China has approved the launch of the first batch of public real estate investment funds in the country, providing local governments with an additional tool to finance infrastructure projects. On Monday, the China Securities Regulatory Commission approved nine projects across sectors ranging from toll roads to sewage treatment, raising an estimated 31.2 billion yuan ($4.9 billion), according to Bloomberg calculations.
The initiative aims to expand funding channels for heavily indebted local governments and allow individual investors to benefit from what Goldman Sachs estimated to be a $3 trillion market if the experiment expands to include traditional real estate. Unlike other countries, China offers a framework allowing individuals to buy shares or documents in an investment fund that subsequently invests in asset-backed securities, which indirectly hold infrastructure assets.
Bloomberg previously reported on regulators' plans to license the first real estate investment fund products, including a waste-to-energy power plant from Shouganga Group and other public transportation projects.
The focus has thus far been on infrastructure initiatives, such as highways and facilities, mostly excluding traditional real estate like shopping malls and office buildings from the first round of real estate investment funds. Market watchers noted that Chinese policymakers might have taken this step to maintain stability in the local market and reduce financial risks. It is noteworthy that discussions about launching real estate investment funds in China have been ongoing since 2008 but have not materialized due to concerns that they could drive up home prices, which have significantly increased over the past two decades.
