Since its launch in February 2023, the pilot program for real estate private equity investment funds has completed over three years of exploratory development. As an innovative tool for capital markets to support real estate transformation, the pilot has achieved phased results in areas such as affordable housing and commercial properties. With the gradual clarification of the new real estate development model, the functions and positioning of real estate private equity funds have become further defined.
Recently, the China Securities Regulatory Commission (CSRC) released the "Opinions on Capital Market Support for Building a New Real Estate Development Model" (hereinafter referred to as the "Opinions"), which explicitly states the commitment to "continue advancing the pilot work of real estate private equity investment funds." Going forward, this pilot is expected to play a positive role in attracting long-term capital, revitalizing existing assets, and adapting to changes in the industry's financing structure. Industry experts, intermediary professionals, and leaders from pilot-participating institutions told reporters that while the operational pathway for real estate private equity funds has been largely established, there remain bottlenecks and shortcomings in their development. As relevant systems are gradually improved and pilot experience accumulates, the normalization of real estate private equity funds is within reach.
Pilot Results Begin to Show
Building a new real estate development model requires a matching capital market service system. On February 20, 2023, the CSRC launched the pilot program for real estate private equity investment funds, with the Asset Management Association of China simultaneously releasing the "Pilot Filing Guidelines for Real Estate Private Equity Investment Funds (Trial)" (hereinafter referred to as the "Pilot Guidelines"), which established a new category of "real estate private equity investment funds" with differentiated regulatory policies. The Pilot Guidelines set eligibility thresholds for fund managers seeking to establish such funds, including ten requirements such as "paid-in capital of no less than RMB 20 million."
Six leading institutions, including CDH Investments, Shenzhen Capital Group Real Estate Fund, Gohar Capital, and Zhonglian Qianyuan Real Estate Fund, were among the first to participate, with China Life Capital and others joining subsequently. The newly released Opinions explicitly propose supporting eligible private equity fund managers in establishing real estate private equity funds, attracting institutional capital to invest in real estate projects that meet policy requirements.
"Real estate private equity funds are no longer merely a tool arrangement for revitalizing existing assets but have been incorporated into the overall institutional design of building a new real estate development model," said Liu Jun, partner and lawyer at Grandall Law Firm (Shanghai). In Liu's view, behind the new real estate development model lies an unavoidable financial proposition: historically, the vast majority of capital supporting the industry consisted of debt-based funding such as bank development loans, trust products, and bonds, with repayment logic dependent on housing sales proceeds. In contrast, income from hold-and-operate real estate derives from rental and operational cash flows, featuring longer cycles and relatively stable returns.
The mismatch in duration and risk between these two models necessitates the involvement of equity-based long-term capital capable of holding real estate assets to truly complete the financial services loop. Compliant and transparent real estate private equity funds are among the best vehicles for equity capital to enter the real estate space. The 2023 launch of the pilot resolved the question of "whether it can be done," and based on over three years of practice, the pilot has achieved phased results.
As one of the first batch of pilot managers, Zhou Yisheng, managing partner at Gohar Capital, explained: "Gohar Capital focuses on the trend of the real estate market shifting from incremental development to existing asset operations. Leveraging our advantages in active management and equity investment, we integrate asset acquisition, operational enhancement, capital structure arrangement, and exit strategies to explore long-term investment models that connect market capital with quality real estate assets."
The pilot has already delivered cases in affordable housing and commercial properties. For example, Gohar Capital has practiced in shopping malls and logistics warehousing, establishing funds such as the Livat Shopping Center Asset Package Core Fund, the Wanda Commercial Asset Package Fund, and the Jointown Pharmaceutical Logistics Pre-REITs Fund. Liu Jun's overall assessment of pilot effectiveness is that the institutional channel has been opened, with demonstrative significance outweighing aggregate significance, and the market remains in a stage of "small steps, slow progress."
"At present, the rule system for real estate private equity funds is basically in place, and the underlying assets of projects landed in practice highly correspond to the asset categories of public REITs. This indicates that the market has spontaneously begun screening assets based on 'exitability' standards, and awareness of the Pre-REITs pathway has been broadly established," noted Chang Chunlin, founder and partner of Beijing Liwu Investment Management Co., Ltd. "Real estate private equity funds have shown effectiveness in activating existing assets and guiding institutional capital, particularly on the capital side, where long-term funds such as insurance capital have a relatively high level of recognition for real estate alternative assets."
Scale Development Still Faces Bottlenecks
However, from pilot practice, institutional viability does not equate to scale expansion, and the pilot's progress at the scale level remains limited. "In terms of filing scale, pilot funds still account for a very small proportion of the overall real estate investment volume," Liu Jun admitted. Over more than three years, the focus has been on establishing the institutional framework and testing the pathway; the release of scale still awaits the removal of several key constraints.
