China REITs plumb record lows as economic gloom lingers
11/01/2024 04:03
By Samuel Shen and Vidya Ranganathan
SHANGHAI/SINGAPORE, Jan 11 (Reuters) - China's real
estate investment products are tumbling, extending last year's
slump as investors lose hope for a recovery in the economy and
property assets such as industrial parks and logistics hubs.
Chinese real estate investment trusts (REITs), which issue
shares to investors against a portfolio of real estate holdings,
have hit successive lows in the first few days of 2024.
After tumbling 28% in 2023, the CSI REITs Index has dropped
another 6.4% this year through a rare, seven-day losing streak
driven by one REITs manager's disclosure of cuts in warehouse
rental prices and broader fears of falling yields.
The selloff reflects tumbling confidence in an economy where
a deepening property crisis, weakening consumption and
sputtering business activities have sapped demand for office
buildings, warehouses and shopping malls.
It also complicates Beijing's efforts to lure investors into
a nascent REIT market designed to channel badly needed cash to
indebted local governments and property developers.
"In an economic downtrend, it's getting harder and harder
for REITs to make money," said Xia Chun, chief economist at
Forthright Holdings Co.
Although REITs derive yields from relatively stable fee or
rental incomes generated by underlying assets such as office
towers or warehouses, Xia said REITs trade more like stocks than
bonds, with big ups and downs, particularly in China.
After some initial excitement after its 2020 launch, China's
REIT market has witnessed an eye-watering bubble burst. The
REITs index has nearly halved from its early 2022 peak.
Most of China's 29 listed REITs are backed by infrastructure
assets such as industrial parks, tollways and sewage treatment
plants. Other REITs backed by shopping malls and supermarkets
will be launched this month.
BIGGEST CASUALTIES
In the latest bout of relentless selling, REITs backed by
logistics properties were among the biggest casualties.
The Harvest Jingdong Warehousing and Logistics REIT
508098.SS has tumbled roughly 30% this year, taking a hit
after its Jan. 4 disclosure that leasing fees at an underlying
warehousing project in central Wuhan city had been cut by 13% in
the new year.
CICC GLP Warehousing Logistics 508056.SS also plunged to
record lows on fears it would be similarly affected.
Investors also dumped REITs backed by industrial parks amid
signs vacancy rates are soaring. Vacancy at retail properties
climbed to 9.1% at the end of September, from less than 6% in
2019, according to CBRE, showing the lingering impact on
consumption from the COVID pandemic.
The Hua An Zhangjiang Industrial Park REIT 508000.SS has
plunged 24% this year. Only 61% of space at an office building
in Shanghai was rented out at the end of 2023, down from 94% six
months earlier, its asset manager disclosed, citing the loss of
a key tenant.
Another REIT, CCB Principal Zhongguangcun Industrial Park
508099.SS , whose income is composed of office rents from tech
start-ups in Beijing, has said government crackdowns on the
internet sector and economic hardship had raised vacancy rates.
The meltdown has triggered a slew of stabilisation measures
by REIT managers, including trading suspensions, increased
transparency, and investments by underlying properties' biggest
owners.
Fu Lei, senior executive at Tebon Asset Management, said
China's REIT market is dominated by risk-averse institutional
investors.
That means volatility "triggers a rush for the exit ...
which in turn magnifies mood swings and invites more
volatility", he told an online roadshow on Wednesday.
Some investors, however, sense opportunity.
With most Chinese REITs trading below book value, and their
cash dividend ratio climbing above 4.5%, "REITs are more
appealing now than most of China's equity or bond assets", said
Liu Xianyu, researcher of FoF investment at E Fund Management
Co.
(Reporting by Samuel Shen. Editing by Gerry Doyle)
((samuel.shen@thomsonreuters.com; +86 21 20830018; Reuters
Messaging: samuel.shen.thomsonreuters.com@reuters.net))