On December 8, Li Chao, vice chairman of the China Securities Regulatory Commission, talked about further expanding the scope of REITs pilot projects at the forum of “The First Yangtze River Delta REITs Forum and China REITs Forum 2002 Annual Meeting”, and about covering new energy, water conservancy, new infrastructure and other infrastructure fields as soon as possible , Accelerate the construction of the affordable rental housing sector in the REITs market, and study and promote the expansion of the pilot scope to market-oriented long-term rental housing and commercial real estate, which immediately aroused strong attention in the commercial real estate field.
In fact, REITs were originally born to serve the liquidity management of commercial real estate, and then serve commercial real estate investment, financing and asset management, and long-term rental housing also belongs to the commercial real estate field. Because the commercial real estate field is based on relatively dispersed tenants, relatively stable leases, and customer groups formed by long-term operations, it naturally forms a relatively stable cash flow that is essential for the underlying assets of REITs, and distributes it as the main source of income to potential investors and beneficiaries. This is the basic implicit logic of commercial real estate REITs.
The United States is the largest and most mature REITs market in the world. The market value of listed REITs is about 7 times that of listed developers. However, the development of the REITs market in mainland China has gone through a development and pilot path different from that of the international capital market. In the early days, due to institutional defects, a large number of REITs financing activities were forced to build overseas structures and go to the international capital market, or transformed into partial debt. Financing behavior. The REITs reform pilots in recent years have first opened up infrastructure REITs pilots with poor underlying asset liquidity and high market concentration. The main appeal is to use the capital market to revitalize the original asset stock to enhance infrastructure reinvestment capabilities. Rather than the real cultivation and development of the REITs market itself.
Under the circumstances that real estate has been established as a pillar industry for the development of the national economy, and big consumption has become the most important source of power for economic development and the main force for maintaining economic stability, to support commercial real estate in mainland China with innovative capital tools and multi-level capital market construction The development of the industry has no policy fetters. Therefore, taking advantage of the opportunity of opening up real estate equity financing, the China Securities Regulatory Commission proposed to study and promote the expansion of the scope of REITs pilots to long-term rental housing and commercial real estate, which should belong to the true return to the origin of REITs research and market construction. This is not only a supplementary lesson for REITs, which has always been lacking in the construction of the domestic multi-level capital market, but also to promote the liquidity of China’s commercial real estate stock market, and even change the industry’s financing and investment pattern and industry development ecology, which in turn will revaluate and reassess It is an important measure to construct the territory of China’s commercial real estate industry and the future of the industry.
Looking back, due to the two-way strict control of land and finance, as well as the mandatory planning requirements for commercial property development, there has been a serious disconnect between commercial property development and market demand in mainland China, which has also led to a breakdown in the valuation system of the commercial real estate market. Serious distortions have caused the market mechanism to almost completely lose its ability to price and adjust supply and demand in the commercial real estate market. This has also led to a large amount of commercial real estate from the “passive holding” of development property developers, which in turn makes these commercial real estate extremely low income on the developer’s balance sheet, extremely difficult to operate, and can only rely on development cash Inefficient assets that flow to feed back. In turn, under the abnormal rental-to-sales ratio, the usual rental income level cannot cover the risk-free interest rate at all, and it is actually impossible to promote the establishment and development of the REITs market in such an industry environment. night talk.
Therefore, the financing projects in mainland China in the name of REITs or similar REITs are either forced to evolve into real debt financing tools by means of external credit enhancement, or rely on explicit or implicit related party transactions to improve the apparent rate of return. Departed from the fundamentals of the underlying assets themselves. This makes REITs and REIT-like products in the Chinese mainland market always look so different. I summarized this phenomenon as “Chinese-style REITs” formed in a unique environment many years ago, and it has been generally recognized by the industry. As for the lack of policies such as double taxation that the industry has criticized for a long time, this is only one aspect of the policy environment, but it does not constitute an inevitable obstacle to the development of the REITs market. The main obstacle to the development of the REITs market in Mainland China is the comprehensive influence of multiple factors in the industry environment Caused by the industry ecology.
Li Chao’s statement, vice chairman of the China Securities Regulatory Commission, is indeed a milestone event in the development of the REITs market in mainland China, but even if the policy is relaxed immediately, the industry’s ecology will not change immediately. However, the opening of the REITs market will also allow the market screening and screening mechanism to re-price relevant underlying assets and give currency votes in the market dynamic game, which will naturally bring about a drastic restructuring and huge impact on the industry’s value system and even the development model. Commercial real estate and its operating organizations that truly have market vitality and sustainable development capabilities, as well as long-term rental companies that comply with industrial policies, will gradually be screened out by the market and favored by the REITs market. And fell into the abyss of revaluation and was marginalized. Moreover, the mode and pattern of commercial property development, holding and operation in mainland China will also undergo irreversible changes, and market supply and demand will become the most important factor leading the commercial real estate market in mainland China.
It is precisely because of the large disconnect between market operation and policy guidance in the process of REITs exploration and pilot projects over the years, and the actual needs of market development often exceed the cognitive scope of the policy level, so the industry is forced to always practice Being at the forefront of the policy has led to the birth of many overseas structures and various “Chinese REITs”, resulting in a mixed bag of fish and dragons in the industry. In turn, this has also caused the policy makers to feel fearful and afraid of risks in promoting the REITs pilot work, and it has also brought many problems and risks to the investment market.
In the future, with the opening and implementation of the REITs pilot policy, it will undoubtedly improve asset liquidity for long-term rental companies or the commercial real estate industry as a whole, thereby promoting the adjustment of the industry’s asset valuation system, as well as the adjustment of the industry’s investment and development model and active asset transactions. The degree of improvement is an important opportunity to promote the improvement of the industry’s ecology, which is definitely a long-term benefit for the development of the industry.
At the same time, in terms of industry development, building a healthy capital market, and promoting the sustainable development of the REITs market, it is still necessary to return to the screening and construction of REITs underlying assets and the establishment of industry norms. That is to say, it is necessary to start from the perspective of full independence, marketization, and decentralization of underlying assets and operations, from the level of regulation and orderly competition of intermediary agencies, as well as the construction of industry norms and information disclosure, and the construction of a regulatory system. Only in this way can we effectively prevent REITs’ underlying asset construction, market integrity, and system design risks, as well as possible industry risk resonance problems that may cause damage to industry development. (Fortune Chinese website)
The author, Bo Wenxi, is a columnist of Fortune Chinese Network and chief economist of IPG China
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