Credit rating system needed for enterprises to reduce, prevent business risks
Visitors check out apartment models at a sales office in Shaoxing, Zhejiang province, on May 7. (ZHU HANXIAO / FOR CHINA DAILY)
The long-term rental housing sector is entering a boom with its market scale expanding to the trillion-yuan level, and the country's latest guideline on rental housing will provide policy support for guaranteeing the sector's healthy development, experts said.
China's existing rental housing market currently has a total asset value of some 500 billion yuan (US$77.75 billion).
Stricter regulation is aimed at maintaining order in the leasing market, guiding the market in a stable direction and protecting tenant interests
Hui Jianqiang, head of research at Beijing Zhongfang-Yanxie Technology Service Ltd
The central government has made it clear that a certain amount of residential land supply will be set aside for rental housing development during the 14th Five-Year Plan period (2021-25), which is expected to add more than 500 billion yuan in new assets to the sector in the coming five years, according to industry experts.
"The COVID-19 outbreak has led to an industrial reshuffle in the long-term rental housing sector over the past year, with the most famous case being Beijing-based Danke Apartment being delisted from the New York Stock Exchange," said Li Jianlin, research director of rental business unit with China Real Estate Information Corp, owned by E-House (China) Enterprise Holdings Ltd.
Li said since 2017, several long-term rental property firms have struggled with bankruptcy.
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"The fall of Danke displayed the fragility of rental housing enterprises, even publicly listed ones," said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution.
For players anxious to achieve success in the sector, they should first acquire strong risk prevention capabilities and establish a good reputation to become true industry leaders, Yan said.
It's necessary to form a credit rating system for long-term rental housing enterprises to reduce or prevent business risks, Yan said.
In a guideline issued in late April, six government bodies－including the Ministry of Housing and Urban-Rural Development and the National Development and Reform Commission－vowed to tighten regulations on asset-light housing rental enterprises and clarify regulatory measures for those engaged in subleasing activities.
Under the guideline, real estate leasing companies and individuals subleasing more than 10 homes or rooms are legally required to register as market entities and obtain business licenses, Xinhua News Agency reported.
The guideline also urged housing rental companies to set up accounts to regulate rental funds at local commercial banks and defuse financial risks.
Activities that attempt to disguise actual financial business practices, including embedding housing rental consumption loans into lease contracts, using tenant credit to obtain consumption loans and prompting tenants to use such loans, are also prohibited by the guideline.
"Stricter regulation is aimed at maintaining order in the leasing market, guiding the market in a stable direction and protecting tenant interests," said Hui Jianqiang, head of research at Beijing Zhongfang-Yanxie Technology Service Ltd.
Li said the country is further improving leasing market development rules to ensure its healthy development in the long run. In the future, market entry standards will become clearer for long-term rental market players, and those with truly stable operating capabilities can enjoy a stable business environment, which is also beneficial for the whole market.
A construction worker atop a steel structure at a housing project site in Beijing on May 8. (PHOTO / APF)
The guideline is the first systematic regulatory measure announced targeting the long-term rental housing sector, a promising industry that is expected to reach a market scale of 1 trillion yuan in the coming years, experts said.
The central government has been encouraging the development of rental housing by boosting supply, implementing industrial regulations and offering favorable policies since the 13th Five-Year Plan period (2016-20), and the sector is likely to welcome accelerated development in the 14th Five-Year Plan period (2021-25).
Premier Li Keqiang said in the Government Work Report released in March that "by increasing land supply, earmarking special funds and carrying out concentrated development schemes, China will increase the supply of government-subsidized rental housing and shared ownership housing."
China will ensure well-regulated development of the long-term rental housing market, and cut taxes and fees on rental housing. China will make every effort to address the housing difficulties faced by new urban residents and young people, the report said.
Experts said the development of megacity clusters will create sufficient demand for leasing.
Nationwide, many of the more than 200 million migrant workers cannot afford to buy their own homes in large Chinese cities, forming solid demand for rental housing, Cifi Holdings Group Co said.
Eyeing huge market potential, Cifi's rental home unit is seeking a public listing after seeing a rapid growth in its portfolio, according to Zhang Aihua, chief executive officer of Cifi Holdings Group Co's rental home unit. The unit aims to further expand its assets under management about tenfold to 100 billion yuan in the mid to long term.
Zhang's confidence comes from measures applied by the government to develop the rental housing market.
During the 13th Five-Year Plan period, Shanghai built more than 700,000 rental housing units. As of 2020, Shanghai had launched 152 plots for construction of more than 10 million square meters of gross floor area living space, which would inject at least 220,000 new apartment units for leasing, said Feng Ganghua, an official with the Shanghai Housing Administration.
Shanghai Mayor Gong Zheng said the city will accelerate its rental housing development.
More large land plots for rental housing will be offered, and 18 out of the 22 major cities that China Real Estate Information Corp monitored have announced their annual land supply plans. The majority of them vowed to allocate some 10 percent of residential land supply for rental housing.
Zhang of Cifi Holdings said average land costs for rental homes are only about 23 percent that of conventional residential plots in Shanghai. The low-cost land makes it possible for rental market to generate a similar profit margin as other property sectors.
Experts see a promising outlook for rental housing both in terms of business scale and profitability.
"Rental housing is going to become a very important part of China's housing market, and rental apartments could take up between 20 percent and 30 percent of annual new homes supply in large Chinese cities in the future," Hui of Beijing Zhongfang-Yanxie Technology Service said.
Meanwhile, annual rent is equivalent to 5.63 percent of the total property value in the United States, and 6.13 percent in Japan. But in Beijing, it is merely 1.7 percent, and it is 1.61 percent in Shanghai and 1.56 percent in Guangzhou, Li of China Real Estate Information said.
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Facing COVID-19-related hardships along with moves to reduce market risk, the long-term rental housing market, which makes up an important part of overall housing rentals, is actively adjusting itself with government support, and currently is on a path of steady and healthy development, experts said.
China Vanke said it operated a total of 184,400 rooms of long-term rental housing as of the end of 2020, and its available projects reported a combined occupancy rate exceeding 95 percent.
Longfor Group Holdings Ltd said 88.5 percent of its 90,000 rental flats were occupied, and 93.3 percent of those operated for more than six months were leased out.
Focused on Shanghai and other cities in East China, Cifi is currently operating more than 74,000 rooms for leasing in 18 major Chinese cities.
wang_ying@chinadaily.com.cn