China is expected to build rental homes worth 500 billion yuan (US$77.2 billion) over the next five years, which could create massive opportunities in property asset management for the country's leading developers.
"With strong government support and rising demand, we see great opportunities in developing rental homes and creating a large-scale asset management business to evolve into China's own CapitaLand," said Hanah Zhang, the chief executive of Cifi Holdings Group's rental homes unit. CapitaLand, Singapore's biggest developer and real estate fund manager, manages commercial and lodging properties worth more than US$80 billion.
Beijing has earmarked 10 per cent of fresh residential land supply for the constructions of rental homes under the 14th five-year plan, which runs between this year and 2025. In March, Chinese Premier Li Keqiang said in a work report to the country's top legislature that the government would increase the supply of subsidised rental homes and cut taxes to ensure the well-regulated development of the market.
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China's leadership has since 2017 been encouraging the growth of a leasing market to accommodate new urban immigrants lacking the means to buy homes because of lofty prices.
"Professional property asset managers will be in high demand as more rental homes hit the market," Zhang said, adding that the homes built for leasing are expected to be worth 500 billion yuan. Cifi, Longfor Properties and China Vanke currently lead the country's rental homes market. Zhang said the company planned to triple its portfolio of rental homes to 30 billion yuan in three years, and aimed to have total assets worth 100 billion yuan under management over the next decade.
According to global property services firm JLL, more than 200 million people in China are currently renters. Shanghai, the country's most developed metropolis, currently needs another 4 million rental units, a number that exceeds supply by far.
Low-cost land, reduced taxes on rental homeowners and operators and financial market liberalisation have given Cifi and others like it a golden opportunity to improve their asset management capabilities, Zhang said, as few Chinese developers were currently focusing on the rental business.
The imminent launch of real estate investment trusts (Reits) in China is also likely to offer rental home operators a new financing alternative to support their expansion. Analysts have been calling for the establishment of China's own Reits for the investment and management of flats for rental purposes.
"Reits, which offer an additional financing tool to developers, not only effectively help developers lower their debt ratios, but also help them diversify businesses," said George Xiong, an executive director with JLL China's valuation service unit. Reits pay investors dividends from rents earned by underlying properties.
Last month, the Shanghai Stock Exchange accepted two applications for Reits. It announced last month that it would start trading in the asset-backed securities this year.
Xu Xiaole, chief analyst with Beike Research Institute, said that the government's clean-up efforts will pave the way for long-term healthy growth in the rental homes market.
"Companies lacking professional operating experience will be expelled from the market," he said. "A better and more stable environment will be created for those who can run long-term rentals in a serious manner."
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