More investors shift focus to long-term rental market

Shenzhen Daily    2021-10-01    05

Zhang Yu

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A GROWING number of investors are shifting their focus to China’s long-term rental housing market, expecting a stable rate of return at 4.5 percent to 5.5 percent in general, according to a recently released white paper by real estate services firm Jones Lang LaSalle (JLL).

The white paper is based on JLL’s questionnaire survey conducted on more than 30 different types of investment firms.

Survey results showed that investors’ focus at this stage is still on first-tier and new first-tier cities with developed economies, a large migrant population and relatively high home purchase thresholds, such as Shanghai, Beijing and Shenzhen.

A staggering 97 percent of investors intend to enter the medium and high-end long-term rental market for office elites and white-collar workers. Meanwhile, investors still mainly prefer aggressive investment.

According to JLL’s statistics, China’s top 10 long-term rental operators have doubled their total number of stock apartments from 356,000 at the end of 2018 to 730,000 at the end of 2020. These stock apartments are mainly located in first-tier and new first-tier cities.

Demand for these apartments come mainly from college graduates and white-collar workers entering the job market.

For most institutional investors, inventory property transformation has been the mainstream way to enter the domestic long-term rental apartment market. However, the return on investment often misses investors’ expectations due to high property prices in first-tier cities’ key areas and project transformation costs.

“It is suggested that investors should gain some insight into the market’s rental demand characteristics and find suitable investment opportunities in non-core business districts or industrial parks,” said Raymond Zeng, head of investment and capital market business at JLL Shenzhen.

China’s rental housing sector has expanded rapidly in recent years. The fast-growing market has attracted many firms, with some expanding blindly, which has prompted the government to tighten regulations.

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