"It is a significant turnaround for an asset class that had plumbed to record lows at the start of 2024, weighed down by a slowing economy and a confidence crisis in the country’s real estate sector.
Yield-seeking investors in China are fuelling demand for REITs. The retail portion of China Universal Jointown Pharmaceutical infrastructure-based REIT was reportedly oversubscribed by a record 1,192 times," APREA says in a press release.
The emergence of Hangzhou-based AI startup DeepSeek, which has sparked a rally in Chinese tech stocks, has also created momentum for its REITs. Ultimately, C-REITs would benefit from China’s AI leadership as the demand for digital infrastructure assets will grow.
While C-REITs fell as Trump ratcheted up tariffs on China to 145%, the 0.8% contraction in April underscored the resilience of the country’s REITs, amid intervention from state-backed funds to support its markets.
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"There is growing awareness that C-REITs cannot be seen in the same light as the country’s commercial property market, which are backed by infrastructure assets with different fundamentals, and is unlikely to be affected by the debt problems that some of its developers are facing," the APREA release says.
Since debuting in 2021 with the first tranche of nine REITs, the asset class now boasts 68 listings with a market cap of over US$20 billion. The 28 REITs which went public in 2024 raised a record RMB64 billion, more than triple the amount achieved in 2023. Foreign developers have also waded in, keen to tap China’s deep domestic capital market.
CapitaLand China Trust (CLCT), CapitaLand Investment (CLI) and CapitaLand Development (CLD) will together divest two assets, CapitaMall Yuhuating and CapitaMall SKY+, into a C-REIT, CapitaLand Commercial C-REIT, or CLCR, to be listed on the Shanghai Stock Exchange later this year. CLCT, CLI and CLD will hold a collective 20% stake in CLCR.
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Among the differences between CLCR and CLCT are aggregate leverage levels, asset type, ownership structure and sources of assets. CLCR will have an aggregate leverage ceiling of 28.6%; it can only own a single asset type which is consumption-related; CLCR will have to own 100% of the assets in its portfolio, and it can only invest in income-producing assets.
Backed mostly by infrastructure assets as well as property sectors that align with the country’s economic agenda, the asset class has been assiduously nurtured by government policies. Guardrails regulating the use of IPO proceeds, along with tight leverage limits, have been crucial in instilling confidence amid the country’s property crisis. This also puts it in a different category as offshore China REITs, which have remained depressed.
"China has leveraged on the structure and elevated REITs into an effective policy tool. Anticipated inclusion into the China-Hong Kong Stock Connect programme will finally internationalise the C-REIT structure," the APREA press release says.
Sigrid Zialcita, CEO of APREA, says: “With the monetary authorities on an easing cycle, the yields that C-REITs trade at have grown in attraction. While this has compressed of late, investors remain conscious that their defensive characteristics make C-REITs a vital component of an investment portfolio, particularly now when uncertainty is skyrocketing. It is also a key policy lever that is actively promoted by the government, which shields the asset class from policy risk.”
David Chen, chairman of the APREA China Chapter and chairman and CEO of F.O.G Capital & Asset Management, says: “The recent outperformance vindicates the government’s unconventional approach in establishing the framework for C-REITs, which it deliberated on for decades. The process to liberalise the C-REIT market to include other sectors will continue to be guided by strategic necessity. There is still a long runway to securitise its infrastructure sector, about US$10 trillion currently by APREA’s estimates, which will continue to grow. No doubt, C-REITs remain a massive opportunity for real estate investments in the region.”
