Beijing and Shanghai recently pioneered real estate trust registration frameworks, clarifying property rights transfers where trustees manage assets per client directives. These initiatives enhance asset segregation, facilitate industry transformation, and improve social welfare. The pilots addressed two critical challenges: resolving ambiguous ownership registrations that previously risked conflicts with third-party creditors, and streamlining transactions by enabling direct title transfers instead of cumbersome cash-to-property conversions.

Initial applications demonstrated promising use cases: Shanghai Trust and Aijian Trust structured "reverse mortgage" models where seniors retain residence rights while rental income funds eldercare. Foreign Trade Trust designed multi-generational inheritance solutions to prevent disputes, and SDIC Taikang Trust safeguarded properties for special-needs beneficiaries. Yet momentum stalled post-launch due to inherent constraints. Highly customized client demands—spanning eldercare, asset succession, and hybrid cash-property arrangements—prevented standardized product scaling. Moreover, punitive "deemed transaction" tax rules imposed double levies: setup costs for individuals exceeded inheritance taxes by over 20% and public REITs by 3%, while distributions faced 9% VAT versus REITs’ 3%. Corporate sponsors endured even steeper burdens.

Public REITs share functional parallels with real estate trusts—both transfer assets to SPVs for professional management—but diverge structurally. REITs typically use project company equity transfers for off-balance-sheet treatment, while trusts rely on direct property registration sans monetary exchange. Crucially, REITs flourished under tailored tax incentives: deferred corporate income taxes during setup and asset-management rates during distributions. Since China’s 2021 REITs debut, 66 projects have mobilized nearly ¥180 billion, revitalizing infrastructure assets.

Globally, REITs dominate $2.5 trillion real estate markets, led by the US (60%), Japan (12%), and Europe (10%). Structural variations emerge: US/Japanese REITs employ corporate models with direct asset transfers, while others utilize trust frameworks with project company stakes. Private REITs command significant shares—over 40% in the US (e.g., Blackstone’s BREIT) and Japan—delivering higher yields for institutional investors. Tax regimes universally avoid double taxation: US sponsors defer 21% capital gains tax during setup, while Japan imposes 23.2% capital gains but exempts REIT-level income if 90% distributions occur. China’s real estate trusts face the heaviest tax burden globally, followed by J-REITs, US REITs, and domestic public REITs.

With 97.8 million vacant units (valued at ¥10 trillion) potentially housing 254 million people, real estate trusts could unlock massive value. Government-backed acquisitions—allocating up to ¥1 trillion from special bonds—lack exit mechanisms. Meanwhile, existing public REITs for affordable housing face restrictive criteria like 75% occupancy thresholds, limiting scalability. Granting real estate trusts tax parity with REITs would transform markets: municipalities could securitize acquired properties as rental trusts, developers could shift from sales-centric models to operational efficiency, and dormant assets could fuel a ¥10 trillion liquidity pool.

Policy recommendations include: - Creating interoperable "trust-to-REIT" pathways, allowing qualified trusts to transition after 3-5 years - Adopting REITs-style tax deferrals and capping distribution VAT at 3% - Establishing national registration platforms integrating natural resources and trust databases - Launching "government-fund + trust" pilots with subordinate financing for social housing - Designing stratified products combining stable rental tiers (AAA) with commercial upside (AA+)

Real estate trusts—when unshackled from tax inefficiencies—can complement REITs in building a multi-tiered property market, injecting vitality into China’s economic transformation.