(Yicai) Dec. 1 -- China’s main securities regulator has revealed a new pilot program for commercial real estate investment trusts to allow shopping malls, hotels, and offices to be securitized and to broaden funding channels for the sector.

The China Securities Regulatory Commission recently announced a draft of the pilot, soliciting public opinions.

Commercial real estate investment trusts are publicly offered funds backed by income-generating properties, allowing investors to receive returns from rental cash flows. China already has infrastructure REITs, but commercial-property REITs are new and aim to leverage the country’s large stock of commercial real estate that has been weighed down by the weak property sector.

The draft for public consultation consists of eight provisions that mainly cover product definitions, fund registration and operational management requirements, and strengthened regulatory responsibilities, according to the document. The CSRC noted that commercial complexes, retail properties, office buildings, and hotels are important underlying assets for REIT products in mature markets.

The draft clarifies that commercial REITs are defined as closed-end publicly offered securities investment funds that acquire stable cash flows by holding commercial real estate and distribute profits to fund unit holders. Before applying to raise a commercial REIT, fund managers should conduct comprehensive due diligence on the commercial real estate to be held and engage qualified professional institutions to provide evaluation, legal, audit, and other professional services.

The draft also emphasizes the need to leverage the roles of fund managers and professional institutions, ensuring that responsibilities are strictly enforced. It requires strict compliance with professional standards and regulatory requirements, and calls for strengthening supervisory responsibilities by clarifying the duties of regulatory agencies in accordance with laws and regulations for oversight, risk monitoring, and the resolution of commercial REITs.

“By drawing on international experiences and combining them with China’s actual circumstances, and adhering to a market-oriented and rule-of-law approach, the timely introduction of commercial REITs can better leverage the functions of REITs. This will support the establishment of a new model for real estate development and further enhance the quality and efficiency of multi-level capital markets in serving the real economy,” the CSRC stated.

As of Nov. 27, China had 77 REITs, raising a total of CNY207 billion (USD29.2 billion), with a total market value of CNY220.1 billion, according to public data. Since last year, the CSI REITs Total Return Index has increased by 22.5 percent, indicating that REITs have gradually become an important asset allocation category.

Editor: Emmi Laine