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China's private REIT market has become a key funding alternative for developers struggling with liquidity pressures, with fundraising reaching USD 12 billion this year. Unlike public REITs, private REITs allow faster approvals and include office and hotel assets. Institutional investors are attracted by stable income and higher yields averaging 5%. While domestic distressed developers have yet to participate significantly, offshore firms like CapitaLand and Gaw Capital have shown interest. Analysts see growth potential, though high-quality asset access and sector vacancy issues pose ongoing challenges.
China's private REIT market has become a notable source of funding for developers facing liquidity challenges, with this year's fundraising pipeline reaching a record USD 12 billion due to growing investor interest in higher yields. Introduced in 2023, private REITs are limited to professional investors and offer a faster, less restrictive approval process than public REITs. They allow developers to revitalise income-generating assets amid the ongoing property sector slowdown. Advertisement
While public REITs mainly focus on shopping malls and other consumption-driven properties, private REITs now include office towers and hotels, attracting both issuers and investors. Stand-alone offices and hotels are not yet permitted under public REITs, making the private route an attractive alternative for commercial asset owners. With many developers unable to access public capital markets, private REITs have become a key channel to unlock asset value and alleviate cash flow pressures.
John Lam, UBS head of Greater China property research, said private REITs could reshape business models and valuations for property companies, adding that they break through some of the bottlenecks faced by public REITs. However, analysts caution that this funding route is unlikely to restore the financial health of highly distressed homebuilders lacking high-quality assets capable of generating stable income.
Private REITs, structured as asset-backed securities, are sold through non-public channels to institutional investors and typically bundle commercial assets such as industrial parks, data centers, and retail malls, with returns derived from rental income.
The Shanghai Stock Exchange has approved 17 private REITs this year, with estimated fundraising of CNY 43 billion (USD 5.9 billion), compared with just three approvals worth CNY 8 billion last year. Overall, there have been 40 filings so far this year aiming to raise about CNY 105 billion, a sharp rise from seven applications totaling CNY 13 billion in 2024. Market participants expect private REIT fundraising to accelerate as more issuers prepare roadshows or explore this platform.
John Lim, co-founder of ARA Asset Management in Singapore, highlighted that direct asset sales are challenging due to low prices and scarce buyers, while private REITs provide a smarter way to monetise assets. Dividend yields for private REITs in China average around 5%, higher than the 3-4% typically offered by public REITs, compensating for lower liquidity and longer lock-up periods.
In August, Seazen Group became the first domestic developer to gain approval for a private REIT backed by Wuyue Plaza, raising CNY 1.06 billion (USD 149 million). The implied yield exceeded 6%, surpassing the 30-year government bond yield of 2.1%. Morgan Stanley subsequently upgraded Seazen's shares, citing potential for REIT-led divestments to unlock value from its large mall portfolio.
Although distressed domestic developers have not yet tapped the private REIT market, offshore companies like Singapore's CapitaLand and Hong Kong's Gaw Capital have filed applications this year. Some domestic developers have been turned away from public REITs due to strict requirements on asset quality and use of proceeds. Despite these challenges, insurers and Chinese brokerage asset management units have become key investors, attracted by steady income and competitive yields in a low-interest-rate environment.
Xiao'ou Chen, chairman of Fields of Gold Capital in Shanghai, noted that private REIT approvals can be secured in a few months, compared with at least a year for public REITs. With housing development growth slowing, developers are now focusing on revitalising existing stock and income-generating assets with long-term value.
China's private REITs complement public REITs, which have grown to over CNY 200 billion in value within four years. Analysts highlight significant growth potential in the private market, reflecting trends in mature economies. In the U.S., the public-to-private REIT ratio is 1.25 to 1 based on gross asset value, while REITs account for roughly 90% and 95% of total property market capitalisation in the U.S. and Australia, respectively. In contrast, REITs represent just 1.4% of China's property sector, according to Morgan Stanley.
Challenges remain, particularly in accessing high-quality, income-generating assets. Sigrid Zialcita, CEO of Asia Pacific Real Assets Association, noted that prime office and logistics assets in tier-one cities face elevated vacancies, forcing landlords to lower rents to maintain occupancy. She added that the current demand-supply imbalance is unlikely to improve before 2027.
Source Reuters
5th Jun, 2025
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