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China to launch batch of real estate investment funds

China real estate investment funds

China has announced approving the launch of the first batch of public real estate investment funds in the country.

The approval of real estate investment funds would give local governments another tool for financing infrastructure projects.

The China Securities Regulatory Commission approved the nine projects, which engage in sectors ranging from toll roads to wastewater treatment. The commission raised an estimated 31.2 billion yuan ($4.9 billion), according to Bloomberg’s calculations.

China real estate investment funds

The move aims to expand fundraising channels for indebted local governments. It also aims at allowing individual investors to benefit from what Goldman Sachs Group has estimated in the $3 trillion market if expanding the experiment to include traditional real estate.

Unlike other countries, China provides a framework that allows individuals to buy stocks or documents in an investment fund that then invests in asset-backed securities that indirectly hold infrastructure assets.

Bloomberg had unveiled a plan for regulators to license the first real estate investment fund products. The plan included a waste-to-energy generator by Shougang Group and other public transport projects.

The CSRC is the national regulatory body that oversees the country’s securities and futures industry.

The commission includes 36 regulatory offices covering different geographic regions of the country, and two supervisory offices on the two largest stock exchanges in Shanghai and Shenzhen.

Focus on infrastructure

The experiment so far has focused on infrastructure initiatives, such as highways and utilities. Traditional real estate, such as shopping malls and office buildings, are often excluded from the initial investment fund launch batch.

Market observers said that Chinese policymakers may have taken the step to maintain domestic market stability and reduce financial risks.

It is worth noting that talks about launching real estate investment funds in China have been continuing since 2008. The talks have not come to fruition due to concerns that they may increase house prices, which have risen dramatically over the past twenty years.

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