The recent surge in the popularity of REITs (Real Estate Investment Trusts) has captivated the attention of both institutional and retail investors in China, particularly as the market around these investments began to warm up in early January. This enthusiasm has coincided with a series of announcements regarding premium rates, notably affecting QDII funds as well. As of January 16, data indicates that the premium rates for these funds are reaching extraordinary heights, with notable examples including Huaxia Beijing Affordable Housing REIT boasting a remarkable 52.95% premium rate. The Central Jin Xiamen Affordable Rental Housing REIT also exceeded 50%, alongside other prominent players such as the Harvest China Power Construction Clean Energy REIT and Yin Hua Shaoxing Original Water Hydropower REIT, both showcasing premiums above 40%. However, it is essential to note that while some assets are soaring, several others exhibit discounts exceeding 20%.
Market analysts from various public funds have expressed insight on the current state of the REITs in the secondary market, suggesting that following a round of valuation increases across sectors, the valuations have stabilized at relatively reasonable levels. They highlight a significant allure in the dividend yields for institutional allocations, projecting that the market may maintain a trend of gradual ascension. However, caution is warranted due to the potential negative impacts that industry rotations and price diversifications could pose on absolute returns. Investors are encouraged to consider strategically entering REIT projects with reasonable valuations in both primary and secondary markets while enhancing their tolerance for market fluctuations to seize long-term investment opportunities.
The positive sentiment surrounding REITs has become increasingly apparent in recent months. From December 10, 2024, to early January 2025, the CSI REITs Total Return Index surged by an impressive 7.86%. Leading this charge was the Harvest JD Warehouse Infrastructure REIT, which recorded a staggering increase of 25%. This was further bolstered by announcements on December 27 regarding JD Group's founder Liu Qiangdong planning to increase his holdings of the fund in the secondary market by up to 100 million yuan, resulting in a significant rebound in the fund’s net asset value in the secondary market. Other notable mentions, such as Huaxia China Resources Commercial REIT and Red Earth Innovation Shenzhen Talent Housing REIT, also approached increases of nearly 20%. Even as 2025 began with volatility in equity markets, the CSI REITs Total Return Index managed to achieve a growth of 3.31% amidst the turbulence, although many fund companies issued risk warnings due to sizeable recent market gains among their REIT offerings.
Industry professionals attribute the enhanced attractiveness of public REITs to the quality, stability, and scarcity of the underlying assets, all contributing to a growing demand for higher dividend payouts. Moreover, the onset of the New Year often sees a rush of capital seeking advantageous investments, amplified by a notable increase in interest from fixed-income investors eager to diversify their holdings into high-yield assets.
The manager of the CITIC Construction Investment State Power Investment New Energy REIT, Xu Chenglong, emphasizes that the dividend rates of public REITs generally surpass that of government bonds, presenting investors with a viable opportunity for better and more predictable returns during periods of declining interest rates. The government's recent initiatives to include public REITs in the investment scope of FOF (Funds of Funds) and pension funds, alongside promoting their inclusion in the Shanghai-Hong Kong Stock Connect program, suggest a promising influx of new capital into the public REITs market. Such movements accompanied by increased market participation will likely fortify the long-term investment value of public REITs in the eyes of investors.
The heated secondary market environment is not merely a reflection of rising asset values but has also incentivized new issuances. On January 9, results from the Guotai Junan Jinan Energy Heating REIT revealed a staggering 122.02 billion effective subscriptions — translating to 813.44 times the initial public offering volume. Furthermore, the announcement from January 3 showed that 80 investors engaged effectively in the offline sale, yielding an astounding 49.34 billion subscriptions, marking a record high for offline inquiry multiples for public REITs in nearly two years.
As the market warms up, the divergence in premium and discount rates among various REIT products is becoming increasingly evident. By January 16, the mentioned Huaxia Beijing Affordable Housing REIT led with a premium of 52.95%, while the Huaxia China Communications Construction Highway REIT suffered from a significant discount rate exceeding 45%. Similar trends were observed in several other funds, including the Central Jin Anhui Transportation Control REIT, with varying degrees of discounting.
Huabao Securities opines that while the overall performance of public REITs in the secondary market is commendable for 2024, there remains a pronounced disparity across industries. With the continuous normalization of issuances and an expanding array of asset types, it is anticipated that the scale and liquidity of the REITs market will witness enhancement. They advise focusing on asset types with superior stability and certainty while paying close attention to economic recovery and industry stabilization trends.
According to China Merchants Fund, the current valuations of REITs post-adjustment reflect a relative reasonableness following sector rotations. The appeal of dividend yields for institutional investors continues to be pronounced, with expectations of a sustained upward trend in the market. To navigate the volatility effectively, strategic participation in both primary and secondary markets is championed, with an emphasis on selective investments in funds.
In light of the policies introduced on January 13, which underscored the vital role of REITs in bolstering economic recovery, the focus seems to be gravitating towards expanding the REITs issuance spectrum. 2024 saw unprecedented figures regarding the issuance of new REIT products, with the market reaching a record 58 active products by the end of the year and a generous total fundraising of 655 billion yuan across 29 new public REITs. This momentum showcases a tripling of issuance compared to the past three years.
Looking to the future, CICC forecasts a continuous expansion of the REITs market in alignment with policy developments and market maturation into 2025. With ongoing normalization in issuance processes, a plethora of new sectors, including cultural tourism infrastructure, elderly care, and data centers, are anticipated to breakthrough into the REITs lineup. This diversification of asset types is key to enhancing the REITs market, allowing it to better serve the real economy and revitalize existing assets, potentially leading to increased capitalization within the sector.