By Esther Fung
SHANGHAI--A district government in Shanghai, UBS and an
insurance company are starting a public-housing investment fund
that could see public-private financing help China build more
low-cost homes.
The fund will invest in completed, rental residential properties
for low-income families in the Hongkou district of Shanghai.
It will later become a real-estate investment trust listed on an
exchange in China, UBS said in a statement on Thursday without
disclosing the size of the fund. China currently has no REITs.
"The establishment of this new asset class in China is
significant as the model lends itself to being rolled out elsewhere
in the country to support the...government's public rental housing
plan," UBS Global Asset Management Asia Pacific head Kai Sotorp
said in the statement.
Investors will get a stable dividend and potential asset
appreciation, according to UBS.
The fund will "unlock the value of its fixed assets in the
capital markets but, at the same time, ensure that the invested
properties continue to be available for public rental," an unnamed
senior official in Shanghai's Hongkou district said in the
statement.
Shanghai Hongkou Public Rental Housing Investment and
Administration Co. and Taiping Asset Management, a unit of China
Taiping Insurance Group Co.(0966.HK), are investors. It will be
managed by UBS Global Asset Management (China) Ltd., UBS said in
the joint statement with Hongkou district. Taiping Asset Management
could not be reached for comment.
Beijing wants local governments to speed up construction of
public housing and find innovative funding but this is hard because
property developers and investors shun these projects because they
don't generate big returns.
China has increased spending on affordable housing--a central
plank of its drive for social stability. But paying for it, shoddy
construction and misuse of funds is a problem.
To attract private investment authorities require construction
of affordable housing as a prerequisite for buying state land.
Insurance funds can invest in public housing but their access to
more lucrative, higher-end private developments is restricted.
Investing in low-cost projects--especially in smaller cities--is
a way to gain official favor for land purchases, some developers
say.
Central and local governments allocated 413 billion yuan ($67.5
billion) for low-cost housing last year while an additional 467
billion yuan was raised from banks, corporate bonds and other
instruments, according to a recent report by the National Audit
Office.
Write to Esther Fung at esther.fung@wsj.com
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