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China rental housing white paper

New demographic trends, rising thresholds for home purchases, supportive policies, capital investment and other market fundamentals have continued to strengthen and accelerate the rental housing industry’s pace of development. Following a period of reshuffling and segmentation, companies that maintained steady operations have successfully developed business models suitable for long-term development. At the same time, China’s rental housing market has also attracted broad attention from international investors.

In the future, rental housing investment in China will meet further opportunities as well as challenges; key market participants will need to pursue broader and deeper cooperation to continue facilitating the market’s further development. As the REITs pilot program continues to grow in scale, its scope will be expanded to also include market-based rental housing, making the rental housing sector another blue ocean for China's REITs. An increasing number of long-term investors will expect REITs exit to emerge as one of the main exit strategies for their medium to long-term investments in rental housing.

730,000 units

Total number of rental housing units operated by top players in 2020 doubled the 2018 amount

89% ~ 95%

The average occupancy rate for stabilized projects by leading brands that have been in operation for over six months

Shanghai, Beijing & Shenzhen

Most favoured rental housing markets by investors

4.5% ~ 5.5%

A stable return expected by most investors for rental housing projects in China

China rental housing white pager 2021

Under the multiple effects of policy support, demand release, and supply optimization, China's rental housing market is growing rapidly. Recently, the China Banking and Insurance Regulatory Commission’s announced it would promote insurance funds to support the development of the rental housing market, while also advancing the REITs pilot in conjunction with the People’s Bank of China.

Q&A

Favourable demographic trends (rising population mobility, delayed marriage and childbirth, and shrinking household sizes), rising threshold for home purchases (major cities’ high housing prices and strict home purchase regulations), policy support (future development) and capital market (inflow of diverse capital leading to the expansion of asset-heavy strategies) are the four major drivers contributing to the rental housing market’s rapid growth.
In 2017 and 2018, beneficial policies led to strong growth as many companies entered the rental housing market. They expanded their presence at a rapid and sometimes disorderly pace. Following the reshuffling and segmentation in 2019 – 2020, the market greeted new development opportunities. Although the main source of demand in the rental housing market is still fresh graduates and young professionals, demand sources have gradually broadened to include some additional emerging groups. This indicates that rental housing products have been gradually accepted by more diversified tenant groups in China. On the supply side, the mid-to-high-end rental housing market is gradually expanding in major cities.
1. Facing the challenge of overpriced asset, investors should develop understanding of submarket demand fundamentals and identify reasonably priced strategic conversion opportunities in non-core areas;
2. Due to the difficulty in acquiring land and/or assets, market participants shall leverage comparative advantages to achieve mutual success;
3. Although low market liquidity poses challenges to future exit, portfolio sales may be the main exit path in the short term, while public REITs are expected to improve market liquidity in the medium term.
On July 2, China’s National Development and Reform Commission (NDRC) issued its Notice, which proposed that affordable rental housing would be included in China’s REITs pilot. There’s a high compatibility between rental housing and REITs. While only affordable rental housing is included in China’s REITs pilot at the current stage, we believe that market-oriented rental housing eventually will also be included, as China’s REITs pilot continues to evolve and the range of their underlying assets continues to expand. REITs exit will be expected to emerge as one of the main exit strategies for investors.
This report focuses on market-based rental housing that follows the single-ownership model, which is characterized by lease periods of more than six months, and the unified provision of basic services by a property management company, such as cleaning and maintenance of common areas and emphasis on shared facilities, i.e. open kitchens, gyms, meeting areas and other entertainment facilities.

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