China Securities Co.,Ltd.: Improved systems and tools broaden funding sources; focus on stable distributions and operational recovery opportunities

China Securities Co.,Ltd. released a research report stating that C-REITs supply continues to expand, and funding-side development needs to advance in tandem. U.S. and Japanese experience shows that relaxing investment constraints helps expand the participation of allocation-type capital, active foreign trading affects marginal pricing, and index tools broaden allocation channels for institutions and residents. Domestically, insurance capital, wealth management, and resident demand can be released in stages, gradually improving social security and pension participation mechanisms and cross-border channels, and guiding funding absorption capacity to rise with supply expansion; under a scenario in which relevant conditions are gradually implemented, the long-term allocation scale is estimated at approximately RMB910 billion. The relatively low yield level of inter-institutional REITs reflects allocation demand amid an asset shortage, and current public REITs valuations are already attractive. It is recommended to build a bottom position with stable-distribution assets such as affordable rental housing, municipal environmental protection, and data centers, and to watch for operational recovery opportunities in some warehousing and logistics and expressway assets. The main views of China Securities Co.,Ltd. are as follows: C-REITs asset supply has entered a new stage, and funding sources and allocation channels urgently need new variables As of September 2026, 89 listed REITs had a total market value of approximately RMB230.5 billion, with assets covering major types such as commercial real estate, energy, and transportation. Domestic major institutional holders remain concentrated among original equity holders, industrial capital, securities firms, and insurers; compared with the U.S. and Japan, where indirect allocation through funds, asset management, and trust accounts dominates, there is still room to expand capital access, product tools, and cross-border channels. Overseas allocation-type capital Relaxed investment constraints expand REITs allocation demand, and countercyclical increases strengthen market absorption. After U.S. pension holding constraints were relaxed, their holding share rose from about 12% in 1993 to about 30% in 1998; the Bank of Japan cumulatively bought about RMB34.1 billion of J-REITs from 2010 to 2022 and increased purchases during periods of market stress. Overseas trading-type capital Foreign allocation increases absorbed J-REIT supply expansion, and active trading affected marginal pricing. From 2004 to 2007, the foreign holding share rose from about 10% to 29%; in 2025, the trading value share was about 52%, significantly higher than the roughly 23% holding market value share in August of the same year. Foreign capital has both allocation and trading attributes, and cross-border channels help broaden funding sources and enhance secondary-market liquidity. Allocation tools Index products lower the threshold for REITs portfolio investment, and ETFs broaden institutional allocation channels. From 2015 to 2025, J-REIT ETF scale increased from JPY0.34 trillion to JPY2.52 trillion, and bank holdings increased from JPY0.19 trillion to JPY1.24 trillion, surpassing direct holdings in 2021. Broad-based ETFs carry nearly 90% of the market scale, while off-exchange index funds provide a supplementary channel; domestically, priority can be given to cultivating broad-based core products to cover different investor needs. Overseas experience for reference: broaden funding sources in stages, and position at low valuations for certainty and recovery elasticity In the short term, improve insurance capital investment rules, expand public fund participation, and develop index tools; in the medium and long term, gradually broaden social security, pension, and overseas funding channels, and guide funding absorption capacity to rise with supply expansion, with the long-term C-REITs allocation scale estimated at approximately RMB910 billion. The relatively low yield level of inter-institutional REITs reflects allocation demand for stable-yield assets; currently, the average cash distribution rate of public equity-type REITs is about 4.7%, offering certain allocation appeal. It is recommended to build a bottom position with certain assets such as affordable rental housing, municipal environmental protection, and data centers, while also considering the operational recovery elasticity of warehousing and logistics and some expressway assets. Risk analysis 1. Risk that approval and issuance progress falls short of expectations; 2. Risk that policy introduction falls short of expectations; 3. Risk of secondary-market volatility.