Research On REITs-engaged Financing In China’s Affordable Housing

In China, as the big achievement of affordable housing construction, as well as an important way to relieve the pressure of public housing, affordable housing has been largely supported by government expenditure. However, as the fund in constructing affordable housing increases rapidly in recent years, it has become a difficult task for local financial authorities to satisfy the huge funding demand for the projects of affordable housing. How to explore innovative financing channels and absorb nonofficial idle capital has become the key concern to guarantee the rapid and health development of affordable housing policy.This paper analyzes foreign affordable housing Real Estate Investment Trust fund and a series of financing problems faced by China’s affordable housing policy. The results show that currently the primary problem is the shortage of financing channels, which can be resolved only by financial innovation. The Real Estate Investment Trust fund has low risk, high liquidity and stable profits, which make them the most suitable innovating financing way.This paper proposes Real Estate Investment Trust (REITs) as an innovative financing channel for China’s affordable housing. The analysis includes determining the objectives, principals and formation of REITs, designing the overall structure and operating process. According to the detailed study of the operation process of REITs, this paper analyzes the approaches of asset allocation, funds using, funds recovery, and risk assessment, through China’s affordable housing policy with the application of REITs. I make quantitative and qualitative assumptions, propose portfolio models, take reality into consideration, and improve the model by including risk assessment index. Afterward, I conduct empirical testing with the statistics released by the National Bureau, investigate the expected earning of the REITs. The results show that the REITs is both feasible and efficient. This finding is theoretically and practically significant to solve the shortage of funds for China’s affordable housing and improve the affordable housing policy. Finally, this paper proposes relevant policy suggestions to the existing affordable housing REITs laws and regulations.