Chinese rental apartment provider Ziroom has raised RMB 4 billion ($621 million) in a series A financing round — the largest amount secured by a rental housing firm in the country, according to an article published on its official Wechat account. Ziroom was valued at RMB 20 billion (US$3 billion) in the deal, as reported by local media, making it China’s first rental housing unicorn.
US private equity firm Warburg Pincus led the round, together with Sequoia Capital China, and mainland tech giant Tencent. Also participating were venture firms General Atlantic, Source Code Capital, Strait Capital and Huasheng Capital. In addition to the private equity commitments, mainland property developer Sunac also joined in the home rental firm’s first major fund-raising, Ziroom said.
China’s rental housing market has become a magnet for investment commitments in recent months as the country’s central government encourages the development of build-to-rent projects as a means to provide affordable shelter in increasingly unaffordable urban centres like Beijing and Shanghai.
Ziroom Already Serving 1.2M Tenants in 9 Cities
Founded in 2011, the Beijing-based rental service provider currently operates in nine top-tier cities in China. Ziroom currently manages 500,000 rooms and serves 1.2 million tenants, according to its website.
“As China’s largest long-term rental apartment asset manager, Ziroom has significant advantages in client acquisition, mobile internet application, big data collection and day-to-day operation,” said Julian Cheng, co-head of Warburg Pincus China in a press release. Cheng added that due to China’s rapid urbanization, about 70 percent of newcomers to large and medium cities prefer renting over owning a property.
Proceeds from the funding will be channelled to consolidate the company’s existing businesses in Beijing, Shanghai and Shenzhen, and will also be used to support its expansion in newly-entered cities including Guangzhou, Wuhan and Hangzhou, said Ziroom’s chief executive officer Xiong Lin in the article. The company also plans to upgrade its building maintenance and relocation services with the capital gained. Lin added that the company would invest in technologies such as smart furniture and big data.
Government Support Drives Investment Binge
The funding round follows Chinese policies supporting the rental market. In August the central authorities helped to kick off a rental housing drive by announcing pilot programmes to build rental projects in 13 major cities, including Beijing and Shanghai. Just this week China’s Minister of Land and Resources, Jiang Daming reaffirmed that commitment by announcing that the government will allow development of rental housing on rural land, according to a Xinhua report, which could open up new sources of property supply.
In addition to a boom in rental management firms such as Ziroom, some of the country’s biggest developers have been pursuing build to rent projects. Just last week Ping An Real Estate, a unit of the Shenzhen-based insurance giant, announced a partnership with Landsea Green Properties to set up a $1.5 billion fund to build rental apartment projects in major Chinese cities.
The world’s largest developer by market capitalisation, China Vanke has developed its own rental housing brand, Port Apartments, with projects in 21 cities with 20,000 units opened as of August 2017, a representative of the company said recently in a media briefing.
Warburg Pincus Continues to Bet on China’s Rental Housing Market
This is the third major partnership by Warburg Pincus with a Chinese rental housing platform. In September an affiliate of the global private equity giant committed a fresh $183 million to Nova Property Investment, a rental residence platform it co-founded in 2015.
In 2016 the private equity firm, which has invested over $3 billion in Chinese real estate companies, partnered with China’s Avic Trust to devote $300 million into Shanghai-based Mofang Apartment, which operates 30,000 rental units aimed at “white-collar” residents across the country.