China Vanke's REIT Falls on Shenzhen Debut Amid Property Downturn

Vanke's first public commercial REIT falls on debut, reflecting caution amid China's property market downturn and Vanke's liquidity pressures.

author-image
Aqsa Younas Rana
New Update
China Vanke's REIT Falls on Shenzhen Debut Amid Property Downturn

China Vanke's REIT Falls on Shenzhen Debut Amid Property Downturn

China Vanke's initial public commercial real estate investment trust (REIT), the CICC-SCPG Consumption Infrastructure REIT, fell as much as 3% in early trade on its debut on the Shenzhen stock exchange on Tuesday. The REIT is backed by shopping centers owned by SCPG Holdings, Vanke's commercial property platform. "The decrease in the REIT's share price reflects caution towards China's second-largest developer amid the prolonged downturn in the country's property market," according to market analysts.

The launch of the REIT comes amid a prolonged property market downturn in China, with Vanke facing short-term liquidity pressures and operational difficulties. Vanke, China's second-largest property developer, recently reported a second consecutive quarterly loss and a drop in cash levels in the January-March period, as revenue and margins fell sharply. The company's onshore shares have slumped 28% since the start of 2024.

The REIT raised around 3.26 billion yuan ($474 million), but the funds are still small compared to Vanke's estimated cash burn of 5.6 billion yuan per month. Shenzhen Metro Group, Vanke's largest shareholder, subscribed to 29.8% of the REIT units. The listing of the REIT came a month and a half after three other REITs were approved in the same batch.

Why this matters: The launch of Vanke's REIT is part of China's efforts to prop up the battered property sector, allowing investor funds to flow to property owners while giving developers an opportunity to exit their projects. However, the fresh funds raised through the REIT issuance are still insufficient to alleviate Vanke's liquidity pressures amid the ongoing property market downturn.

The CSI REITs Index has climbed around 7% this year after tumbling 28% in 2023, reflecting the cautious sentiment in China's real estate sector. "The decline in Vanke's REIT on its debut highlights the challenges faced by even the largest developers in managing the prolonged property market slump," said Li Yujia, chief researcher at the Guangdong Urban & Rural Planning and Design Institute.

Key Takeaways

  • Vanke's first public commercial REIT fell 3% on debut, reflecting caution towards China's property market.
  • Vanke, China's 2nd-largest developer, reported consecutive quarterly losses amid the property market downturn.
  • The REIT raised $474M, small compared to Vanke's $5.6B monthly cash burn.
  • The REIT launch is part of China's efforts to prop up the battered property sector.
  • The decline in Vanke's REIT highlights challenges even large developers face in the property market slump.