From infrastructure construction to affordable housing, REITs expansion from two perspectives. Recently, there have been frequent policies on accelerating the development of REITs. The expansion of REITs has two angles: vertically, for infrastructure REITs, on the one hand, broaden the pilot scope and introduce more new high-quality projects; On the other hand, on the basis of listed projects, formulate stock REITs raising rules to promote the scale growth of REITs. Horizontally, from infrastructure to affordable rental housing REITs, China's public offering REITs will expand in scope and field. In addition, tax incentives deserve attention and expectation. From the experience of overseas REITs, relevant preferential policies are one of the important reasons to activate the more mature overseas REITs market. In January 2022, the Ministry of Finance and the State Administration of Taxation issued the announcement on the pilot tax policy of real estate investment trusts (REITs) in the field of infrastructure, which opened the prelude to the tax preference of public REITs. The subsequent tax preferential policies may be extended to other taxes and projects. If they are fully implemented, It will bring greater incentives to the development of public offering REITs in China.
Global austerity wave, REITs performance from the perspective of history and the present. By comparing the performance of REITs under the background of interest rate increase in history, it is found that REITs and interest rate are not a single same direction or reverse change relationship. During the interest rate increase period, REITs mostly achieve positive returns, and REITs perform better 12 months after the interest rate increase than the stock market. REITs are not only related to the change of interest rate, but also affected by other factors, such as debt level, dividend payment, rent and so on. The characteristics of REITs sub industries are different, and the corresponding performance during the interest rate hike is also different. From the performance of sub industries after the financial crisis and the relative fluctuation with the stock market and bond market, the realization of sub industries such as housing and warehousing is relatively stable during the period of large fluctuation. This round of tightening wave supports REITs in three aspects: first, compared with the past, REITs has strengthened its balance sheet; Second, from the perspective of the average maturity of American REITs debt, we can still enjoy the dividend of low interest rate in the next few years; Third, from the overseas situation, the demand for real estate is relatively strong, and the return on real estate can be expected under the background of rising inflation.
The allocation of REITs listed in overseas pension funds is low, and the proportion may increase in the future. In recent years, the market value and scope of REITs have increased rapidly. By the end of 2021, the total equity market value of REITs listed worldwide was about US $2.5 trillion. Institutional investors mainly participate in real estate investment in the form of REITs or CMBS, and REITs also have various forms such as private placement and public offering, but the proportion of public offering REITs allocation by pension funds is relatively low. Recently, overseas pension funds have accelerated the growth of the allocation of listed and publicly raised REITs. One is that the scope of REITs can be invested is gradually widened, including data centers, signal towers, industries, logistics facilities, medical care and other fields with more development opportunities; The second is the considerable income. Public REITs has outperformed real estate private equity funds in more than two decades, and the return after risk adjustment is better. Listed REITs have low correlation with the stock market and bond market, and are highly correlated with real estate private equity funds.
The future is expected: the subdivision track of China's REITs. China's infrastructure REITs has entered the fast lane of development. Drawing on overseas experience and China's own development characteristics, from the perspective of infrastructure and real estate respectively, we believe that China's REITs may help three major areas of infrastructure in the future, namely water conservancy construction projects, new power systems in new infrastructure, industrial Internet and transportation infrastructure. There are two major directions to focus on in real estate, namely affordable rental housing REITs and health care related real estate REITs including pension real estate.
Risk tip: the overseas tightening pace is higher than expected, and China's recovery is lower than expected.
