China finally finds the first suitable REIT (Real Estate Investment Trusts) investing in government-subsidised rental housing. Based on the information the suitable REIT is with stable income and high growth. Thus, it could allow the government to purchase in low yields. Then, on July 29 the China Securities Regulatory Commission sent the green lights for at least two REITs. The two REITs plan to raise $200m and Rmb1.3bn. They are CICC Xiamen Affordable Rental Housing and Hot Land Innovation Shenzhen Talent.
However, this REIT project has filed on the Shanghai Stock Exchange for a proposed listing. The subsidy is the rental housing in Beijing under the management of China Asset Management. They aim at paying the average yield of 4.29% for 2022. This is actually below the average yield of 4.47%. The industrial park and logistics REITs are paying lower average yield of 9.34%. The offering is by energy and expressway of REITs. Analysts argue that the social housing REITs get the benefit from the high growth sector through policy and government support.
The government of China aims at supplying 6.5 million new low-cost rental housing. The placement is in around 40 major cities. They are like Guangzhou, Shanghai, and Shenzhen from 2021 to 2025. This is in order to meet the rise of housing demand as well as population growth. Moreover, a Beijing-based analyst also argues that, different from the previous infra-REITs, the yields of these REITs are not that high. Investors could have seen this scenario as bonds.
In addition, he adds that the original owner reflects on the calculation of fundraising targets as well as the issue prices. This also reflects the current valuation coming from the low base to generate cash flow. Thus, it could be strong in the future. But investors still have to consider whether the project location is desirable for tenants.