China to offer US REIT index funds

China is set to see the introduction of its first index funds tracking US real estate investment trusts (REITs) next month, an asset management unit under one of the country's largest brokerages announced Wednesday.

Guangzhou-based GF Fund Management Co, a division of GF Securities, will roll out two funds following the MSCI US REIT Index, which tracks 120 US REITs.

The funds - one denominated in the yuan and the other in US dollars - will be made available to investors starting from July 8, the Wall Street Journal reported Wednesday. GF Fund Management will direct the funds under China's qualified domestic institutional investor (QDII) scheme, a capital control program which allows local investment groups to tap foreign financial markets.

"The US property market is recovering … It is a good time for such investment," GF Chairman Wang Zhiwei was quoted as saying in a report by Bloomberg.

News of GF Fund Management's new investment vehicles comes after Guotai Asset Management Co's inauguration last Thursday of a fund which mainly invests in US stocks involved in real estate development. Guotai Asset Management said on its official website that the prices of listed US REITs have increased over the past four straight years.

Aside from the attraction of the US real estate market and its promise of high returns, Chinese investment companies are designing products such as these REIT funds as a way to expand their QDII offerings, Cindy Qu, a cross-border market analyst from Z-Ben Advisors, a Shanghai-based fund investment consultancy, told the Global Times.

"Following the global financial crisis in 2008, many QDII vehicles tied to overseas stocks lost their appeal with local investors," Qu said. "Fund companies now are trying to introduce more innovative QDII products in order to reignite investor interest."

Under US tax laws, REITs are defined as corporate entities that invest in, own and manage real estate or real estate mortgages. Such entities - which can be either publicly traded or privately owned - account for roughly half of US property investment.