The Chinese government and some analysts are hoping that new real estate investment trusts (REITs) will help cool property speculation.
The idea is that REITs will provide speculators an alternative to directly investing in property.
In the latest salvo aimed at its property market, China is getting ready to launch a real estate investment tool that will give investors an alternative to bricks and mortar, and move to cool a market where prices have risen at the fastest pace in five years.
Real Estate Investment Trusts (REITs) could be launched in the mainland by the second half with the first offerings limited to domestic investors and traded on the interbank market – unlike other typically listed REITs in markets such as Australia and Singapore.
“The government is cautious about this and will only let institutional investors buy into REITs because, compared to the man in the street, they understand the product better and have better risk management,” said Alan Chiang, an analyst at DTZ.
“But when retail and foreign investors are allowed in, they will have another way of investing in property, which will help put a cap on physical property prices.”
Problem is, even if some investors shift from buying real property to buying REITs, mustn’t REITs buy properties based on the amount of money they raise? Thus it is hard to see how REITs will cool property demand. It’s just that property investor demand will be partially directed through REITs, it won’t disappear.
In fact, by making it easier to invest in property, demand for property investment could actually increase since a hurdle will have been removed. Thus with the creation of Chinese REITs China might actually push property prices even higher, especially if large amounts of institutional money is attracted to the new investment option.
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