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Friday, May 5, 2017, 17:11

Investors rush to develop rental housing

By Reuters


When David Chen, 29, relocated a year ago to an advertising company in the southern city of Shenzhen - one of the country's most expensive property markets - he decided a "youth apartment” was his best bet for housing.

Many youth apartments feature a "co-living" theme with a common space where tenants can socialize after work. They also have live-in managers who organize weekly events such as movie nights, cooking parties, and field trips.

"I was new to the city and didn't have many friends, so I thought living with other young people would be more fun. I like to party," said Chen, who pays 2,800 yuan a month, or around 20 percent of his salary, for an apartment operated by China Vanke, the country's No. 2 developer by sales.

His en-suite room is around 25 square meters. It fits a double-sized bed and small wardrobe, but has no kitchen.

"To buy a two-bedroom unit you'd need at least 1 million yuan for a down payment and I can't afford it now," Chen said, adding that a short-term lease was preferable as he may have to relocate to Shanghai after a few years.

The investors are being helped by a government-backed drive to support rental supply in a bid to rein in property prices and satisfy housing demand. The authorities have allowed commercial properties to be redeveloped into rental apartments, and encouraged banks to provide financing to rental apartment companies.

"The biggest challenge is to turn rental apartments into a sustainable and scalable business in China, from development to exit," said Charles Ma, China managing director of Greystar, which manages more than US$17 billion in assets globally.

He cited high land and financing costs, and taxes as issues for developers getting into the rental market.


For major foreign investors it is also difficult to find developments of a size – worth US$50 million or more - that would make sense.

And in some places, there are already signs of a glut of rental apartments.

"In China, if something is good then everyone jumps in," said Ma. "For example, over the past year there are many 'youth apartments' built across cities and the occupancy rate is often not too high. The sudden boost in supply may create a glut in the short term, but that creates trading opportunities and consolidation will eliminate the non-serious or small players."

One very positive sign is that renters are starting to stay longer because of the home price crunch.

"In the past, youth apartments could only retain young tenants for 2 to 3 years, then they'd purchase a property when they got married. But this period is getting longer and people are also getting married at a later age in big cities, so demand for these apartments is only getting greater," said JLL Head of Research East China Joe Zhou.

Most developers have yet to address the market for newlywed couples and those with young families, though Mogoroom has some buildings with larger apartments. There is traditional resistance in Chinese culture to renting rather than buying after getting married - and many couples still see owning a property as a prerequisite for marriage.

The youth and white-collar apartments don't appeal to newly married people such as 26-year-old Fiona Zhang.

"These apartments are usually quite small, which is not suitable for wedded couples who plan to have kids," said Zhang, who owns a marketing start-up in Shenzhen and got married late last year.

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