Guest of this issue: Liu Qiao, Dean of Guanghua School of Management, Peking University
Produced | Sohu School of Business
Edit | Xu Xiaoqi
Chief Editor | Wang Demin
On June 21, China’s 9 first batch of publicly offered REITs were officially listed. This batch of publicly offered REITs ushered in popularity as early as the subscription stage, with subscription funds exceeding 30 billion, and all of them ended early.
REITs (real estate investment trust funds) are an important means to realize real estate securitization. It is a trust fund that pools the funds of most investors, transfers them to a special investment institution for real estate investment management, and distributes the investment income to investors in proportion.
In 1960, the world’s first REITs were born in the United States. From 2000 to 2016, the average annual yield of US REITs reached approximately 12%. At present, REITs products have been issued in more than 40 countries and regions, and the global market value exceeds 2 trillion US dollars. China’s first batch of public offering REITs is of great significance to China.
What impact does the securitization of REITs have on my country’s capital market? How is REITS different from stocks? How big is the overall market size of China’s REITS in the future? What is the relationship between REITs and real estate? Sohu Finance and Economics “Acknowledge 100 People” talked about this with Liu Qiao, Dean of Guanghua School of Management, Peking University.
Liu Qiao has studied and actively promoted the development of REITs in China for many years. In his view, REITs are a milestone in the development of China’s capital market, equivalent to the full implementation of the registration system, and a great attempt without losers.
Liu Qiao Means, REITs products are between “stocks” and “debts”, It is the fourth major financial asset except stocks, bonds, and cash. It has not only improved the types of Chinese assets, but also brought new choices for Chinese residents in the future investment allocation, which is an important step in advancing the capital market.
Talking about the characteristics of REITs, Liu Qiao said that the cash flow of REITs is relatively stable. Compared with stocks, it is relatively less speculative and more suitable for long-term holding and investment. Especially in a bear market, it is more resilient and its performance is more stable. Under global inflation expectations, REITs have a certain stabilizing effect on residents’ wealth management and obtaining property income. In the United States, REITs have better investment returns than bonds and stocks, and they have lower risks than stocks.
“Assessing whether a financial product is a good asset, we cannot look at the increase in the bull market, but the resilience of the bear market,” Liu Qiao said frankly.
He also introduced that the vast majority of REITs’ income must be distributed, and there is a mandatory distribution ratio requirement. Investing in public REITs funds with growth potential is equivalent to sharing the dividends of China’s future economic growth.
Liu Qiao also clarified the common misunderstanding of the relationship between REITs and real estate in my country during the interview. He emphasized that real estate is not equal to real estate. In fact, REITs and real estate are two concepts. In the United States, the underlying assets of REITs are only 13.2% related to real estate, and a larger proportion are other assets such as retail stores, hospitals, and industrial plants.
How big is the market for China’s REITs? Liu Qiao predicts that if only infrastructure is considered in the short term, R The future market size of EITs will be between 5 trillion and 10 trillion . This scale is not small. After more than 30 years of development, the A-share market has a volume of only nearly 80 trillion.
According to his analysis, the market size of mature REITs such as the United States and Japan accounts for about 5% to 15% of GDP. According to this law, China’s GDP is 101.6 trillion, and the volume of China’s REITs will probably reach 4 to 12 trillion in the future. From another perspective, China’s overall infrastructure stock is now 130 trillion yuan. If 5% of the infrastructure stock is securitized, it can reach a volume of 6.5 trillion yuan.
“In addition, China’s current REITs only have infrastructure as the underlying assets, and this scope will expand to other areas in the future, so I think the real market size of China’s REITs in the future will be much larger than this number.” Liu Qiao said.
The following is a compilation of interviews:
Sohu Finance: On June 21, 9 public offering REITs went public. How do you expect REITS prices to perform?
Liu Qiao: Because the subscription is very active, the price of REITs will definitely increase on June 21st, but the increase cannot be determined because there is a 30% upper limit on the increase.
Sohu Finance: What impact will the securitization of REITs have on my country’s capital market?
