The real estate sector in China is ushering in a new phase of expansion, which welcomes the introduction of a new financial product - real estate investment trusts (REITs).

That is according to Meng Xiaosu, president of leading property developer, the China National Real Estate Development Group.

Yesterday he said he believed the sector can sustain continual development for at least 10 years before the demand for housing recedes.

This era of buoyant property development offers new opportunities for investors, including in the form of REITs, he said.

REITs are dividend-paying funds which invest in real estate. Most REITs own land or buildings and make their money by renting space to businesses or consumers. Some REITs earn interest on real estate securities such as mortgage bonds. Others earn money by paying for various real estate ventures.

Hugely popular in the United States and Australia, REITs are gaining ground in more and more places as they enable individual investors to participate in large-scale, income-producing real estate investments.

"We welcome the introduction of foreign REITs into China," Meng said. "Such funds have a good chance of profiting from the huge Chinese market."

Before foreign REITs enter China, however, the country may itself consider issuing REITs; compared with stocks and bonds, REITs often come with higher and more stable, lower-risk dividend yields, Meng suggested.

Speaking at a forum coinciding with the International Real Estate Exposition in Beijing, he said the per capita residential housing area for urbanites stood at 24.8 square metres last year, quite a low level compared with some countries.

The demand for housing in cities is projected to reduce only after the per capita housing area reaches 35 square metres, he said.

"Based on this projection, I believe China's real estate sector will embrace a market which promises to expand for more than 10 years in a row," he said.

In addition to financing the growth of the country's property sector, the introduction of REITs would also inject new vitality into the country's capital market, reviving its chronically dormant stocks and bond markets, he said.

The central government's pledge earlier this year to 'curb exorbitant hikes in real estate prices' did not simply translate into either inhibiting demand or lowering prices, Meng said.

Rather, one solution is to increase supply, he said, adding that there is a real need for more housing. This is because of city dwellers' desire to improve their living conditions, the rapid urbanization rate - at least 15 million farmers migrate to cities for work each year - and the launch of resettlement and renovation projects, Meng said.

In the past 17 years, the price of homes in China has, on average, gone up 12 per cent each year. Last year, spending on housing topped 1,000 billion yuan (US$120 billion), a massive boost for the economy.

(China Daily September 23, 2005)