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Special considerations for designing pilot REITs in China

Author

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  • Hong Wang
  • Yining Sun
  • Yin Chen

Abstract

Purpose - The purpose of this paper is to propose advice on the design of pilot real estate investment trusts (REITs) and the future development of a REITs market in China. Design/methodology/approach - This study presents a qualitative analysis on unique attributes of the Chinese market. Taking those attributes into account, it goes onto offer suggestions and ideas on how China can most successfully kick off its REITs industry. Findings - The paper finds that REITs offer developers an alternative, less risky way to raise money. They would also provide owners with an exit strategy. REITs implementation should be a two‐stage process. Pilot REITs should be made available to institutional investors first and later to retail investors. Most importantly, current legislation and taxes do not provide an environment conducive to REITs. The paper also finds that it is presently a favorable market environment under which to launch REITs, owing to pent up demand for REITs amongst investors. Practical implications - The greatest practical implications of this study are the suggestions offered in terms of what Chinese pilot and long‐term REITs should look like. Pilot REITs can be implemented using special regulations. For post‐pilot REITs, currently existing Chinese trust schemes and special asset management plans offer possible, but problematic, frameworks. Perhaps more promising is the possibility of legislation modeled after China's current securities fund law. This paper implies that new regulations and laws are needed before REITs can be launched in China, as well as gives advice as to what those laws should look like. Research limitations/implications - There are no REITs yet in China, so a trenchant quantitative study is impossible. This paper is a preliminary work to be followed by a quantitative analysis once China REITs have been operating for long enough to offer sufficient data. Originality/value - This is one of the only papers examining China pilot REITs in the context of China's economic, legal, and tax environment. It takes previous studies a step further by offering specific legal, regulatory, and tax frameworks that would aid the development of China REITs.

Suggested Citation

  • Hong Wang & Yining Sun & Yin Chen, 2009. "Special considerations for designing pilot REITs in China," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 27(2), pages 140-161, March.
    • Handle: RePEc:eme:jpifpp:v:27:y:2009:i:2:p:140-161
    DOI: 10.1108/14635780910937845
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    References listed on IDEAS

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    1. Kallberg, Jarl G. & Liu, Crocker L. & Trzcinka, Charles, 2000. "The Value Added from Investment Managers: An Examination of Funds of REITs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 35(3), pages 387-408, September.
    2. John L. Glascock & David Michayluk & Karyn Neuhauser, 2004. "The Riskiness of REITs Surrounding the October 1997 Stock Market Decline," The Journal of Real Estate Finance and Economics, Springer, vol. 28(4), pages 339-354, May.
    3. Capozza, Dennis R & Seguin, Paul J, 2000. "Debt, Agency, and Management Contracts in REITs: The External Advisor Puzzle," The Journal of Real Estate Finance and Economics, Springer, vol. 20(2), pages 91-116, March.
    4. McDonald, Cynthia G & Nixon, Terry D & Slawson, V Carlos, Jr, 2000. "The Changing Asymmetric Information Component of REIT Spreads: A Study of Anticipated Announcements," The Journal of Real Estate Finance and Economics, Springer, vol. 20(2), pages 195-210, March.
    5. Jingyu Li & Fayez Elayan & Thomas Meyer, 2001. "Acquisitions by Real Estate Investment Trusts as a strategy for minimization of investor tax liability," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 25(1), pages 115-134, March.
    6. Michael C.H. Quek & Seow Eng Ong, 2008. "Securitising China real estate: a tale of two China‐centric REITs," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 26(3), pages 247-274, April.
    7. Zhilan Feng & Chinmoy Ghosh & C. Sirmans, 2007. "On the Capital Structure of Real Estate Investment Trusts (REITs)," The Journal of Real Estate Finance and Economics, Springer, vol. 34(1), pages 81-105, January.
    8. Ling, David C & Naranjo, Andy, 2002. "Commercial Real Estate Return Performance: A Cross-Country Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 24(1-2), pages 119-142, Jan.-Marc.
    9. Brent W. Ambrose & Peter Linneman, 2001. "Reit Organizational Structure and Operating Characteristics," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 141-162.
    10. Robert D. Campbell & Chinmoy Ghosh & C. F. Sirmans, 2001. "The Information Content of Method of Payment in Mergers: Evidence from Real Estate Investment Trusts (REITs)," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(3), pages 361-387, March.
    11. Glascock, John L & Lu, Chiuling & So, Raymond W, 2000. "Further Evidence on the Integration of REIT, Bond, and Stock Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 20(2), pages 177-194, March.
    12. John S. Howe & Ravi Jain, 2004. "The REIT Modernization Act of 1999," The Journal of Real Estate Finance and Economics, Springer, vol. 28(4), pages 369-388, May.
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    1. Liu Xiaoxin & Wu Di & Li Xiuting & Dong Jichang, 2013. "Financing of Low-Rent Housing REITs in China," Journal of Systems Science and Information, De Gruyter, vol. 1(1), pages 1-21, February.

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