China Vanke has set its sights on the residential leasing market, following Beijing’s decision to make expansion of the home rental sector a key plank of efforts to improve housing supply.
Earlier this year Beijing unveiled plans to spur the growth of residential leasing markets in China’s major cities, with the goal of expanding housing supply and cooling down overheating real estate prices.
China’s home leasing market remains in a fledgling state of development, with a 2016 study released by the China Academy of Social Sciences indicating that less than 10% of Chinese households live in rental homes, as compared to over 30% in North America and Europe.
Several central government bodies have unveiled a slew of incentive measures to promote residential leasing in China’s major cities since the start of the second half, including tax concessions for residential service firms, as well as expanded land sales for rental-only residential developments.
China’s leading real-estate developer has since adjusted to this shift in policy by announcing that it will target future growth in the home rental sector.
Vanke CEO and chairman Yu Liang announced last Tuesday that it plans to become the leading player in China’s home rental market, sparking a surge in the company’s Shenzhen-listed shares to an intraday high of 33.08 yuan.
Zhu Xu, Vanke’s board secretary, said that the company is intent on becoming China’s biggest rental project provider, with the addition of 100,000 long-term rental apartments in major cities such as Beijing, Shanghai and Shenzhen prior to the year’s end.
Vanke is one of China’s pathfinders for the residential leasing market, having made its first foray into the development of small rental apartments back in 2007.
The company launched a long-term rental project last year, while financial reports indicate that it operated a total of 24,000 rental units in 24 cities as of September.
Vanke is far from alone in its ambitions, with Caixin reporting that several other property companies unveiled their own rental sector plans at a recent industry conference, and expressed their confidence in prospective cash flows and profits.
State-owned banks are also giving vigorous support to the growth of the home leasing sector.
China Construction Bank announced earlier this month that it had entered an agreement with Vanke and 10 other real estate concerns for the provision of low-interest loans to support the development of rental homes in Shenzhen.
Market observers, point out, however, that returns on rental developments provide only meagre investment returns.
One source from Vanke said to Caixin that the company’s Beijing rental business provides yields of only 1.5% to 2%, while Vanke senior vice president Tan Jiehua has previously indicated that yields below 2% on big city rental projects fall beneath the profitability threshold.