China’s second-biggest developer by sales is making its first foray into the country’s rental housing market, as the Shanghai Stock Exchange gives the green light for China Evergrande to issue RMB 10 billion ($1.6 billion) worth of asset-backed securities linked to rental apartments.
The stock exchange last Wednesday approved the RMB 10 billion product, “Zhonglian Qianhai Kaiyuan – Evergrande Rental Housing No. 1 Asset Support Special Project,” launched by Evergrande together with China United Fund, according to local media reports. The regulatory approval comes just days after rival developer Country Garden sold off RMB 1.7 billion ($270 million) in securities backed by income from its rental housing projects.
Evergrande Raises Cash for Rental Homes
Evergrande’s move may signal that the property firm chaired by Xu Jiayin has rental housing projects under development or in the pipeline, according to Bryan Chan, an analyst at property consultancy Colliers International as cited by local media. The securitisation could help Evergrande develop its rental housing business, he added.
Evergrande, alongside other property firms, reportedly forged a strategic agreement with China Construction Bank last November to launch 5,481 long-term rental homes in Shenzhen.
The funding should prove useful to Evergrande, as the developer based in Guangdong province says it hopes to restructure debt and boost its sales by 60 percent within three years to break into the ranks of the top 100 companies worldwide.
Biggest Builders Jump on Rental Bandwagon
The news comes after Country Garden won approval from the Shenzhen Stock Exchange for its own RMB 10 billion REIT-like product in February. Less than two weeks ago, the mainland’s biggest developer by sales announced the RMB 1.7 billion sale of the first tranche of the asset-backed securities.
Although Country Garden proclaimed its funding drive as the largest security ever issued in China’s rental housing sector, last December Shenzhen-based China Merchants Group said it had been approved to issue up to RMB 20 billion in asset-backed securities based on income from a pair of rental housing projects in Shenzhen’s Shekou area.
State-owned developer Poly Real Estate also got the nod from the Shanghai Stock Exchange to offer asset-backed securities linked to rental homes last October, with plans to raise a total of RMB 5 billion ($753 million).
Government Pushes Build-to-Rent Homes
The security offerings by some of China’s leading property firms come as the central government ramps up support the construction of build-to-rent homes.
In late April, the China Securities Regulatory Commission (CSRC) and the Ministry of Housing and Urban-Rural Development said they would “promote the securitisation of rental housing assets, which will help to revitalize the stock of rental housing, increase the efficiency of capital use, and promote the development of the rental housing market,” according to a statement published on the housing ministry’s website.
Last October, Beijing-based China Young Professionals Apartments (CYPA) received a green light from the Shenzhen exchange to issue RMB 270 million ($40.77 million) worth of securities backed by income from the rental apartments it operates in first-tier cities.