China’s Real Estate Investment Products Continue Downward Spiral Amid Economic Uncertainty

Despite deriving yields from stable fee or rental incomes, REITs in China trade more like stocks than bonds, experiencing significant fluctuations. China’s REIT market, launched in 2020 with initial excitement, has witnessed a significant bubble burst, with the REITs index nearly halving from its early 2022 peak.

SHANGHAI | SINGAPORE: The woes for China’s real estate investment products persist, signaling a bleak outlook in 2024. As hopes for an economic recovery fade, Chinese real estate investment trusts (REITs) have seen successive lows, extending last year’s 28% slump. The CSI REITs Index has already dropped 6.4% this year, driven by a rare seven-day losing streak sparked by a REITs manager’s disclosure of cuts in warehouse rental prices and broader fears of diminishing yields.

The ongoing selloff reflects a loss of confidence in an economy grappling with a deepening property crisis, weakening consumption, and sluggish business activities. This downturn complicates Beijing’s efforts to attract investors into a nascent REIT market designed to funnel much-needed cash to indebted local governments and property developers.

“In an economic downtrend, it’s getting harder and harder for REITs to make money,” remarked Xia Chun, chief economist at Forthright Holdings Co.

Despite deriving yields from stable fee or rental incomes, REITs in China trade more like stocks than bonds, experiencing significant fluctuations. China’s REIT market, launched in 2020 with initial excitement, has witnessed a significant bubble burst, with the REITs index nearly halving from its early 2022 peak.

The latest round of relentless selling has hit logistics property-backed REITs the hardest. The Harvest Jingdong Warehousing and Logistics REIT, for instance, has tumbled approximately 30% this year following a disclosure of leasing fee cuts in central Wuhan. Industrial park-backed REITs, including the Hua An Zhangjiang Industrial Park REIT, have also faced significant declines amid soaring vacancy rates.

The meltdown has prompted various stabilizing measures by REIT managers, including trading suspensions, increased transparency, and investments by the biggest owners of underlying properties. While some investors are wary, others see an opportunity, noting that with most Chinese REITs trading below book value and a cash dividend ratio exceeding 4.5%, they appear more attractive than many of China’s equity or bond assets, according to Liu Xianyu, a researcher at E Fund Management Co.

Follow and Connect with us: Twitter, Facebook, Linkedin, Instagram