China’s Rental Housing

For more: China’s rental housing market

Until 1978, most people in urban China were housed by a welfare housing system in which the government or state-owned enterprises produced and allocated housing almost free of charge. Over the next two decades, only small-scale privatization of public housing took place. In March 1998, a major reform was announced that called for a rapid phasing out of the welfare housing system. This reform encouraged urban residents to buy their current homes from state-owned enterprises or purchase housing from the market.

Following a period of market reshuffling and fragmentation, companies that maintained steady operations in China’s rental housing sector have successfully developed business models suitable for long-term development. According to an updated report published by JLL, China’s rental housing space will continue to mature with support from four major drivers: favourable demographic trends, rising thresholds of home ownership, policy support, and capital investment.

The results of JLL’s “Rental Housing Investment Sentiments Survey 2021” shows that China’s rental housing sector is attracting an increasing number of investors who expect a stable return of between 4.5% and 5.5%. As China’s REITs pilot programme continues to evolve, it is likely that REITs will emerge as an alternative exit channel for rental housing investors.

New Journey: Onwards and Upwards – China Rental Housing White Paper is the firm’s second publication on this sector since the 2018 issuance of Opportunity knocks: The rise of China’s rental housing market. The paper aims to provide market players with in-depth insights into this emerging sector.

“In 2018, the focus was more on how the market’s structure might develop and the necessary steps required to reach a new level of maturity. We are encouraged to see that the market has aligned to the trajectory we outlined earlier, and currently entering a new phase with additional promising opportunities,” says Daniel Yao, Head of Research, JLL China.

Total stock of rental housing almost doubled in three years but demand has diversified

In 2017 and 2018, beneficial policies encouraged many companies to enter the rental housing market and some of these players expanded aggressively. Following a period of market reshuffling in 2019 and 2020, China’s rental housing market has entered a new golden age of opportunities.

Based on JLL’s estimation, the total number of rental housing units operated by the top ten players almost doubled from 356,000 units in 2018 to 730,000 units in 2020. In addition, the average occupancy rate reached 95% for stable projects under operation for over six months. It is also noteworthy that the mid-to-high-end rental housing market is gradually expanding in major cities.

The primary source of demand for rental housing is still fresh graduates and young professionals. However, the types of renters have gradually broadened to include mid-to-senior professionals in corporates, family tenants accompanying children, small business owners, self-employed individuals, university students, and others with short-term leasing demand. This indicates that rental housing products have been gradually accepted by more diversified tenant groups in China.