domestic market to international brokerages. 

The culmination of these trends has set the stage for the potential arrival in mainland China of the long-awaited Real Estate Investment Trusts (REITs). REITs started in the US in the 1960s and were then introduced to Europe and Asia. There are now nearly 40 countries that have REITs or have passed REIT legislation. Currently, the total market cap for global REITs stands at around US$1.7 trillion. In mainland China, the concept and the desire for REITs is not new. Indeed, the first offshore REIT listed on the Hong Kong Stock Exchange that held China assets was launched in 2005 by Yuexiu while the Quasi REIT market in mainland China has reached over RMB100 billion in 2019. 

Historically, the establishment of REITs has provided added impetus to an improvement in maintenance standards as well as proactive asset management that maximises usage and improves efficiency standards and sustainability ratings of buildings. Most recently, we have seen the establishment of REITs in many other markets, with mainland China now one of the last major property markets that does not have a REIT regime. This report discusses the potential asset classes, investors and pricing for the future REIT products in mainland China.