Beijing Flags Expansion of Residential Rental Market at 19th National Party Congress

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The central government has signalled its strong commitment to expanding the residential rental market in China’s urban centres at the the 19th National Congress of the Chinese Communist Party.

Wang Menghui, head of China’s Ministry of Housing and Urban-Rural Development, said at the sidelines at the 19th National Congress that the ministry is currently in the process of researching and drafting new home lease administrative regulations.

Yan Yue from the Shanghai E-House Real Estate Research Institute said to Securities Daily that that new administrative measures will be of benefit to Beijing’s goal of developing a “dual leasing and purchasing” real estate market, and become a key link in the establishment of long-term real estate market mechanisms.

“Encouraging leasing, stabilising lease relations and conferring tenants with greater rights can avoid large-scale fluctuations in the housing market, and thus reduce irrational home price demand.”

China’s central government has signalled heavily this year that it will strongly encourage the growth of the urban rental market, in order to alleviate constrained housing in major cities as well as cool down overheating real estate markets.

In May MOHURD issued China’s first administrative regulatory documents for the standardisation of residential property leasing, the “Residential Leasing and Sale Administrative Regulations (Draft for Solicitation of Opinions).” (住房租赁和销售管理条例(征求意见稿)).

Shortly afterwards MOHURD issued the “Notice Concerning the Acceleration of the Development of the Residential Rental Market in Large and Medium-sized Cities with Net Population Inflows”(关于在人口净流入的大中城市加快发展住房租赁市场的通知)  in conjunction with eight other central government departments, as well as selected 12 cities to participate in the first round of trials.

In August MOHURD and the Ministry of Land and Resources jointly issued the “Trial Plan for the Use of Collective Construction Use Land to Build Residential Rental Property”  (利用集体建设用地建设租赁住房试点方案), designating 13 cities for trials.

Beijing has complemented these trial policies with a slew of financial policies to support the development of China’s rental market, including the issuance of the apartment sector’s first residential leasing asset-backed security product in mid-August by online realtor Ziroom, and the approval of China’s first apartment rights model REIT in October.

“Overall, China’s rental market has huge prospects,” said Founder Securities’ chief property analyst to Securities Daily.

“On the demand end, rental property is currently seeing continual year-on-year gains, the primary reason being the large-scale floating population created by urbanisation on the supply end.

“Secondly, home prices are high, while property control policies such as purchase restrictions and loan restrictions have caused much demand to shift from the home purchase market and spill over into the rental property market.

“Thirdly, late marriages have caused a delay in the age of first home purchase, extending the consumption cycle for individual leasing, and indirectly added to rental demand.

“On the supply end, the rental property supply is inadequate, and there are major problems with the rental market…long-term rental apartments are in urgent need of standardisation.

“Finally, compared with developed countries, China’s rental property transaction share awaits large-scale increase.”

Analysts estimate that over the medium-to-long term (2017 – 2031) China’s rental market could divert around 2.08 billion square metres in commercial residential property sales, and add around 610 million square metres in new housing starts.

While the expansion of the rental market will cause the commercial residential property sales market to contract by around 2.08 billion square metres, it will also create 1.8 – 1.9 trillion yuan in lease transactions per annum.

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