China’s Ping An Insurance Group and Landsea Group have become the latest mainland investors to wager on the country’s emerging rental housing market, as steep home prices in major cities fuel enthusiasm for the asset class.
Ping An Real Estate, a unit of the Shenzhen-based insurer, has partnered with Landsea Green Properties to set up a $1.5 billion fund that will support the development of rental apartment projects in major Chinese cities.
Landsea Green Properties, the listed platform of Nanjing-based Landsea Group, announced the venture in a filing to the Hong Kong stock exchange. The partners will jointly invest in long-term rental apartment projects in top-tier cities including Beijing, Shanghai, Guangzhou and Shenzhen, as well as second-tier cities such as Nanjing and Hangzhou, with a target of approximately RMB 10 billion ($1.5 billion) in assets under management.
Partners Look to Listed Securities for an Exit
Under the terms of the agreement, Landsea will be responsible for the design and operations management of the apartment projects. The fund’s managers hope to exit their investments in the developments “by way of REITs… after the steady operation of each project,” according to the statement.
While China has yet to roll out its first real estate investment trust (REIT), in recent months authorities have been making it easier for rental housing investors to access financing through REIT-like securities.
The platform is the latest rental housing investment vehicle to be announced in recent months. Last October, Beijing-based rental housing operator China Young Professionals Apartments (CYPA) won approval to issue RMB 270 million ($40.77 million) worth of securities based on rental income from the homes it operates in the country’s first-tier cities.
Later that same month, state-owned Poly Real Estate got the thumbs-up to offer asset-backed securities (ABS) based on its rental housing assets via the Shenzhen Exchange, with plans to raise a total of RMB 5 billion ($753 million).
Mainland Investors Tap Rental Housing Wave
Ping An kicked off its cooperation with Landsea on long-term rental apartments last November, when the companies jointly acquired a Shanghai project with plans to turn it into a high-end, long-term rental apartment complex, according to the statement.
China’s authorities ramped up a nationwide rental housing drive last August, announcing pilot programmes to build rental supply in 13 major cities, including Beijing and Shanghai. Mainland developers including China Vanke, Longfor Properties and China Merchants Shekou have joined the campaign to ease the country’s housing shortage and promote affordable shelter by setting up their own dedicated build-to-rent businesses.
China Vanke’s rental housing brand Port Apartment has expanded into 21 cities with 20,000 units opened as of August 2017, a representative of the company said in a media briefing. The developer’s chief executive officer, Yu Liang, said that the company aims to provide 150,000 rental units by 2018.
The country’s rental housing market is expected to grow to 5.4 billion square metres, with annual rental income of some RMB 4 trillion ($611.7 billion) by 2027, according to a research by real estate services provider CRIC China — equating to a 138 percent increase in rental income over a decade.
Landsea Deepens Partnership with Ping An
Landsea Green Properties has close ties with Ping An Real Estate, the property arm of the insurance giant, which partnered with Landsea along with China Merchants Property Development in 2015 to jointly develop two projects in Nanjing.
The company, which is the only listed unit of Landsea Group, focusses on property development services, long-term rental apartments, elderly care services, and green design in China and the US.