Gaw Capital Leads RMB 400M Investment in China Co-Living Operator

Hong Kong’s Gaw Capital Partners is the latest investor to bet on China’s appetite for affordable housing, as the government pushes rental apartments to mitigate the country’s residential woes.

The private equity shop announced that a fund it manages has invested in Harbour Apartments, a Shanghai-based company that operates “co-living” apartments aimed at young tenants in seven major cities across China.

No figures regarding the amount of the investment or the nature of Gaw’s stake in the platform were made public. However, local media reported that Gaw’s investment formed part of a Series A round of financing that brought Harbour Apartments a total of RMB 400 million ($60.9 million).

Founded in 2015, Harbour Apartments has invested in 40 compounds in the first-tier cities of Shanghai, Beijing, Shenzhen, and Guangzhou, as well as East China’s Hangzhou and Nanjing, along with Hong Kong. The platform aims to open and operate 80,000 units by 2019.

Rents for the fully furnished apartment units range from RMB 3,000 ($452) to RMB 20,000 ($3,013) per month.

House Flippers Need Not Apply

In keeping with its branding as a “co-living” platform that strives to build a sense of community among residents, Harbour Apartments offers ways for tenants to connect both online and offline, via mobile apps and events. (The company’s Chinese name translates directly as “Gulfstream International Youth Community.”)

“Millennials and the middle-class in China tend to be tech savvy, more sociable and are looking for a sense of belonging and adventure in big cities, which has made co-living spaces an ideal form of accommodation in the era of the ‘sharing’ economy,” said Humbert Pang, Managing Principal and Head of China for Gaw Capital Partners in a company statement.

The deal is Gaw’s second private equity investment in Asia’s socially-driven real estate world, after the family-run shop became a major backer of co-working provider naked Hub. Gaw led a $33 million funding round in the Shanghai-based flexible office platform last December.

Rental Housing Becomes a Thing in China

Similar to the way that co-working has emerged as a more flexible alternative to traditional grade A offices, rental apartments are gaining traction in China as many urban residents seek relief from lofty home prices. As various demand-suppression measures have failed to bring the cost of shelter in line with incomes in China’s largest cities, the central government has rolled out a series of guidelines to promote the development of build-to-rent housing.

The policy moves, which started in January 2015, represent a sea-change from the condominium approach to housing development that has dominated the Chinese market. The government announced last month it was launching pilot projects in 13 mainland cities, including Beijing, Shanghai, and Guangzhou, to build rental housing on rural land. Authorities said that many of the projects would be completed by 2021, before the programme is extended elsewhere.

Developers China Vanke and Longfor Properties have jumped into the nascent market, with plans to build a combined total of 180,000 “youth apartments” offered for lease over the next two years. Other mainland developers dabbling in the market include China Poly Property, China Overseas Land and China Merchants Property.

Gaw Deal Follows Warburg Pincus Rental Investments

Gaw is not the only cross-border investor taking note of the sector. Last month, an affiliate of Warburg Pincus, the global private equity giant, committed an additional $183 million to the Nova rental residence platform that the New York-based firm co-founded in early 2015.

Warburg Pincus also teamed up with China’s Avic Trust last year to invest nearly $300 million in Shanghai-headquartered Mofang Apartment, which operates 150 rental apartment complexes in key mainland cities. Mofang’s portfolio of 30,000 units is targetted at white-collar, college-educated tenants.

Greystar Real Estate Partners, the biggest apartment operator in the US, is also looking to bring its rental housing business to China via a new Asia Pacific platform, the company said in April. The US multi-family giant brought on board former Vanke executive Charles Ma to head up its China operations earlier this year.