The Real Deal New York

China starts grand housing experiment in pivot to renting

Home ownership rate is high, but leaders want to change perception on rentals
January 25, 2018 09:40AM

Beijing and Xi Jinping (Credit: Foreign and Commonwealth Office via Flickr)

Communist Party leaders in China, where the home ownership rate is nearly 90 percent, are embarking on a grand experiment to pivot toward renting.

President Xi Jinping is encouraging developers, banks and local governments to emphasize renting in an effort to curb the effects of a 13-year rally in real estate that’s put housing out of the reach of many Chinese citizens, Bloomberg reported.

In Beijing, for example, land prices have skyrocketed 1,538 percent from 2004 to 2016, according to a study from the University of Wisconsin.

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“China’s property market is on the brink of tremendous change,” Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, told Bloomberg. “The push for rental properties shows a new model is starting to emerge.”

Xi is looking to create a new market model that blends capitalism and the Communist system of allocating homes by work units.

The plan could include a long-awaited property tax, and auctioning off public land to developers that would build rental-only projects. Banks are offering credit lines to finance rental projects, and the Shanghai Stock Exchange is paving a way for investment products that are backed by rental income, Bloomberg reported.

Developer China Vanke is converting former offices in Shanghai into dormitory-style, one-room apartments in order to attract millennials. Some real estate firms are securitizing rental income into investment vehicles that look like real estate investment trusts, and in Beijing about 30 percent of the new supply in the pipeline by 2021 is designated for rental. [Bloomberg]Rich Bockmann