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On July 15, SZSE released the Business Guidelines for Publicly Offered Infrastructure REITs No. 4 - Government-subsidized Rental Housing (Trial) (hereinafter referred to as the Guidelines for Government-subsidized Rental Housing REITs or the Guidelines). It is an important measure of SZSE to put in place the decisions and plans of the CPC Central Committee and the State Council on increasing government-subsidized rental housing at a faster pace, intensify support to direct financing, make better use of existing assets, and actively serve the development of a housing system that features supply by a variety of entities, assurance from various channels and encouragement of both housing rentals and purchases.
According to the requirements specified in the Notice of the General Office of China Securities Regulatory Commission and the General Office of the National Development and Reform Commission on Relevant Work Concerning Pilot Issuance of Government-subsidized Rental Housing Real Estate Investment Trusts (REITs) (Z.J.B.F. [2022] No. 53) (hereinafter referred to as the Notice), the Guidelines for Government-subsidized Rental Housing REITs has refined matters on the listing review and continuous regulation of government-subsidized rental housing REITs.
First, the Guidelines has intensified support to fields relating to people’s welling. To put in place the requirements set out in the Opinions of the General Office of the State Council on Putting Existing Asset into Even Better Use and Expanding Effective Investment (G.B.F. [2022] No. 19), the Guidelines has increased support to projects that play an important role in improving people’s wellbeing, stating that it would relax the three-operating-year requirement for government-subsidized rental housing projects that have a high occupancy rate and are already able to generate long-term, stable income if they meet the listing requirements for infrastructure funds and market expectations and make sure their risks are under control.
Second, the Guidelines has refined information disclosure contents. Based on the operation characteristics of government-subsidized rental housing assets, in addition to the conventional items regarding the prospectuses of government-subsidized rental housing REITs, the Guidelines requires the basis for recognition of government-subsidized rental housing, the business independence of the originator, commitments and use arrangements of recovered funds, etc. also be disclosed. In the meantime, it has further detailed the responsibilities of participating entities. It requires the originator to report the use of recovered funds on a quarterly basis and the fund manger to disclose the use of recovered funds in its periodical report and interim report.
Third, the Guidelines has regulated the use of recovered funds. To facilitate positive circulation of investment and financing in the field of government-subsidized rental housing, the Guidelines requires that the originator’s net recovered funds shall be first used in the construction of government-subsidized rental housing projects according to the Notice, and that if there are no government-subsidized rental housing projects that can be invested in, such recovered funds may only be used in projects in other fields that are aimed to improve areas of weakness in infrastructure. If the business scope of the originator’s controlling shareholder or its related party involves development of commodity housing and commercial real estate, the originator shall conduct fully independent management of asset, business, finance, personnel, institution, etc. of government-subsidized rental housing projects and the recovered funds shall be subject to strict closed-loop management, so as to prevent the recovered funds from flowing into commodity housing or commercial real estate development.
Next, SZSE will, under the leadership of CSRC, speed up implementation of government-subsidized rental housing REITs with high standards and effectively put existing assets into good use to form positive circulation of existing assets and new investments. Meanwhile, it will give further play to the functions and role of the capital market to better serve the healthy and stable development of the government-subsidized rental housing market.
