By Dominic Whiting

SINGAPORE (Reuters) - China could kick-start a property trust market next year to give its pension funds and insurers an alternative to volatile stocks and meagre returns from government bonds, according to an industry group.

The move could lead to the listing of as much as $60 billion (30 billion pounds) worth of buildings in the form of real estate investment trusts (REITs) over the next five years.

And although it is unclear whether overseas investors would be allowed to invest in the securities, foreign property funds in China are keen to see new potential buyers for the office blocks and shopping centres they are accumulating.

Stock market watchdog China Securities Regulatory Commission (CSRC) sent a delegation to Australia in May to study property trusts, and is working with other authorities including the central bank to draw up legislation.

The trusts will probably be externally managed, in line with the Singapore and Hong Kong model, said Peter Mitchell, head of the Asian Public Real Estate Association, which is advising the CSRC on the matter.

"A pilot REIT could possibly get underway next year," Mitchell said. "They see pension funds and insurance companies as the main investors, as well as the man on the street."

Property trusts, which pay most of their rent as dividends, have been long-established in the United States and Australia, but have caught on across Asia over the last five years as commercial property markets rode a cyclical upswing.

Asian REIT market capitalisation has grown to around $80 billion, but unit prices have dropped this year -- by as much as 24 percent in Japan -- as investors demand higher rental yields to compensate for rising bond yields and inflation.