Liu Qiao: Nine infrastructure public offering REITs went public, after 20 years of hard work. The launch of public REITs has three meanings. The first is to build a multi-level capital market. Public REITs have grown from scratch and are the fourth largest financial asset in addition to stocks, bonds, and cash. It has perfected China’s major asset categories and is an important step in advancing the capital market. At the same time, REITs products are between “shares” and “debts”, bringing new choices for Chinese residents’ future investment allocation.
Second, public REITs are traded in the secondary market and have the function of price discovery. REITs price is the anchor for market-based pricing of underlying assets , Which is conducive to more effective allocation of resources.
Third, public REITs can increase the proportion of direct financing, which is an important measure for the supply-side reform of China’s financial sector. It not only provides another source of funding for future infrastructure investment, but also has great value in improving the efficiency and return of China’s infrastructure investment in the future.
REITs are a milestone in the development of China’s capital market. They are equivalent to the full implementation of the registration system. . REITs and the registration system are the most important and only two measures of China’s financial supply-side reform.
From this perspective, I am very looking forward to June 21st, and hope that these 9 pilot public offering REITs will be listed with great success.
Sohu Finance: You just said that REITs are financial products between stocks and bonds. What is the specific difference between them and stocks?
Liu Qiao: The publicly offered REITs in this trial are equity products. From this perspective, they are not debts, and are equity securities like stocks. However, as financial products, REITs have their own specific attributes. For example, the underlying assets are real estate and the cash flow is relatively stable. Its growth depends more on stable cash flow growth. Compared with stocks, it is less speculative and has stronger long-term investment attributes.
In addition, The vast majority of REITs’ income must be distributed, and there is a mandatory dividend ratio requirement . According to the research of the US, Singapore, Australia and other markets, the pricing law of REITs is also different from that of stocks and bonds.
If various types of financial assets have strong linkages and a high degree of price linkage, the effect of risk diversification will be relatively poor. In the U.S. market, REITs prices have a low correlation with bond prices and stock prices . Therefore, from the perspective of resource allocation, it is a very good configuration field, with greater configuration value.
Sohu Finance: The current REITs are only pilot projects, and the fund subscription scale is small. How big do you estimate the overall market size of China’s REITS?
Liu Qiao: The mature REITs market in the United States and other countries accounts for about 4% to 12% of GDP. According to this law, China’s GDP is 101.6 trillion, and the volume of China’s REITs will probably reach 4 to 12 trillion in the next few years. This scale is not small. After more than 30 years of development, the A-share market now has a volume of only nearly 80 trillion.
In addition, Chinese REITs are not the same as the US and Australian markets. The first batch of our pilots are infrastructure public offering REITs, and the underlying assets are infrastructure. China’s entire infrastructure stock is now 130 trillion yuan. If 5% of the infrastructure stock is securitized, and the final public offering is listed, it can also reach a volume of 6.5 trillion yuan.
Moreover, as a large category of financial assets, REITs have relatively stable yields and little price fluctuations. In the United States, REITs have better investment return data than bonds and stocks, and the risk is relatively low. In the future, the scope of underlying assets of China’s REITs will also expand to other areas. Such as rental housing, low-carbon related assets and so on. Including these underlying assets, the scale of China’s REITs will be larger than 6.5 trillion yuan.
If only infrastructure REITs are considered in the short term, the market size will be between 5 trillion and 10 trillion. But I think the real market size of China’s REITS will be much larger than this number in the future.
Sohu Finance: How to correctly understand the relationship between REITs and real estate?
Liu Qiao: People’s There has always been a misunderstanding in the perception of REITs. The English literal translation of REITs is “real estate investment trust fund”. The underlying assets are real estate, not just real estate. The wrong perception of real estate has led people to think that REITs are investment funds with real estate as the underlying assets. The launch of REITs is just another channel for real estate companies and related issuers to provide financing. Therefore, as China’s real estate market is undergoing structural transformation and controlling housing prices, everyone has many concerns about the launch of REITs. This is one of the reasons why public REITs have not been called out for so many years. .
It took many years for academics and policy makers to correct their perceptions of REITs. In the U.S., REITs are really only 13.2% of the underlying assets related to real estate A larger proportion is retail stores accounted for 18.28%, hospitals accounted for 10.72%, infrastructure accounted for 13.92%, industry accounted for 7.7%, and other assets such as hotels and data centers.
