Earlier in 2021, China announced its plans to debut a pilot REIT program consisting of nine infrastructure real estate investment trusts (REITs) aimed at improving essential infrastructure throughout the country.
The program -- the first of its kind for China -- was authorized to raise 30 billion yuan ($4.7 billion) through these REITs, which made their formal debut on the Shanghai and Shenzhen markets on Monday, June 21, 2021.
China's REITs are a hit
The nine REITs -- which own infrastructure investments ranging from sewage treatment plants and toll expressways to warehousing and beyond -- reached their 30 billion yuan goal in well-subscribed offerings. According to reports in China, tranches available to the public on the first day of the offering were oversubscribed, meaning public interest for this offering exceeded the allotted funding limits.
Despite its wild success this week, the new REIT investment vehicle is still very much a pilot program. The government does not plan to issue additional funding or allow new REITs to enter the picture until this model has been proven successful, which will take time. However, given the nature of the project and the size of the infrastructure and real estate market that could adopt this model, the level of interest is promising.
With support from international professional groups such as Deloitte, the projects are being managed by experienced professionals in China's real estate industry. Unlike REITs here in the U.S., the assets are not owned directly by the REITs but are instead managed by mutual funds that invest in a security that directly owns the infrastructure asset.
How it impacts U.S. investors
The new investment model doesn't have major implications for U.S.-based real estate investors -- yet. If the REIT pilot program is successful, it's very likely other real estate assets, including residential and commercial real estate in China, could follow suit, presenting new opportunities for real estate investors to diversify their portfolios.
The REIT program's success could also mean certain U.S.-based REITs, particularly those owning assets in China, could face competition from China's REIT structure. But these concerns are still a long way off.
At this point, investors need to be patient and continue to keep an eye on the program over the next few years. If successful, this could be a promising venture for the U.S. to adopt, particularly as the current administration plans to allocate billions of dollars to improve our country's infrastructure.
Focusing on infrastructure assets while adapting China's REIT model to meet our current structure better could shift the burden from the public to the private sector -- and allow investors to earn a return while at it.
Assessing the program's success will take a significant amount of time. Infrastructure projects, particularly projects like expressways, can take years to see through to fruition. In the meantime, U.S.-based investors can continue to seek opportunities from any of the hundreds of publicly traded REITs here in the U.S., including several infrastructure REITs in existence today.