Incentives and laws for REIT market coming

China will roll out tax incentives for real estate investment trusts, or REITs, and undertake studies to formulate a set of laws for the instruments, in order to promote healthy development of the country's emerging infrastructure REITs market, the country's top securities regulator said on Friday.

The country will devise a set of regulations to strengthen policy support for the REIT market, including those relating to rollout of supportive tax policies, incentives to draw in more long-term investors and improvement of information transparency, said Li Chao, vice-chairman of the China Securities Regulatory Commission.

To consolidate the legal foundation of the instrument, China will explore rollout of a specific set of laws for REITs, based on the experiences of domestic pilot programs and learning from practices in overseas mature markets, Li said at the China REITs Forum 2021, held in Suzhou, Jiangsu province, on Friday.

Infrastructure REITs refer to a type of financial instrument that invests in in-use infrastructure projects and distributes project cash flow to investors.

The country's first batch of pilot publicly offered infrastructure REITs went public on June 21, with their trading prices having stabilized around their issue prices as of Friday after surging on the first trading day.

The nine REITs raised 31.4 billion yuan ($4.8 billion) in all, mainly used in areas like technological innovation, green development and social welfare, official data showed.

Li said the pilot programs have achieved a good start in line with expectations, marking a critical step in the development of REITs and helping make the capital market more supportive of the real economy.

Yet, infrastructure REITs remain an emerging financial instrument in China with a large room for future improvements in regulation, Li said.

The National Development and Reform Commission, the country's top economic regulator, issued a notice recently that expanded the scope of pilot REITs into the areas of green energy and rental housing projects that help safeguard basic living conditions.

Local governments in Beijing and Shanghai have rolled out policies to advance the development of REITs, while Suzhou also announced 10 measures for the same purpose on Friday at the forum.

Market experts welcomed Li's remarks as the lack of systemic tax incentives for REITs is seen as a weak link in China's REIT market when compared to overseas mature markets.

To encourage the market participants' interest in REITs, fiscal and tax supports are needed to reduce the cost of using REITs as a financing tool and raise the returns of investing in the instrument, said Zhang Min, vice-president of China Construction Bank.

Shi Jing contributed to this story.