China’s home rental market primed for growth as high interest rates, stuttering economy shift demand from buying to leasing: JLL report

The multifamily market penetration rate in Shanghai – its share of the entire rental sector – is tipped to surge to 15 per cent by 2030 from 5 per cent this year, the report said. Rents are likely to grow in a range of between 3 per cent and 5 per cent.

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Shanghai is likely to receive as much as 9 billion yuan (US$1.25 billion) of investment in the multifamily sector this year, said Robert Anderson, director, head of living, Asia-Pacific capital markets at JLL, in an interview.

The demand for multifamily housing in Shanghai and other tier-1 cities in the mainland is underpinned by the migrant population, which comprises between 35 per cent and 50 per cent of China’s total population, he said.

In Shanghai alone, there are an estimated 10 million migrants, creating a massive market, Anderson added.

“There is genuine imbalance between the supply and demand of multifamily product in mainland China,” said Anderson. “As it currently stands, multifamily supply is limited given the sector’s nascency, but demand for rental housing is at an all-time high.”

With Shanghai gaining steam in the sector and other cities likely to follow suit, “the country is primed to become a leading multifamily market in Asia-Pacific,” said JLL.

Policy support is also expected to boost investment in the segment after Beijing made it clear that housing should be a commodity and not an investment. The China Banking Regulatory Commission has given the green light for insurance funds to invest in the housing market, and central authorities have highlighted the need to pay greater attention to the construction of affordable rental housing across the nation.

“Furthermore, Chinese Reits (real estate investment trusts) provide exit liquidity,” Anderson said. “Being one of the few asset classes that can be listed on Chinese Reits, there is perceived longevity to the asset class and this will further guide capital to participate in the long-term rental apartment investment market and promote the healthy development of the industry.”

For the whole of China, JLL estimates that there were 1.33 million multifamily units managed by the top 30 operators in the country as of June, an increase of 12 per cent from 2021.

The Asia-Pacific region and the US are also seeing robust growth in the multifamily asset category, with urbanisation, the number of single person households and delayed marriages, and demand for institutional investment opportunities on the rise.

JLL forecasts that investment in the segment in Asia-Pacific will more than double to US$20 billion by 2030.

Officials of New York-based CP Capital have visited Hong Kong and Singapore recently to make a sales pitch to potential investors. The company that focuses on multifamily housing in suburban areas of the US sought investors in Asia’s financial hubs willing to put at least US$1 million into its projects, said Jay Remillard, managing director at CP Capital US.

“In the suburbs, population growth is 5 per cent greater than in the urban areas,” he said. “If you look at average occupancy it has been 95 per cent in our assets, and once we hit that we typically sell the asset.”

CP Capital’s assets typically comprise 300 units and they usually sell the property within 30 months to three years of leasing the property, Remillard said.

Interest rates at a 22-year high in the US are also helping the sector, said Gavin Morgan, managing director, investments, at Grubb Properties, which operates multifamily properties in states such as New York, California, DC and Virgina.

“The essential housing component of multifamily, where Grubb Properties is focused, has achieved huge success,” Morgan said. “This is an area where demand will remain strong for at least another decade.”

In the US, more people are renting a home as ownership has “become more difficult with rising [interest] rates,” said Ernest Katai, executive vice-president and head of production at Berkadia, a joint venture between Berkshire Hathaway and Jefferies Financial Group.

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