30
Mar
Editor’s note: Qin Hong is a research fellow at the National Academy for Development and Strategy, RUC.
As an important means to solve the housing problem in big cities, China’s long-term rental housing policy measures continue to be innovated and improved, and various regions actively explore and practice the defined policy, leading to the rapid development of the long-term rental housing market. However, problems such as collapses in the rental housing market that have emerged in the past are still worthy of attention. In the field of housing rental, which is related to national development and people’s livelihood, how to implement the requirements of high-quality development and promote the sustained and healthy development of the long-term rental housing market requires in-depth research.
Firstly, expanding effective supply is the key to developing rental housing. The demand for rental housing covers a wide range of groups, including those who will settle down for a long time, those who are temporarily employed, those who have children entering school, and those who are caring for their parents, among others. There are both long-term rentals and short-term stays. Therefore, the demand structure of rental housing is very rich, and the important way to meet multi-level needs is to increase the scale. In the past, rental supply in China was mainly provided by individuals, while centralized institutionalized management of rental housing can greatly improve the quality and stability of rental supply. Therefore, increasing the supply of rental housing should mainly be done through centralized supply, including market-based long-term rental housing and security-based rental housing, which could be done in two approaches.
The first is to build rental housing for rent, namely, to develop and build new rental housing. Various regions will include the construction of rental housing in their housing development plans, rationally determine the scale of rental housing construction, and provide policy support. For example, at the level of land policy, the government releases special land for rental housing to increase effective supply. The main ways to develop and build rental housing are to use collective construction land, competitive self-use land, and R4 land (class four residential land). According to incomplete statistics, in 2022, 22 key cities completed centralized land supply, with a total of 285 land parcels for rental use. In practice, various regions have added new land for the construction of long-term rental housing and expanded the supply of housing sources, forming a group of typical projects, which provide ideas for adjusting the supply-demand structure and easing the rental housing problem. Since 2016, with the increase of new rental housing projects entering the market, such as R4 land, collective construction land, and self-use land, large-scale rental housing communities have become an important source of long-term rental housing supply. For example, in July 2022, Beijing Shougang Le Shang You Sheng Dian opened in the Niulanshan Town Industrial Park in Shunyi, providing 483 rental housing units for the collective construction land project.
It should be noted that due to the different characteristics of each type of land use and the problems that exist in the construction and operation of long-term rental housing projects, the pain points of adding land for new long-term rental housing projects are still prominent in practice. For example, there are limitations on the planning use of collective construction land, and the exit path is not yet clear; in terms of competitive self-use land, the cost of obtaining land by enterprises is high and the return on investment is low; and so on.
The second aspect is to revitalize existing assets by transforming unused or inefficient properties into long-term rental housing. Existing properties are usually located in the city center with convenient transportation and good access to commercial and public services. Developing long-term rental housing in the city center can best meet the requirements of work-life balance and is highly welcomed by renters. Currently, local governments are also providing policy support, for example, the pilot implementation plan for revitalizing existing housing for rental housing with multi-subject supply and multi-channel guarantee in Changsha, which first opened up channels for new homes, second-hand homes, and long-term rental housing markets. The “Guiding Opinions on Revitalizing and Utilizing Existing State-owned Construction Land” in Beijing explicitly encourages the transformation of existing buildings into affordable rental housing in key functional areas and around existing rail transit stations. This not only conforms to the basic logic of urban renewal but also can guarantee the basic rental needs of new urban residents and young people and improve urban functions. According to relevant statistics, as of the end of 2022, Beijing had about 72,000 units of institutionalized centralized rental housing, of which 88.3% came from revitalization and transformation of existing assets: one is the package rental model, which is currently the main operating model for long-term rental housing in Beijing and mainly involves the transformation of non-residential properties; the other is the transformation of existing residential properties in various levels of affordable housing centers in Beijing into affordable rental housing.
Second, leveraging diversified financial resources is an important factor in supporting the development of the long-term rental housing market. In the past, the reason why centralized long-term rental housing did not develop sufficiently was the lack of long-term funding support. Development enterprises could only achieve high turnover of funds through sales. Currently, financial support for long-term rental housing has begun to break through. In 2022, the public REITs for affordable rental housing went zero after preparation. On February 24th of this year, the People’s Bank of China and China Banking and Insurance Regulatory Commission drafted the “Opinions on Financial Support for the Development of Housing Rental Market (Draft for Soliciting Opinions)”, which involves a full range of financial tools and a great deal of strength, and launched a set of financial combinations.
However, there are still difficulties in the issuance of public REITs that need to be urgently overcome. For example, when using acquisition or renovation projects as underlying assets for insurance, attention should be paid to the impact of the short remaining land lease period of existing properties on valuation and the high cost of acquisition. To solve these problems, patience and determination need to be maintained, and experience needs to be accumulated in practice.
Third, establishing industry standards is also crucial for promoting the healthy development of the industry. Clear and standardized industry standards and apartment grading will play a significant role in the asset management, merger and acquisition transactions, and asset securitization of the housing rental industry. This includes providing reference for operators in apartment rent pricing and marketing, providing important criteria for tenants in apartment selection, and providing reference for investors in asset mergers and acquisitions and asset securitization. For example, the leasing apartment in the United States adopts a grading system to guide the industry’s hierarchical standard supply, mainly divided into five levels: luxury, high-end, mid-to-high-end, mid-to-low-end, and subsidized. Among them, the mid-to-low-end level accounts for the largest proportion, about 59.7%.
It is very important to establish a product grading system, enterprise brand value evaluation criteria and mechanisms to promote the development of supply chain enterprises and systematic service providers; promoting industry specialization and lay a solid operational foundation for asset securitization; guiding long-term rental housing enterprises to achieve branded operation, refined management, and standardized service, and providing diverse, rich, and high-quality rental products. Through monitoring core data such as long-term stable average rent, rental rate, dynamic vacancy rate, gross profit margin, and net profit margin, reflecting the operational capacity and efficiency of operators and the quality of underlying assets, the actual operating conditions of long-term rental housing enterprises can be grasped, providing support for financial institutions’ investment and realizing controllability, monitorability, and regulatability to promote the sustainable development of the long-term rental housing market.
Interpreter: Zhou Shiyan
Proofreader: Pan Yuxi
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