Growth Dragons Weekly: Could REITs save Chinese real estate?
Here’s what happened in Growth Dragons this week:
Could REITs save Chinese real estate?
CSOP Saudi Arabia ETF Starts Trading in Hong Kong
Meituan 3Q Results Show Growth and Profits
Xiaomi Posed Strong Financial and Stock Performances
Huawei Expands Its Core Competencies to EVs
#1 Could REITs save Chinese real estate?
Establishing Reits is an effective way to monetize real estate assets. It also provides investors to invest in these assets so the developers can raise capitals through this channel. This will be a good way for developers to finance their debts and turn the tide for China’s real estate market.
Link Reit, Asia's largest real estate investment trust (Reit), has recently unveiled a refurbished shopping mall in Guangzhou, underscoring its strategic emphasis on mainland China - Link Reit boasts 12 assets in mainland China, including key locations in Beijing, Shenzhen, Guangzhou, and Shanghai.
The company's confidence in the Chinese retail real estate sector was substantiated by its impressive 95.8% portfolio occupancy rate in mainland China for the six months ending September. This affirmation aligns with the remarkable success of the renovated mall, where the occupancy rate now surpasses 95%, with October sales experiencing a notable 30% surge compared to September. Demonstrating robust returns, the mall boasts a commendable 12% return on investment.
Reinforcing the positive momentum, data compiled by CBRE reveals a 0.2 percentage point decline in retail vacancy rates during the third quarter, while average rents held steady, experiencing slight gains in major tier-2 cities, including Beijing and Shanghai. These statistics underscore the current strength of consumer demand, a noteworthy trend in an otherwise sluggish economy. Businesses are capitalizing on this demand, occupying significant portions of newly available spaces, indicative of a promising recovery.
Link Reit's strategic focus on the Chinese retail property market is rooted in the robust pre-COVID retail sales performance and the recent post-pandemic growth. The company anticipates continued consumer capacity for increased consumption as economic headwinds gradually ease.
Further signaling a positive trajectory for the real estate industry, several mainland China developers, including China Resources Land (CR Land), China Jinmao Holdings, and SCPG Holdings, have received approvals to list Reits, just a month after submission to the China Securities Regulatory Commission (CSRC).
CR Land's Reit, issued through its commercial unit, China Resources Commercial Asset, has secured approval to issue 1 billion shares, aiming to raise 6.9 billion yuan (US$965.8 million) with estimated net proceeds of 4.9 billion yuan. China Jinmao, with approval to issue 400 million shares, will utilize its unit Shanghai Xingxiumao Business Management for its Reit issuance. SCPG Holdings, a unit of China Vanke Holdings, plans to issue 1 billion shares, targeting around 4 billion yuan in funds raised, with estimated net proceeds of 3.6 billion yuan, as outlined in a proposal submitted in October.
This move towards Reits by major developers is viewed as "credit positive," presenting an opportunity to monetize shopping malls and potentially infuse substantial funds into the market. Incorporating shopping malls into Reits not only diversifies risks but also enhances cash flow, particularly as Chinese consumer demand continues to recover, positioning Reits as a pivotal financial instrument in supporting the revitalization of the real estate industry.
Can Reits save China’s real estate industry? Not single-handedly. It will be part of the collective measures that the Chinese Government are implementing.