Chinese real estate

It does appear that China will launch its first REITs in the second half of 2010. This is a positive development, not for the injection of new capital to the real estate market, but for the development of a sophisticated investor market.

Firstly, the Chinese government appears to be taking a cautious path; only a couple REITs will be allowed so that the government can monitor securities firms sale practices, market demand, and REIT managers' abilities to operate. This is the right way for the government to proceed since these three areas are unknown, not least of which is the ability of domestic asset managers. Only a couple REITs will list and only selected domestic institutional investors will be allowed to purchase shares (or units). This will prevent a mass introduction of new capital into the real estate market.

Secondly, the goal is to create a set of professional asset managers where previously there has been none. Part of the lack of asset managers is due to the bubble-like real estate industry which is developer-heavy and amateur investor-heavy. I imagine the large banks and insurance companies will be allowed a head-start to form asset managers, followed by the more savvy and long-term-focused developers.