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 to ensure smooth implementation of the projects.

According to a market research expert on REITs, the initial feedback inquiries serve both as a careful check on project quality and as a demonstration of the regulatory authority’s precise policy approach of “strict but measured, strict but effective,” reflecting active exploration in enhancing institutional inclusiveness and adaptability. This injects sustainable momentum into the commercial real estate REITs market and supports 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, some 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 in some of the first batch projects, land transfer contracts stipulated that equity transfers must be notified to the land transferor, and property certificates recorded that the project was for leasing purposes.

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, which involves not only equity transfer but also asset securitization pathways. Any unresolved restrictions could impact the legality and validity of transfers, and disclosure documents should clearly explain arrangements for lifting transfer restrictions to investors.

Meanwhile, feedback from the first batch projects shows that compliance requirements for commercial real estate REITs extend beyond the legality of underlying asset procedures to all aspects affecting product operation. Regulators also questioned whether the participating entities, issuance and trading of products, and fund use and allocation meet compliance standards, ensuring the legitimate rights and interests of investors.

Strictly Guard Asset Quality

It was observed 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 the rights? Are the income streams included in the project company? An expert explained, “The inquiries are not trivial. Although the income from outdoor stalls is not high, if ownership is unclear, the cash flow associated with the assets becomes uncertain. An incomplete asset scope undermines the foundation of cash flow.”

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 assess the stability of rental income and ensure that distribution rates are based on real cash flows.

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

“REITs are about asset listing; asset quality determines the product’s caliber,” said the expert. High-quality development of the REITs market requires not only emphasizing the financing function but also ensuring investment value, leveraging the synergy between assets and capital, and coordinating investment and financing to achieve sustainable and healthy growth.

Balancing “Strict but Measured” Standards

Compliance is the bottom line, quality is fundamental. Revitalizing existing assets and leveraging investment and financing functions to serve broader economic and social development are core goals of the REITs market.

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

Materiality guides the “measure.” 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, a differentiated approach based on materiality can prevent “one-size-fits-all” measures, maintaining market efficiency and vitality.

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

For example, in a project with missing procedures due to historical additions, the feedback adopted a pragmatic standard: whether the added space generates independent cash flow and its proportion of total area. If the added space does not generate independent income and accounts for a very small area, it can be included in materiality assessments with full risk disclosure and mitigation. However, if it constitutes core operational space, procedures must be completed or official compliance 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 allowing the market to play a decisive role in resource allocation, and fully stimulate the innovation vitality of 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, improve systems, clarify expectations, build ecosystems, avoid ‘one-size-fits-all,’ and prevent superficial ‘zero-defect’ standards. Market mechanisms should be used to stimulate endogenous motivation among participants,” the expert concluded.

(Edited by: Xu Nannan)