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December 11, 2017

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Renting a flat? Meet the corporate landlord

A QUEEN-size bed, wardrobe, one-seat sofa, desk and chair, TV, air conditioner, washing machine, refrigerator and microwave oven. Check! All amenities accounted for in a standard Mofang rental flat. What’s missing here is lots of space.

Shanghai-based Mofang is China’s biggest institutional rental apartment company, with a presence in 20 major cities. It provides what some might call “efficiency” apartments — small, furnished units targeted at young white-collar workers priced out of the homebuying market. It’s a home at a hefty price.

A 30-square-meter unit in a downtown complex on Jiangning Road costs renters 6,800 yuan (US$1,026), excluding utility fees that usually add up to about 300 yuan per month on average. Leases range from one to 12 months. Renters who stay six months or longer receive a 10 percent discount. Those who pay by quarter instead of monthly avoid an extra 100-a-month charge, and all renters must pay a deposit equal to one month’s rent.

“It all sounds pretty expensive,” said an acquaintance of mine, who has been leasing a similar-size one-bedroom apartment about 1.5 kilometers away from Jing’an Temple for more than two years. “Except for a one-time brokerage fee required in my case, I frankly don’t see much difference between the chain-operated apartments you describe and the one I rent from a private individual, but my costs are almost 50 percent lower.”

Mofang has capitalized on a market that attracts venture capital and dovetails with government programs to accelerate development of residential leasing. Institutional landlord chains have become the current buzz in the real estate industry.

Mofang opened its first apartment complex in Nanjing in 2009 and has since extended its portfolio to more than 200 complexes in cities such as Beijing, Shanghai, Guangzhou, Shenzhen, Suzhou, Hangzhou, Chengdu and Wuhan. The company now has more than 43,000 apartments under management across China.

Private equity firm Warburg Pincus was among the investors when Mofang completed a US$300 million round of financing last year.

Success breeds competition.

Property private equity firm Gaw Capital Partners announced in September that a fund under its management has invested in Harbour Apartments, a network of co-living spaces for talented young people in key Chinese cities.

Founded in 2015, Harbour Apartments has invested in 40 complexes in Shanghai, Beijing, Shenzhen, Guangzhou, Hangzhou, Nanjing and Hong Kong. Rents for its furnished apartments range from 3,000-20,000 yuan a month. It is aiming for 80,000 units under management by 2019.

“By signing long-term leasing contracts with property owners, most of the current players in the long-stay rental market are prone to high costs, which means that the apartments they offer could be somewhat out-of-reach for the majority of young people,” said Joe Zhou, head of research at JLL China. “Demand for such rental units is undoubtedly robust, particularly in big cities. It all depends on whether more affordable accommodation is available on the market.”

Major real estate developers including China Vanke Co and Longfor Properties, among others, are also stepping into the residential leasing sector with their own brands. It’s a challenge because the business requires large amounts of capital and the patience to wait for a return on investment. To some degree, that depends on property prices continuing to rise.

Port Apartment, a company opened by Vanke in 2016, had extended its footprint to 21 cities across China by the end of September. It now operates more than 20,000 apartments, the Shenzhen-based developer said in an earlier statement.

Longfor Properties, a mainland developed listed in Hong Kong, introduced its long-term rental brand Champion Apartments in 2016. As of July, it had 10 projects in seven Chinese cities, with the goal covering 16 cities and collecting rental income exceeding 2 billion yuan in 2020.

City governments have joined a national initiative to develop rental options as a damper on the overheated home-buying market. People are being encouraged to rent rather than buy homes.

In Shanghai, the municipal government announced in July that it would add some 700,000 leasing units by the end of 2020 as part of a master plan to expand new housing by 1.7 million units. It promised a better balance between homes for purchase and homes for rent.

To facilitate that policy, the city plans to earmark 1,700 hectares of government-owned land for development of residential rental properties.

“Between July and November, 15 plots designated for residential leasing and estimated to generate more than 18,000 rental units have been sold in the city,” said Zhang Yue, chief analyst with Shanghai Homelink Real Estate Agency Co, a leading property brokerage chain in China.

“If the local land authority maintains that pace, it might add around 200,000 new rental units to the market by 2020, with some 60,000 units being built annually over the next three years,” Zhang added.

Six such parcels are due to be released for sale soon, according to auction schedules.

Notably, all 15 plots already sold were acquired by state-owned developers, including nine by Shanghai Land (Group) Co and four by Shanghai Zhangjiang High-Tech Park Development Co.

“Only one ‘qualified bidder’ was allowed to participate in each of those auctions due to the high threshold set by the land watchdog,” said an industry analyst who preferred to remain unidentified. “That reflected the government’s determination to accelerate the development of the residential leasing market. But on the other hand, more players should be allowed to join the competition if a healthy market is to be created.”


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