China’s lifting of its stringent zero COVID regime late last year has provided a fresh spark for rental residential ventures in the country, top executives from Brookfield Asset Management, LaSalle Investment Management and VLinker said in a forum on Thursday.
Speaking at Mingtiandi’s APAC Residential Forum, Veronica Huang, senior vice president for real estate investment at Brookfield, said inquiries from tenants hoping to lease space at the firm’s rental apartments have surged after loosened pandemic curbs allowed renters from around the country to finally look for homes in top tier cities for either study or work.
“I think the change of China’s COVID policy right has a big impact on this industry because the rental housing industry really hinges on mobility,” Huang said. “From an operational perspective, we can see a spike in both visitation and demand in our showrooms for our properties, and from the capital market perspective, loosening of the strict policies has also seen a surge of investor confidence in China’s real estate market in general.”
Craig To, vice president and head of capital raising for rental housing startup VLinker, said in the same session – which was sponsored by Yardi – that, after restrictions were lifted, his company was able to lease around 800 units at its 3,000-key project in Pujiang, in Shanghai’s Minhang district during the month of February alone.
Professional Management in Demand
The disruption of access to goods and services during the pandemic has also highlighted the advantages of living in a professionally managed community, according to Selena Shi, managing director of acquisitions and RMB funds with LaSalle Investment Management in Shanghai.
“COVID had a great impact in people’s choice of living facilities,” Shi said. “Some of the people who were living in under-managed residential communities suffered a lot during the lockdown period so institutionally managed rental apartments have become a very popular choice among these young professionals.”
Having acquired three multi-family assets in Shanghai, Shi says that LaSalle is now working on establishing its own multi-family brand in China ,which will be revealed to the public when the company launches its first project in May.
“It is definitely important to create a brand for multifamily products,” she said. “Behind this image, there’s the value of the brand, the service we provide and also the standard of quality we provide for each project. There should be some consistency behind the brand so when people come to the brand, they have a clear idea what to expect.”
The fund management unit of property services firm JLL first entered China’s rental residential market in November 2021 when it formed a joint venture with Shanghai-based developer Jingrui Holdings to acquire an asset in Shanghai’s Hongqiao area.
Huang from Brookfield, which acquired a Shanghai serviced apartment project from local developer’s Guangzhou R&F and KWG last year, also highlighted the importance of building a brand and building a skilled management team in order to attract tenants looking for greater consistency of service than is typically available from individually owned and managed properties.
For Shanghai-based VLinker, which is backed by US private equity firm Warburg Pincus, identifying favourable locations and understanding the demographics of the local community are key to achieving profitable investments in China’s multi-family industry.
Typical tenants in the decade-old company’s projects are young professionals around 27 to 30 years-old who have taken on jobs in Shanghai. Having migrated to China’s commercial capital from the elsewhere in the Yangtze River Delta or beyond, VLinker’s community is dominated by university-educated professionals earning RMB 7,000 ($1,015) to RMB 12,000 per month.
“We are targeting the base segment of the pyramid, which is young professionals that want to have good employment opportunities in tier one cities like Shanghai, but they need more purpose-built rental housing, with good privacy and a sense of community and also decent communities and a good commute to the business clusters where they work,” To said.
While stressing that market fundamentals continue to be the primary driver of project success, To said that policies rolled out by the government to bring down development costs for greenfield projects and boost the supply of affordable rental housing in major cities have also helped lower risks and enhance profits in the sector.
Among the incentive policies introduced were specialised land use rights introduced in 2017 that lowered the costs of acquiring rental housing sites in Shanghai and preferential property tax and VAT tax rates.
C-REITs and Stabilised Portfolios
With China have launched its first publicly listed real estate investments trusts dedicated to rental housing last year, Huang and Shi said that their companies are expanding their portfolios of rental accommodation and continuing to enhance the operation of their assets in order to established stabilised sets of assets in the sector.
Huang said that C-REITs can serve as an important exit channel for investors in rental residential sector, but stressed that establishing a sizable portfolio of stabilised assets is the first step in that journey.
Shi echoed that view, noting that “CREITs are definitely a driver for liquidity in the sector and it will eventually benefit all the players in the value chain,” while stressing that LaSalle currently continues to focus on managing and operating its properties in the sector.
Onward to Japan
After exploring the rental residential opportunities in the world’s second-largest economy, Mingtiandi’s rental residential forum will continue on Tuesday, 21 March with a panel on Asia Pacific’s biggest multi-family market – Japan.
For that session at 10:00 AM Hong Kong time, Mingtiandi has invited Jason Lee, managing director, senior portfolio manager, CIO and private equity head for Asia Pacific at AEW to join a panel discussion that will also feature Varsity Group Asia Pacific CEO Rushabh Desai.
Also joining the panel are Joel H. Rothstein, shareholder and chair for the Asia Real estate practice at Greenberg Traurig, as well as Paul Davis, senior director and co-lead of international clients for JLL’s Japan capital markets team.
Rounding off the four-part forum will be a panel dedicated to residential investments in Australia on 23 March.
The Australia discussion will bring together top executives from Nuveen Real Estate, Phoenix Property Investors, GreenFort Capital and Scape to discuss the rapid changes in the country’s residential real estate market, including opportunities in prime residential developments, build-to-rent projects and student accommodation.