China’s nascent real estate investment trust project looks well placed to continue its market-beating run as a renewed infrastructure push adds to its appeal.
An equal-weighted basket of 11 REITs backed by assets ranging from industrial parks to highways has surged 88% since its inception last year, and is up 16% since Jan 1.
China is experimenting with REITs to tap the world’s second-largest equity market to finance projects that local governments would otherwise have to fund. A recent pledge to accelerate urban development adds to corporate tax breaks and a call to fast-track infrastructure REIT applications.
Eleven trusts launched since June raised a total of 36.4 billion yuan ($7.74 billion; US$5.7 billion), according to CITIC Securities as investors snapped up the shares. Top performers include Fullgoal Capital Water Close-end Infrastructure Fund -- linked to a waste-water treatment project in eastern Anhui province -- that has nearly doubled in the eight months since its launch, while the benchmark CSI 300 index lost nearly 9%.
Reliable returns from payouts on annual income from operational projects underpin the REITs’ appeal. The cohort has outshone equity-focused mutual funds that have dropped 10% this year and a 3% gain in a CSI gauge of infrastructure giants.
Still, the rise in share prices has diluted expected returns, with Fullgoal Capital Water Close-end Infrastructure Fund warning this month that its listing yield of 7.3% had narrowed to 3.7%. At least four other REITs have issued similar alerts.
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As well, market premiums may slip as the REIT “roll out expands and existing projects raise more funds,” said Wang Qiaochu, a fund manager at the Bosera China Merchants Shekou Industrial Zone Close-end Infrastructure Fund.
Regardless of the risks, the government’s focus on building roads, bridges and digital networks to bolster growth will drive the continued appeal of REITs to investors, according to CITIC Securities.
Photo: Bloomberg
