Chinese real estate firms boost apartment rentals in line with Xi demands
HONG KONG: Major Chinese real estate companies are renting more of the apartments they develop as they respond to President Xi Jinping’s demand that China should produce homes to live in not to speculate on.
But currying favour with authorities who want to provide affordable housing to maintain stability in the property sector comes at a cost as the developers will make little, if any, initial return from renting.
The net yields on rental properties for the biggest developers are only 5-6 per cent, and for smaller firms with higher costs they may even be negative, according to the developers and real estate analysts.
By contrast, the profit margins on properties that are sold have usually been clear for all to see – averaging in the 20-30 per cent range in recent years.
It isn’t just Xi and the central government that has been piling the pressure on the real estate developers.
Many cities started imposing restrictions on land sales last year, forcing developers to build some homes to rent rather than sell, making the properties much less lucrative and higher risk for companies.
Not only are the companies looking at lower returns on the developments but they also have the balance sheet risks of continuing to own them.
This is all, in turn, set to speed up market consolidation and joint bidding as companies share the costs.
Vanke, the country’s No.2 developer by sales and one of the early comers to the rental market, plans to double the number of apartments it is renting out to 200,000 in 2018.
Rental apartments “are not supposed to make a lot of money in the first place,” China Vanke Chairman Yu Liang said at an earnings conference late last month, adding that there has to be a balance between rental and sale markets.
He said that the rental market could be profitable in the longer term if the authorities put sufficient supportive policies in place.
Local governments have recently been offering preferential lending rates and new fund-raising channels such as corporate bonds and securitization to help the rental business.
Clearly, though, the demand is there. L+Research Institute, the research unit of real estate agent Lianjia, estimated the number of tenants will reach 230 million in 2025, up from 160 million in 2015. — Reuters