Interviews revealed that bottlenecks including tax burden levels, long-term capital supply, and professional manager reserves are constraining the scaled development of real estate private equity funds. "Tax burden and transaction costs are the most direct influencing factors," Liu Jun analyzed from a legal perspective. Under the asset transfer route, land value-added tax, value-added tax, deed tax, and corporate income tax combine to create a heavy tax burden; under the equity acquisition route, while some turnover taxes can be avoided, historical debts and compliance defects of the project company must be assumed, and land value-added tax obligations at future exit are not eliminated.
The applicability of special tax treatment for corporate restructuring and tax exemptions for asset transfers to real estate-related entities has long been subject to significant uncertainty. Additionally, inconsistent local implementation standards for tax treatment at fund and investor levels, as well as pass-through taxation for partnerships, all increase transaction uncertainty. Challenges on the fundraising side are equally prominent. Li Shilin, research director at Tsinghua University's Global Private Equity Research Institute, told reporters that the relatively high thresholds for real estate private equity fund pilots exclude many institutions.
For long-term capital such as insurance funds to allocate to real estate private equity funds, regulatory authorities still need to further optimize relevant systems. Liu Jun also noted that insurance funds investing in private equity funds face requirements regarding manager qualifications and solvency capital occupation, while channels for bank wealth management and pension funds to enter real estate equity investment have not yet been fully opened. Meanwhile, with real estate asset prices in an adjustment phase in recent years, institutions lack confidence in underlying valuations and future exit prices, generally showing a pattern of "willing to look but afraid to invest," with extensive due diligence but few actual deployments.
"Difficulty in fundraising is not a product design issue but a combined result of asset price expectations and capital access rules," said Wang Zhiwei, managing director of Beijing Xinding Rongsheng Capital Management Co., Ltd. He believes the main challenge lies in the scarcity of quality compliant targets, as assets meeting policy requirements with stable cash flows are concentrated among a limited number of platforms. Furthermore, real estate private equity funds have longer cycles and slower returns, conflicting with some institutions' short-term assessment mechanisms.
Based on pilot practice, Zhou Yisheng proposed three recommendations: first, accelerate the improvement of the renewal system for industrial and commercial land use rights, further clarifying applicable conditions, application timing, renewal periods, fee calculation methods, and procedural arrangements to enhance policy implementation stability and predictability across regions; second, improve the connectivity between real estate private equity funds and institutional REITs and public REITs, providing policy support for asset flows between different product vehicles; third, enhance the efficiency of urban renewal, existing asset restructuring, and revitalization, improving policy coordination in areas such as historical procedures, ownership issues, use adjustments, taxation, and registration.
Potential to Unlock Greater Capital Efficiency
Despite existing bottlenecks, interviewed parties are generally optimistic about the development potential of real estate private equity funds. They believe that once the pilot completes validation and transitions to a normalized mechanism, real estate private equity funds will unlock greater capital efficiency. Li Shilin, drawing on international experience, analyzed that real estate private equity funds possess specific advantages in revitalizing existing real estate assets and handling non-performing assets. Managers can establish funds to raise capital, acquire existing properties, and transform them into various forms of new housing including affordable housing, low-rent housing, and youth apartments, thereby revitalizing existing assets, increasing effective supply for society, and simultaneously reducing the burden on real estate enterprises.
"As the pilot gradually expands, under the new model, real estate private equity funds will become a crucial hub in the 'existing assets–institutional capital–public exit' cycle, as well as key infrastructure for stabilizing the real estate market," Chang Chunlin stated. In Liu Jun's view, as the pilot progresses, its impact will manifest primarily in two aspects. On one hand, it will change the industry's financing structure. The entry of equity capital can reduce leverage levels in the holding phase, allowing assets to return to the pricing logic of "operational cash flow determines value," and distributing risk to institutional investors capable of bearing it, rather than layering pressure on the banking system and homebuyers.
On the other hand, it will form a complete closed loop of "investing, financing, managing, and exiting." With private funds acquiring and nurturing assets, public REITs listing for exits, and recovered capital reinvested into new projects, the real estate sector will have a capital circulation mechanism similar to equity investment supporting technological innovation. Once this cycle is established, the industry will no longer need to rely on presale proceeds and debt rolling to sustain operations.
Liu Jun also mentioned that when income-generating assets can be capitalized through funds, real estate enterprises will have the opportunity to transform from "developers" into "asset managers and operation service providers," shifting revenue from sales margins to management fees, operational income, and excess return sharing. "Many assets are not without value; they need to have their value rediscovered." As Zhou Yisheng put it, the real estate industry's shift from incremental development to existing asset operations does not mean the industry's value has disappeared, but rather that the way value is created has changed. In the past, a project's value was primarily realized during the development phase; in the future, increasing value will be realized through acquisition, restructuring, operations, securitization, and long-term holding.