The launch of REITs will also provide investors with a toe hold in China's real estate market which is predicted to continue soaring when funds get moving.
'In the short run, REITs are probably important to some of the local developers as a way to get financing for their new projects,' said Alex Wang, Shanghai-based partner at US law firm Paul, Hastings, Janofsky & Walker.
'Given the difficulties to get financing in the credit market and in the equity capital market, REITs give developers an opportunity to securitize certain performing properties,' he added.
Launching a domestic REITs market is part of a wider financial reform package unveiled by the Chinese government to aid the rapidly slowing economy and boost the slowing property market.
REITs buy properties from developers, providing an important source of funds and reducing the time needed to recoup initial investments. More cash on hand should theoretically speed new development, spurring business activity and saving or creating jobs.
Development of China REITs will also allow foreign property investors to more easily exit the market in the long run and take profits. Firms such as Morgan Stanley and Macquarie Bank have been accumulating Chinese real estate assets.
Listed developers focusing on non-residential property, such as Shanghai Shimao, Shanghai Lujiazui Development and Finance Street are most likely to benefit from REITs, which typically invest in office, hotels and shopping malls that generate stable rental income, according to Shuai Hu, analyst at Haitong Securities.
But REITs are unlikely to help struggling developers holding residential properties or projects under construction.
Prime office rents in Shanghai, China's commercial hub, started to fall in the third quarter of 2008, while average vacancy rates jumped 7.5% to 16.8%, according to CB Richard Ellis. Slower business activity is expected to hit rents further in 2009.
But kick-starting REITs at such a time may help China avoid or at least moderate the boom-bust cycles other markets have seen, thus mitigating some of the risks, industry experts say.
'China REITs give property owners in China an alternative approach to divest. For Beijing it is another way to increase liquidity besides decreasing interest rates and reserve ratios,' said Kurt Jia, China investment director of Jones Lang LaSalle.