China has struck another blow in the battle for affordable housing, with the Shenzhen stock exchange giving the green light for developer Country Garden to launch RMB 10 billion ($1.6 billion) worth of asset-backed securities linked to rental apartments.
The product, which is similar to a real estate investment trust (REIT), is the largest security issued in China’s rental housing sector to date, as well as the largest near-REIT in the nation. Country Garden, China’s biggest property developer by sales, will jointly issue the product with private equity fund manager Zhonglian Fund, according to a statement on Country Garden’s corporate website.
Mainland authorities are pushing to develop the country’s nascent rental housing industry to provide affordable shelter for city-dwellers. The move by Shenzhen regulators comes after Bank of China pledged to provide more than RMB 200 billion ($31.8 billion) in financing for eight property developers, including Country Garden, to build rental apartments just last week.
Country Garden Angles for Build-To-Rent Funding
The statement by Country Garden indicates that the new structured product, which can scale up to RMB 10 billion and has a AAAsf bond rating, will be offered in multiple tranches through a shelf offering. Details about the underlying assets are not provided.
“The next step is that relevant institutions should focus on the management and operation of the rental housing property, to achieve a virtuous cycle between financial support and rental housing industry development,” said a representative of the Shenzhen exchange, which approved the new security last Friday in the statement.
The launch of the REIT-like product marks another step forward for the developer’s rental housing strategy. Country Garden last December said it aimed to build one million apartment units for long-term leasing in key first- and second-tier ties by the end of 2020. Under the project, called BIG+, the Guangzhou-based developer will also work with national and regional joint-stock banks to grow its rental business.
CITIC China Bank had agreed in October to offer the developer RMB 30 billion ($4.52 billion) in funding for business expansion, including financial services to support construction, attract investment and operate the apartments.
Big Builders Jump on Rental Bandwagon
Country Garden is among a roster of mainlsand property giants that are heeding the central government’s call to build out rental dwellings, in a country where over two-thirds of urban millennials are estimated to own their own homes.
Last month, Ping An Real Estate partnered with Landsea Green Properties, the listed platform of Nanjing-based Landsea Group, to set up a $1.5 billion fund to fuel the development of rental projects across major cities.
State-owned Poly Real Estate secured its own approval from the Shanghai stock exchange to offer asset-backed securities (ABS) linked to rental domiciles, with plans to raise a total of RMB 5 billion ($753 million) last October.
In the same month, Beijing-based China Young Professionals Apartments (CYPA) was approved to issue RMB 270 million ($40.77 million) worth of securities based on rental income from the apartments it operates in first-tier cities. Other developers that have jumped on the build-to-rent bandwagon include China Vanke, Longfor Properties and China Merchants Shekou.
Government Steps Up Rental Housing Drive
The central government last August unveiled pilot programmes to build rental projects in suburban areas outside 13 major cities, including Beijing and Shanghai, amid a campaign to ease a housing supply crunch and curb rising home prices.
The condominium approach to development has dominated China’s housing market over the past two decades, and historically few Chinese have rented their abodes. Seventy percent of Chinese millennials own their own homes, compared to just over a third in the US and Canada, according to a study released last year by HSBC. Another 91 percent of Chinese in the age bracket plan to buy a home within five years.
The China survey sample included 85 percent urban, 14 percent suburban and one percent rural respondents.