Canada Pension Plan to put funds into China rental housing units with Longfor

Canada Pension Plan Investment Board (CPPIB) said on Thursday it will invest in China’s rental housing sector with local property developer Longfor Group, with an initial targeted investment of $817 million.

The companies will invest in first-tier and core second-tier cities via developments, acquisition and master-lease of commercial assets to be converted into rental housing, CPPIB said in a statement.

Beijing-based Longfor, China’s No.9 homebuilder by sales value, is one of the most aggressive players in the policy-supported rental housing sector, with a target to add 45,000 new units in the second half to its 20,000-unit portfolio. It expects operating income from rental housing business to exceed 3 billion yuan ($448.6 million) in 2020.

The company was the first in the country to issue bonds to the public for the business, as Chinese developers have been rushing to raise funds, including via the securitization and debt market, since the second half of last year for the low-return sector.

China announced plans in August to launch pilot programs in 13 major cities, including Beijing and Shanghai, to develop rental housing projects in an effort to ease a housing shortage.

“Demand for modern, quality rental housing among young professionals and new graduates in China is growing rapidly, and through this collaboration, we are pleased to have the opportunity to participate in this fast-growing sector of Chinese real estate and to further diversify our investments in the market,” said Jimmy Phua, CPPIB’s Asia head of real estate investments.

CPPIB and Longfor began collaborating in 2014 with investments in retail malls and mixed-use projects.