First Batch of Commercial Real Estate REITs Review Inquiries Released; Regulatory Authorities Maintain "Strict but Appropriate" Oversight on Project Quality

Author: He Xinyi

Before the 2026 Spring Festival, the first batch of commercial real estate REITs projects submitted applications and received acceptance from the China Securities Regulatory Commission and the stock exchanges, marking the official expansion of China’s REITs market asset types into the commercial real estate sector. In the first week after the holiday, feedback on three projects—Shanghai Real Estate, Jinjiang, and Vipshop—was publicly disclosed.

From the first batch of projects, the underlying assets are of high quality and have good representativeness. The review inquiries further scrutinize asset quality, compliance, income stability, and governance mechanisms, ensuring the smooth implementation of related projects.

Market research experts on REITs stated that the initial feedback inquiries serve both as a careful check on project quality and as a demonstration of the “strict but appropriate, precise, and effective” policy approach. This reflects regulatory authorities’ active exploration to enhance the inclusiveness and adaptability of the system, injecting sustainable momentum into the commercial real estate REITs market and supporting high-quality economic development.

Inquiry Targets Compliance Bottom Line

In the first batch of feedback inquiries, regulators focused on major compliance issues affecting the continuous and effective operation of assets and the legality of transfers.

Specifically, the feedback clearly states that key compliance procedures must not be missing. In one project, critical procedures such as fire safety acceptance had not been obtained, raising issues related to the legal existence of the assets and valid transfers. The regulators in their feedback asked about the completeness of compliance procedures and required supplementary or official compliance opinions from relevant authorities.

Transfer restrictions also need to be lifted. Shanghai Securities News noted that some assets in the first batch had land transfer contracts stipulating that equity transfers must be notified to the land transferor, and the property rights certificates included notes indicating the property is for leasing.

In response, regulators inquired whether written notices had been provided, whether the transferor had objections, and whether the wording on the certificates constituted transfer restrictions. The feedback emphasized that the essence of REITs is asset listing—not just equity transfer but also asset securitization. Any unresolved restrictions could impact the legality and validity of transfers, and disclosure documents should clearly explain the arrangements for lifting transfer restrictions to investors.

Meanwhile, feedback from the first batch shows that compliance requirements for commercial real estate REITs go beyond the legality of underlying asset procedures, covering all aspects affecting product operation. Regulators also questioned whether the involved entities, issuance and trading processes, and fund use and distribution complied with regulations, ensuring the protection of investors’ legitimate rights.

Strict Asset Quality Control

Reporters found that regulators’ focus on asset quality and value runs through every stage—from asset scope to operational capacity and governance mechanisms.

Clear asset boundaries directly relate to asset quality. In one project, the focus was on outdoor sales points: who owns them? Are the revenues included in the project company? Experts explained that inquiries are not trivial; although outdoor sales income may be low, unclear ownership creates uncertainty about cash flow attribution. An incomplete asset scope undermines the cash flow foundation.

Operational data directly reflect asset quality, with leases and tenants being sources of value. Questions included whether the minimum income guarantees from joint tenants are sustainable, tenant renewal rates, and the impact of future new competitors on customer flow. These inquiries aim to verify the stability of rental income and ensure that distribution rates are based on actual cash flows.

Operational management capabilities and mechanisms are also scrutinized. For example, if a project’s basic management fee is lower than historical labor costs, regulators ask whether the fee rate is reasonable, whether incentives are aligned, and whether rewards and penalties are balanced. Effective incentive and constraint mechanisms can align the interests of management teams and investors, jointly increasing value.

“REITs are about asset listing; asset quality determines the product’s caliber,” said the expert. High-quality development of the REITs market should not only focus on financing functions but also on investment value, leveraging the synergy between assets and capital, and ensuring coordinated investment and financing for sustainable, healthy growth.

Balancing “Strict but Appropriate” Standards

Compliance is the bottom line; quality is fundamental. Revitalizing existing assets, enhancing financing functions, and serving the broader economic and social development are core goals of the REITs market.

How to strike the right balance? Industry insiders say that the first batch of feedback clearly reflects the regulatory authorities’ overall approach of “strict but appropriate” asset compliance review, summarized by two principles: materiality and constructiveness.

Materiality guides the “appropriateness.” The initial feedback focused on whether issues affect the legal transfer and ongoing operation of assets. Missing key procedures like fire safety acceptance require supplementary actions or official compliance statements. For non-critical procedures, differentiated handling based on materiality can prevent a one-size-fits-all approach, maintaining market efficiency and vitality.

Constructiveness ensures “appropriateness.” When projects meet issuance and listing conditions and can effectively protect investors’ rights, regulators allow categorized approaches such as supplementary procedures, official explanations, risk disclosures, and mitigation measures.

For example, in one project, missing procedures due to historical modifications were judged more pragmatically. Regulators first assessed whether the modifications generated independent cash flows and their proportion of the total area. If the modifications do not generate independent revenue and occupy a very small area, they can be included in materiality assessments with full risk disclosure and mitigation measures. However, if they involve core operational spaces, procedures must be completed or official compliance opinions obtained.

Experts believe that in capital market development, a dynamic balance between regulation and market growth is essential. How to strictly follow market-oriented, rule-of-law frameworks while enabling the market to play a decisive role in resource allocation and stimulating innovation among market entities remains a key challenge.

“This requires always adhering to compliance as the foundation, quality as the core, and efficiency as the priority. On the basis of strict access control, we should improve systems, clarify expectations, build ecosystems, avoid ‘one-size-fits-all’ approaches, not pursue superficial ‘zero-defect’ standards, and use market mechanisms to stimulate endogenous motivation among participants,” the expert concluded.