REITs An Alternative Source Of Financing For Low-rent Housing

In recent years, China’s real estate market is booming, and made a significant contribution to economic development. At the same time, the price of commercial housing is rising rapidly. In order to promote the healthy development of the real estate industry, the government takes some actions to do it. On the one hand, the government increases the regulation of the real estate industry; on the other hand, the government takes effort to build enough affordable housing to meet the demand of low-income people. However, the building of affordable housing need to spend a lot of money, the government faces enormous financial pressure. Basing on this background, this paper actively explores REITs financing models and analyzes whether the low-rent housing can using the REITs financing models or not.The contribution of this paper is to design China’s low-rent housing financing model that is C-REITs. If we take this model, it can change the way government subsidies for low-income groups. The government should subsidy the low-income groups in-kind with a one-time, large-scale way at before. But if we using the C-REITs model, the one-time, large-scale subsidy can be decomposed in a long-term with small amounts of cash subsidies. In this process, the government and the market cooperate fully and friendly. The government promises to subsidy low-income people basing its credit and attracts the social capital to participate in low-rent housing building. The government has succeeded in leveraging the large-scale construction of low-rent housing with minimal funds by REITs funds.The more important contribution of this paper is that it builds feasibility test model for low-cost housing REITs financing model from the micro level. General idea of the test model is as follows:(1) From the Government’s point to consider, comparing the two subsidy ways. If the subsidy of the current financing model is more than the REITs mode, we can say the REITs mode is better than previous one. The REITs mode is feasible, and otherwise it is not feasible;(2) From the investor of REITs’point, we can use the internal rate of return on the financial analysis methods to replace the investment rate of return, and then compare the IRR and the lowest expected rate of return of investor. If the internal rate of return is higher than the lowest expected rate of return of investor, we can say the low-rent housing REITs mode is feasible.After constructing the feasibility test model, this paper takes a empirical research using the data of Chengdu city Wenjiang District Yufu Village. The research results show that if the scale of the project’s investment is stable, the low-rent housing REITs financing model is feasible.On the basis of research of our predecessors, this paper has some innovations. Mainly reflected in the following aspects:Firstly, the government is fully taken into account in the design of low-rent housing REITs model, this paper accepts the leading role of the government, and wants to consolidate its leadership position in low-rent housing REITs model. This model changes the present situation that the government does everything for low-rent housing into the situation of government leading and market anticipating. This paper especially recommends that the government builds or purchases new housing and then transfer them to REITs. The purpose of doing so is to ensure the welfare of low-rent housing properties, to protect the market-standard housing supply and to ensure the stability of the market rent;Secondly, the previous researches of low-rent housing REITs financing model are generally qualitative analysis. This paper not only contains the qualitative analysis of the feasibility in a macro level, but also quantitative analysis in a micro-level. It builds a model to test whether REITs financing model can replace present financing model.However there are many deficiencies in this paper:Although this paper constructs the feasibility test model for low-rent housing REITs financing. But the model is rough, a lot of problems are not took into account; additionally, the standard methods for determining the values of some variables are need to be improved. All of these may affect the validity and testing ability of the model.