In a move aimed at bolstering investment in infrastructure, the National Development and Reform Commission (NDRC) published a notice regarding the country’s real estate investment trusts (REITs) regime on 26 July 2024, focusing on widening eligible asset classes and streamlining the filing process.
Effective from 1 August 2024, the Notice on Comprehensively Promoting the Normalised Issuance of Real Estate Investment Trusts Projects in the Infrastructure Sector introduces several positive updates. These changes include:
(1) Restating the eligible asset classes which – in addition to warehousing and logistics (including cold storage), new economy infrastructure (including data centres), rental housing, industrial parks, shopping centres, clean energy and other previously accepted assets – now includes:
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- Offices, provided they are physically inseparable from a shopping centre, held by the same owner and (together with hotels) do not exceed 30% of the total floor area of the underlying assets (50% in exceptional cases);
- Hotels, provided they are physically inseparable from an industrial park or shopping centre, held by the same owner and (together with ground floor shops or offices, as applicable) do not exceed 30% of the total floor area of the underlying assets (50% in exceptional cases for shopping centres); or within the planning scope of tourist attractions held by the same owner; and
- Registered senior living facilities.
(2) Removal of the minimum yield requirement, which was previously 3.8% distribution yield for properties owned by the sponsor (or 5% internal rate of return for state-owned properties that are only operated/franchised by the sponsor).
(3) Simplified filing process including no longer requiring pre-REIT consultation with relevant industry experts, and prescribing time limits for relevant authorities to complete certain steps during the filing process.
(4) Increasing the net IPO proceeds that do not need to be reinvested in new/existing projects to 15% from the previous 10%.
The authors welcome these updates, which have been designed to encourage more sponsors to list their assets via China REITs, and look forward to further enhancements to the China REIT regulations as the market matures, including updates on the timing and eligibility requirements for the REIT Connect, a mooted pathway that will allow mutual market access to REITs offerings between mainland China and Hong Kong.
Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at howard.wu@bakermckenzie.com
