SHANGHAI (Reuters) -China's securities regulator has approved three applications for the country's first publicly traded consumption-related REITs, although market participants say persistent concerns about the property sector will weigh on appetite for new products.

The commercial real estate investment trusts (REITs) approved by the China Securities Regulatory Commission (CSRC) are backed by properties owned by SCPG Holdings Co. Ltd., Shanghai Xingxiumao Business Management Co. Ltd, and the commercial unit of China Resources Land.

The three applications were approved, according to information from the Shanghai and Shenzhen exchanges released on Sunday and Monday.

Shopping malls, supermarkets and other retail-focused properties generally come under the so-called consumption-related infrastructure projects.

The approvals come after China expanded the scope of REITs in March to consumption-related properties as part of efforts to prop up a battered property sector. The REITs would allow investor funds to flow to property owners while also giving developers an opportunity to exit their projects.

But after years of Beijing's crackdowns on leverage in the property sector, flagging sales and defaults by some of China's biggest developers, investors are wary.

"We'll be treating the new products with increased scrutiny," said Zheng, a trader at a bank's wealth management division, who prefers to go only by his last name as he is not allowed to speak to media.

Zheng said he had already sold REITs the bank held earlier, citing the drop in returns.

First introduced in 2020, China's nascent REITs market is valued at roughly $14 billion, a fraction of the more mature $1 trillion U.S. REIT market. The CSRC had so far only approved REITs backed by affordable housing, and some industrial and infrastructure projects.

Public REITs are issued by mutual funds.

Their performance has so far disappointed with a REITs index started in 2021 by the China Securities Index Company down 27% so far this year and close to record lows.

Huaxia China Communications Construction Expressway, which set a record when its REIT was 100 times oversubscribed by public investors in 2022, has lost 40% since launch.

Christina Zhu, an economist at analytics firm Criat, says pricing is key, and past examples showed REITs sometimes projected overly optimistic future cash flows from their underlying assets to lift their valuations.

Ben Charoenwong, assistant professor at National University of Singapore, said REITs still reflected underlying economic fundamentals.

"With the aggregate demand, particularly driven by consumer spending and slowing down in China, retail REITs will probably continue to suffer," said Charoenwong.

SCPG Holdings, Shanghai Xingxiumao Business Management and China Resources Land did not immediately respond to Reuters' requests for comment.