Sohu Finance: What impact does the listing of REITs have on residents’ financial management?
Liu Qiao: The value of publicly offered REITs is that they have both financial and real estate attributes, and they are the most typical example of the integration of industry and finance. The performance of REITs in the market depends on the operational capabilities of the management team.
Investing in public REITs funds with relatively high quality underlying assets, strong management team operational capabilities, and growth potential is also equivalent to sharing the dividends brought by China’s future economic growth and the continuous improvement of infrastructure investment efficiency.
Sohu Finance: Under global inflation expectations, what are the effects of REITs on residents’ wealth management?
Liu Qiao: To assess whether a financial product is a good asset, one cannot look at how much it rises in a bull market, but depends on its resilience in a bear market. REITs have weak volatility and strong anti-cyclical ability. When the economy performs poorly and the financial market is in a counter-cyclical period, the performance is more stable. When allocating assets, REITs are an ideal alternative investment product.
Under global inflation expectations, REITs have a certain stabilizing effect on residents’ wealth management.
Sohu Finance: How has the US REITs’ yield performance over the years?
Liu Qiao: From 2000 to 2016, the average annual return rate of US REITs reached about 12%, which is much higher than the average of the S&P 500. After the 2008 financial crisis, REITs continued to grow in decline, but still surpassed the stock and bond markets.
Sohu Finance: The listing of REITs refers to the advancement of the Science and Technology Innovation Board. What impact will it have on the Sci-tech Innovation Board and ChiNext after it goes public?
Liu Qiao: As a growing financial market, everyone has high expectations for the follow-up development of REITs. And after sorting out the pilot experience, the scope of the overall underlying assets of REITs will continue to expand.
The US REITs market has the largest scale and the longest development time in the world so far, and the underlying market has a very wide range.but China’s current REITs’ underlying assets are only infrastructure. In the future, this scope will continue to expand during the development process. I believe that rental housing and carbon-neutral assets will be gradually included.
In this case, REITs will eventually become a very important part of the entire capital market. Its size, coverage, support for the real economy, and influence on the capital market will expand year by year.
However, when discussing the impact on the traditional capital market, the current REITs are only pilot projects with limited scale.For example, the total volume of the 9 REITs listed this time is only more than 30 billion, and the market value of the A-share market is close to 80 trillion, so So far, the impact of REITs on the stock market is very small .
If we only look at the direct price impact or the liquidity impact, the impact of REITs on the Sci-tech Innovation Board and ChiNext will be minimal in the short term. However, the launch of publicly offered REITs is an important measure for the supply-side reform of the financial sector. Its significance is equivalent to the launch of the science and technology innovation board and the implementation of the registration system. The positive impact will gradually become apparent.
Sohu Finance: REITs funds have a certain degree of “share nature.” What do you think of the risks that it may bring when trading in the secondary market?
Liu Qiao: From the perspective of recruitment and subscription, REITs are highly recognized by market investors. But REITs are not growth stocks in the classic sense, but more like sound investment products. It is less speculative and more suitable for long-term holding and investment.
I am worried that everyone thinks it is speculative and thus speculates on the price. If the price rises too sharply, it will bring noise to the steady and sustainable development of public REITs in the future.
Investors should have a clear understanding of the pricing rules of REITs and establish a correct investment philosophy, so that the development of REITs can proceed steadily.
Sohu Finance: In addition to new infrastructure, what other areas or groups will benefit from REITs?
Liu Qiao: From the issuer’s perspective, asset owners included in the scope of the REITS pilot program are definitely beneficiaries, such as highways, environmental water services, industrial parks, logistics, and data centers.
However, from the perspective of investors, the long-term significance of the benefits is that REITS public offerings provide public investors with the fourth category of financial assets, enabling the public to invest in real estate and benefit from it. In addition, REITs have stable cash flow, stable yield, and risk between stocks and bonds, which is good for long-term institutional investors.
Finally, local governments and platform companies are also major investors in national infrastructure construction. After REITS pilots, the scale will continue to expand, and as the market becomes more and more mature, the future will bring about a radical change in investment philosophy. So local governments are also beneficiaries.
In addition, finances can also collect the taxes that occur during the issuance and transaction process of REITS, so public offering of REITS is a great attempt without losers.
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