Global Investors Bet on Rental Real Estate in China Amid Shifting Political Winds | WKZO | All Kalamazoo

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By Samuel Shen and Kane Wu

SHANGHAI (Reuters) – Beijing’s regulatory storm is hitting large swathes of China’s economy, but global investors including Blackstone and Warburg Pincus are stepping up bets on Chinese rental properties, saying the political wind is blowing in their favor.

China has cracked down on tutoring, brought monopoly tech giants to their knees and stepped up restrictions on home purchases. But Beijing is courting capital to help provide rental housing and is garnering a lot of institutional interest.

In China, “people need housing, but houses have become too expensive to buy. You have to have housing to rent, ”said Graeme Torre, managing director of APG Asset Management, which entered the Chinese rental housing market in partnership with US real estate developer and operator Greystar.

“We like to invest with politics rather than trying to avoid it or invest against it. So I’d like to think that’s politically correct, ”said Torre, estimating that APG will commit around 1 billion euros ($ 1.17 billion) to Chinese rental housing over the next 3-5 years.

Centralized long-term rental apartments – or multi-family as they are called in the United States – are the best solution to the problem of housing affordability in China’s cosmopolitan cities, said Qiqi Zhang, general manager of Warburg Pincus. .

“We believe long-term rental housing is the next big opportunity in China, like logistics real estate ten years ago, or data centers five years ago.”

The US private equity giant has backed Chinese apartment rental brands such as Mofang, Ziroom, TULU and Base.

There was little institutional interest in China’s rental real estate market until 2017, when President Xi Jinping told the 19th Communist Party Congress that China would encourage both buying and renting homes. Beijing has stepped up its calls this year to increase the supply of rental housing.

Among the measures China has taken to revamp a market dominated by retail owners, institutional investors welcome two recent incentives – a significant tax break that took effect in October and the launch of a market for investment firms real estate (FPI).

NEEDLE MOVEMENT

Tax break – which is expected to increase margins by 10% for operators – and a potential exit channel via REITs are “the driving force behind the needle,” said Eric Pang, head of capital markets for China for the real estate consultancy JLL.

Investors will also benefit from favorable demographic winds.

Increasing population density and mobility in major cities like Shanghai and Beijing, draconian restrictions on home purchases, as well as late marriages and pregnancies will boost demand for multi-family housing, Pang said. .

“It is a market with great potential,” he added. “Global funds looking for returns will increase their investments. “

Foreign institutions already active in the Chinese rental housing market include the Singapore sovereign wealth fund GIC and the Canada Pension Plan Investment Board (CPPIB).

“The volume of transactions in China will not reach $ 10 billion overnight, but there will be significant growth in the medium term,” said Henry Chin, head of APAC research at CBRE, who recently assisted Blackstone to acquire a rental property in Shanghai.

Greystar, which launched a $ 550 million China-focused fund in 2019 in partnership with Dutch pension investor APG and other global institutional investors, said it will now step up its investments in China as government support would become tangible. It already owns a 474-room rental property in downtown Shanghai as well as another under development.

BRAND VALUES

“It’s a bit like luxury cars. There is added value to the product if there is a recognized and reputable brand, ”said APG’s Torre, which supports Greystar’s expansion in China.

China’s total tenant population will exceed 240 million in 2022, and in Shanghai alone, the mid-to-high-end multi-family market will generate at least 150 billion yuan ($ 23 billion) in annual rental income, estimates CBRE.

Opportunistic capital is piling up. Private equity and venture capital investments in the sector have increased in recent years, according to CBRE.

The debt-fueled expansion of some operators who adopt a thin asset model – renting apartments to owners on long-term leases, then subletting properties to tenants – has led to financial turmoil l last year that crippled Danke Apartment, a leading online apartment rental platform.

“It’s not the market’s problem. This is the problem with the business models of some players, ”said Charles Ma, general manager of Greater China at Greystar, adding that more and more investors were adopting the buy-and-hold strategy.

“The industry reshuffle is good for us. We have the patience to invest in this market.

($ 1 = 0.8520 euros)

($ 1 = 6.4814 Chinese renminbi yuan)

(Reporting by Samuel Shen in Shanghai and Kane Wu in Hong Kong; editing by Lincoln Feast.)


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