China is considering introducing real estate investment trusts (REITs) to help increase financing channels for real estate developers, Qi Ji, vice minister of the Ministry of Housing and Urban-Rural Development told a press conference on Tuesday.

The move would help the country's real estate developers raise money by means other than commercial bank loans, which are now the primary source of funds, Qi said.

According to Qi, the People's Bank of China (PBOC), the central bank, is working on the scheme.

"The PBOC has formulated a pilot scheme, which will be submitted for approval to the State Council after consulting relevant ministries," Huo Yingli, deputy director of the PBOC financial markets bureau, said at the same conference.

Risk resistance and simple management are PBOC's major considerations when working on the proposal, she said.

The REIT, originated in the US in 1960, has been introduced to many countries and regions, including Australia, Germany, Singapore and Hong Kong. It securitizes property projects into traded units sold to investors.

According to Huo, outstanding loans of property companies totaled 5.24 trillion yuan (US$766.1 billion) by the end of November, up 10.3 percent year on year. But the growth rate was 1.9 percentage points lower than October and 20.6 percentage points lower compared with the same period in 2007.

Falling demand is pounding China's real estate industry with total sales in 2008 expected to drop more than 21 percent from 2007 to 600 million square meters, according to Qi.

The country's residential sales will reach 500 million sq m last year, falling from 691 million sq m in 2007.

Property price growth is also falling. Property prices in 70 major Chinese cities rose 0.2 percent year on year in November of 2008, 1.4 percentage points lower than October.

The growth rate was the lowest since the government started to publish the figure in July 2005.

To boost the ailing industry, China announced a real estate stimulus package last month and later unveiled details of the package.

These included building more houses for low-income urban families, encouraging home buying, supporting property developers to deal with the changing market, enhancing the role of local governments in stabilizing the real estate market, and improving surveillance on the property market.

The government has vowed to solve the housing problem for 7.47 million low-income urban families and 2.4 million households in shanty towns in the next three years. In 2009, 2.6 million low-income urban families and 800,000 households in shanty towns will benefit from the program.

This will help remove one of the "three mountains", Qi said. Housing, medical care and education are considered "three mountains" that weigh upon the backs of Chinese people because of soaring costs.

(Xinhua News Agency January 7, 2009)