Key legal considerations for rental housing REITs in China

The report of the 19th National Congress of the CPC has made it clear that “houses are built to be inhabited, not for speculation”. Therefore, accelerating the establishment of a housing system that draws and guarantees supplies from multiple types of players and via multiple channels, and places equal emphasis on rental and purchase to achieve the goal of housing all Chinese people, will be a strategic priority for China going forward. This is where rental housing REITs come into the picture by providing an innovative financing channel and investment exit path for enterprises through asset securitization.

Policy background. Since 2016, the General Office of the CPC Central Committee, the General Office of the State Council, the China Securities Regulatory Commission, the Ministry of Housing and Urban-Rural Development and other departments have promulgated for implementation a series of policy documents on developing the housing rental market, actively and steadily lowering the gearing ratio of enterprises and innovating the ways of government resource allocation, including the Several Opinions on Accelerating the Cultivation and Development of the Housing Rental Market, the Opinions on Actively and Steadily Lowering the Gearing Ratio of Enterprises, the Guiding Opinions on Innovating the Ways of Government Resource Allocation and the Notice on Accelerating the Development of the Housing Rental Market in Large and Medium-sized Cities with Net Population Influx.

These documents have clearly raised goals and initiatives such as “supporting eligible housing rental enterprises to issue bonds and real estate securitization products”, “steadily advancing the pilot program of real estate investment trusts (REITs)”, “supporting real estate enterprises to shift to an asset-light business model by developing REITs”, etc., creating a favorable policy environment for the rapid and virtuous development of rental housing REITs.