Warburg Pincus, Weave See Asia Shifting to Rental Homes – MTD TV

 
Rental housing options are catching on in Asia Pacific’s urban hubs as societies rethink home ownership and governments encourage build-to-rent strategies in the face of unaffordable residential prices, according to top executives from Warburg Pincus and rental housing startup Weave Living who appeared in a Mingtiandi forum on Tuesday.

Speaking in an exclusive interview on MTD TV, Warburg Pincus managing director Qiqi Zhang, who is based in Shanghai, said that given the disruption of the mainland China condo market over the last 18 months, many people are rethinking the country’s homebuying obsession.

“The long term belief that housing prices continue to rise and will never go down, probably will not hold true from now on. Traditionally, when people had money, they would just save every penny and try to buy a house with a mortgage, but that may change in China and that will (prompt) a strong shift in the demand side,” Zhang said in the interview, which was sponsored by Yardi.

As one of the top executives guiding Warburg Pincus’ real estate strategies in the region, Zhang has led the US private equity titan’s investments in Shanghai-based rental apartment platforms Mofang and VLinker, as well as backing Sachin Doshi’s successful Weave Living startup in Hong Kong.

The “Hotelisation” of Apartments

For Doshi, who set up Weave Living in 2017 and now manages assets of around $2 billion, changes in consumer expectations have created demand for professionally managed long term accommodation, while uncertainties in housing markets have enhanced the value of the flexibility that rental housing can provide for individuals and families.

“I genuinely believe this market and many other markets will move towards greater institutional ownership and management of rental housing,” Doshi said in the interview. “I think this transition of rental residential to be rental residential as a service, and in a way the ‘hotelisation’ of accommodation more broadly, I think is a very long term trend that we’re just seeing the beginning of.”

Like Zhang, Doshi sees social, cultural and economic shifts taking place as more residents begin to look for rental housing options after realising that, with rising housing costs, buying a home means taking on long term liabilities with no certainty of capital gains.

“I think rental in big cities, whether it’s Hong Kong, Singapore, Tokyo, Sydney and Melbourne to an extent as well, is going to be driven by consumer preferences which are going to be to rent as opposed to own,” he added.

Local Appeal

In Singapore where Weave Living launched its first branch last week, Doshi said that half of the residents moving into the 65-unit property are local citizens, showing the growing attraction of institutionally managed housing in a market where home leases rose by an average of more than 29 percent in 2022, according to URA data.

“There is this perception that a serviced accommodation or a hassle free accommodation solution is something only suitable for expats. The fact of the matter is, it is a combination solution that is accessible and appealing to everyone and a very broad set of people,” he noted.

Doshi pointed to the flexibility and consistency provided by corporate landlords, as well as the importance of providing locations close to major commercial hubs as key to attracting local professionals looking for a new housing alternative.

Policies to Spur Growth in Mainland

Beyond shifts in consumer preferences, the multi-family sector in mainland China has also benefited from government policy incentives providing lower taxes, enhanced land supply and favourable financing terms for investors in rental housing.

“In order to incentivize the sector, the government has introduced favourable tax policies – both for the real estate tax as well as the VAT tax for rental apartments,” Zhang explained. He added that the property tax on rental housing is now 4 percent, instead of the 12 percent on other property types, while VAT was reduced from 5 percent to 1.5 percent.

To help developers of rental housing manage risk, the government is also ensuring that the cost of capital for the sector remains low. “On the financing side, there are most recent regulations allowing very long term, low cost loans about 20 to 30 years, loans for rental apartments at probably 4 percent interest rate.”

The third pillar of this government support for rental housing development has been the designation of rental housing as a specific type of land use rights, with major cities now auctioning land dedicated for multi-family development, with tenders for these parcels already providing developers with lower prices for new sites, Zhang said. He added that the authorities are also enabling the conversion of existing sites and properties for rental housing use.

Also making rental housing investments more attractive is the advent of publicly listed real estate investment trusts focused on affordable rental homes, which provide new exit opportunities for developers and funds. The first of these affordable housing REITs launched last year, with Zhang noting that the first of these vehicles listed last August at cap rates of from 4 to 4.2 percent with their stocks have risen by 30 to 40 percent since that time.

“The industry has had a lot of positive progress on the policy side and we continue to believe that more will come so that’s also another catalyst for the sector to grow,” he concluded.

Greater China Up Next

Mingtiandi’s APAC Residential Forum will continue this Thursday, 16 March, with a discussion of multi-family investments across Greater China.

For that upcoming panel session, MTD TV has invited Veronica Huang, senior vice president for real estate investment at Brookfield Asset Management; Selena Shi, managing director for acquisitions and RMB funds at LaSalle Investment Management and Craig To, vice president and head of capital raising at Shanghai-based startup Vlinker to discuss opportunities in Hong Kong, Shanghai, Beijing and other major Chinese cities.

During next week, Mingtiandi will host a panel on multi-family investments in Japan at 10:00 AM Hong Kong time on Tuesday, 21 March. In that session industry leaders from AEW, Varsity Group Asia Pacific, Greenberg Traurig and JLL will look into how investors are continuing to find yield in Asia’s largest rental housing market.

Rounding off the four-part forum is a panel dedicated to residential investments in Australia scheduled 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 the rapid changes in the country’s residential real estate market, including opportunities in prime residential developments, build-to-rent projects and student accommodation.