As we pass the midpoint of 2026, China's public real estate investment trusts (REITs) have been operating smoothly for over five years. Looking at the current market landscape, it is navigating a period of interplay between "long-term policy tailwinds" and "short-term supply pressures."

These short-term fluctuations have not overshadowed the long-term allocation value. By examining three key dimensions—policy, market, and capital—it becomes clear that the fundamental logic of the public REITs market remains robust, with new developmental opportunities emerging amidst cyclical shifts.

Policy Foundation: Regularized Issuance Solidifies the Base

The continuous refinement of the public REITs framework forms the bedrock for the market's steady growth. In recent years, the institutional development of the public REITs market has progressed steadily. By the end of 2025, public REITs entered a new phase of normalized operation, with commercial real estate REITs fully launched and the expansion mechanism significantly optimized. These policy dividends are consistently being transformed into the market's internal drivers for development.

Simultaneously, comprehensive oversight and enhanced services have advanced in tandem, guiding the market toward stable and long-term progress. By shortening feedback cycles, clarifying review standards, and increasing process transparency, the regulatory framework has effectively reduced institutional transaction costs for market participants. This coordinated regulatory approach not only maintains a risk bottom line through full-chain supervision but also improves market efficiency through refined services, laying a solid institutional foundation for the healthy, long-term development of the public REITs market.

Market Dynamics: Attractive Valuations and the Tug-of-War Between Supply and Expansion

With the support of a robust institutional framework, the market's own cyclical dynamics warrant attention. Currently, valuations in the public REITs market have entered a historically low range, significantly enhancing their investment appeal. Data indicates that the average distribution yield for public REITs now exceeds 6%, with the yield spread between equity-type REITs and 10-year government bonds widening to a historical extreme. This high distribution yield provides a substantial safety cushion for long-term capital. Concurrently, the market has been steadily expanding. As of June 26th, 86 products have been listed with a total scale exceeding 229.8 billion yuan. Since the beginning of the year, the total declared dividend amount across the market has been approximately 6.339 billion yuan, delivering stable returns to investors.

It is also necessary to objectively assess the short-term challenges. With the second batch of commercial real estate REITs successively entering price inquiry phases, the short-term supply pressure of around 17.6 billion yuan is testing market liquidity. In this context, the pricing dynamics between primary and secondary markets have intensified. New projects issued at a premium may lead to distribution yields that underperform comparable secondary market assets, diminishing the appeal of new subscriptions and creating issuance pressure in the primary market. However, this is an inevitable phase as the market matures from its early stages. The short-term supply impact does not alter the vast potential for long-term market expansion, and structural opportunities remain present.

Capital Flows: Index Investing Opens the Tap, Diverse Funds Await Deployment

Currently, the first four China Securities Index (CSI) REITs Total Return Index Funds have been approved and commenced sales on July 1st, marking the formal entry of the public REITs market into a new era of index-based investing. This development is expected to directly inject approximately 1.2 billion yuan in fresh capital, improving the liquidity profile of constituent securities. More importantly, it will significantly lower the participation barrier for individual investors, introducing a broader range of market participants and providing a strong mechanism for the influx of new individual capital.

At the same time, the structure of existing capital is quietly optimizing. Holdings of REITs by public fund-of-funds are steadily increasing, and several REITs have recently seen concentrated share purchases by their original holders, reflecting recognition from industrial capital and institutional investors of current valuations. Looking ahead, with the ongoing advancement of policies facilitating the entry of long-term capital such as insurance funds and pensions, the market's investor structure is expected to further improve. Diverse sources of incremental capital are poised for deployment and are set to become a core driver for market valuation recovery.

Therefore, despite facing the test of short-term supply pressure, the long-term allocation value of the public REITs market has significantly improved under the combined resonance of three factors: a solidifying policy foundation, historically low market valuations, and the impending influx of new capital. As the multi-tiered REITs market system continues to improve, public REITs will play a crucial role in revitalizing existing assets and supporting the high-quality development of the real economy.