By Samuel Shen and Vidya Ranganathan
SHANGHAI/SINGAPORE (Reuters) – China’s actual property funding merchandise are tumbling, extending final yr’s hunch as buyers lose hope for a restoration within the economic system and property belongings similar to industrial parks and logistics hubs.
Chinese language actual property funding trusts (REITs), which difficulty shares to buyers towards a portfolio of actual property holdings, have hit successive lows within the first few days of 2024.
After tumbling 28% in 2023, the CSI REITs Index has dropped one other 6.4% this yr by means of a uncommon, seven-day shedding streak pushed by one REITs supervisor’s disclosure of cuts in warehouse rental costs and broader fears of falling yields.
The selloff displays tumbling confidence in an economic system the place a deepening property disaster, weakening consumption and sputtering enterprise actions have sapped demand for workplace buildings, warehouses and procuring malls.
It additionally complicates Beijing’s efforts to lure buyers right into a nascent REIT market designed to channel badly wanted money to indebted native governments and property builders.
“In an financial downtrend, it is getting more durable and more durable for REITs to make cash,” mentioned Xia Chun, chief economist at Forthright Holdings Co.
Though REITs derive yields from comparatively secure charge or rental incomes generated by underlying belongings similar to workplace towers or warehouses, Xia mentioned REITs commerce extra like shares than bonds, with large ups and downs, significantly in China.
After some preliminary pleasure after its 2020 launch, China’s REIT market has witnessed an eye-watering bubble burst. The REITs index has almost halved from its early 2022 peak.
Most of China’s 29 listed REITs are backed by infrastructure belongings similar to industrial parks, tollways and sewage therapy vegetation. Different REITs backed by procuring malls and supermarkets can be launched this month.
BIGGEST CASUALTIES
Within the newest bout of relentless promoting, REITs backed by logistics properties had been among the many greatest casualties.
The Harvest Jingdong Warehousing and Logistics REIT has tumbled roughly 30% this yr, taking successful after its Jan. 4 disclosure that leasing charges at an underlying warehousing mission in central Wuhan metropolis had been minimize by 13% within the new yr.
CICC GLP Warehousing Logistics additionally plunged to document lows on fears it will be equally affected.
Traders additionally dumped REITs backed by industrial parks amid indicators emptiness charges are hovering. Emptiness at retail properties climbed to 9.1% on the finish of September, from lower than 6% in 2019, based on CBRE, exhibiting the lingering influence on consumption from the COVID pandemic.
The Hua An Zhangjiang Industrial Park REIT has plunged 24% this yr. Solely 61% of area at an workplace constructing in Shanghai was rented out on the finish of 2023, down from 94% six months earlier, its asset supervisor disclosed, citing the lack of a key tenant.
One other REIT, CCB Principal Zhongguangcun Industrial Park, whose revenue consists of workplace rents from tech start-ups in Beijing, has mentioned authorities crackdowns on the web sector and financial hardship had raised emptiness charges.
The meltdown has triggered a slew of stabilisation measures by REIT managers, together with buying and selling suspensions, elevated transparency, and investments by underlying properties’ greatest house owners.
Fu Lei, senior govt at Tebon Asset Administration, mentioned China’s REIT market is dominated by risk-averse institutional buyers.
Which means volatility “triggers a rush for the exit … which in flip magnifies temper swings and invitations extra volatility”, he advised an internet roadshow on Wednesday.
Some buyers, nevertheless, sense alternative.
With most Chinese language REITs buying and selling under guide worth, and their money dividend ratio climbing above 4.5%, “REITs are extra interesting now than most of China’s fairness or bond belongings”, mentioned Liu Xianyu, researcher of FoF funding at E Fund Administration Co.
(Reporting by Samuel Shen. Enhancing by Gerry Doyle)
