A Study On Operation Mechanism Research Of C-REITS

The development of China’s real estate investment trusts (C-REITs) is in the primarystage. China Securities Regulatory Commission(CSRC) and People’s Bank of China havelaunched their own Rules about REITs, but none were accepted. C-REITs turned tothe construction of low-income housing. In this paper,the writer introduce theinternational basic operation mechanism of REITs. For the C-REITs, it is very important to setu p o u r o p e r a t i o n m e c h a n i s m a n d t h e m e t h o d o f r i s k c o n t r o l.Legal obstacles at the present stage of China’s development of REITs mainly includesthe following points. First of all, lacking of REITs special regulations and industry regulations.The REITs is a special form of investment fund, to set up the legal system of investmentfund is an important guarantee for the development of REITs. Secondly, the current law hasgreat obstacles in the introduction of REITs. There are many conflicts of REITs mode ofinternational mature and China trust law, this needs to be amended in subsequent legislation.Thirdly, the present securities law do not recognize the REITs as a securities, hinders thedevelopment of REITs. Workings of REITs includes the Organizational form, the mode ofcapital operation, the circulation pattern of Income vouchers, the income distribution mode. Interms of organizational forms, the writer advocates contractual mode of REITs, like HongKong. then, in the REITs development maturity, changed to the umbrella mode or thecompany mode, like USA REITs. In the operation of fund, C-REITs should control the modeof direct loans, and gradually to the equity investment mode. In respect of constructionof C-REITs proceeds documents circulation mode, REITs income receipts shouldbe incorporated into the category of securities, allowing private and public offering twomodes coexist, and gradually shift from the inter-bank bond market to open market. In respectof construction of income document pattern, writer advocate high proportion ofdividend model, C-REITs should stick to later will pay for the necessary fees of REITs all theproceeds distributed to investors. The majority of REITs proceeds distributed toinvestors is the international way, is conducive to the protection of investors highyields rate, improve investor’s investment enthusiasm.Risks should be controlled, mainly from two aspects, internal control and externalcontrol. In the internal control mainly includes, First of all, the Trust Investment Company’sclear position of independent legal person and can not become a puppet of the local government financing. Trust Investment Company should be responsible for their own profitsand losses. Secondly, To perfect the governance structure of REITs company ltd.. The trustcompany is trustee, fiduciary duties shall be diligent. Trust company governance related tothe company the ability to work and perform the obligations of. To perfect the governancestructure of the trust company is to protect the trust necessary to perform the duties ofthe commission. thirdly, every REITs should be have an independent system of board ofdirectors, the principal-agent relationship in REITs, preventing moral hazard. Finally, To setup a sound internal control system of REITs, every REITs should establish internalaudit system and the REITs risk early warning system. In the external control: First of all, toestablish and perfect the REITs risk control legal system. The C-REITs trust contract intothe category of securities, perfecting private legislation, clear C-REITs mutual trust. Secondly,to strengthen the supervision of C-REITs. The CBRC should change the C-REITs supervision,the supervision center of gravity should changes from the market access supervision tothe supervisory mechanism and will improve the C-REITs governance structure and internalcontrol system as the focus of regulation. Thirdly, to strengthen the C-REITs trust staffsupervision, improve the REITs practitioners accesssystem.Finally, the trustee, beneficiary supervision mechanism and independent agencies’supervision mechanism in C-REITs, On one hand, this can solve the Problem what the trustcompany lack of professional information and experience. on the other hand, Investors cantarget risk assessment and benefits. In addition to the sources of information from trust, theinvestor can obtain information from other sources.