February 23, 2018

Chinese technology firms have been stepping up investment in online home-rental platforms, a signal that China’s budding multifamily sector is set to expand.

The rental-housing market in China is growing, supported by government policy turning a focus to renting amid concerns that home prices are reaching their peak.

Tech firms have sensed the opportunity. Historically, the rental market has suffered from unregulated listings where unscrupulous agents and fake ads plague tenants, who have little legal protection on these fronts.

Some companies are seeking to clean it up, and there have been numerous deals over the past year. The latest was in January, when Chinese multinational Tencent invested in Ziroom, which offers long-term rentals in nine Chinese cities, including Beijing, Shanghai and Shenzhen.

Last October, online retailer introduced a platform for real estate businesses that aims to link property developers with potential buyers and tenants. In August, Chinese conglomerate Alibaba partnered with the city of Hangzhou to create an online home rental system. Alibaba’s fintech and payment affiliate, Ant Financial, already allows users to rent apartments on the Alipay app, with rooms in part provided by Shanghai-based home rental start-up Mogoroom.

The influx of investment is supported by government policy “and robust demand from millennials,” said Joe Zhou, Head of Research, JLL China. “For them, the rental housing segment is a must-play battle field to compete for users.”

Fighting for market share
The dealmaking comes in the wake of the Chinese government’s efforts to push home rentals to cool the property buying frenzy. For instance, authorities in Guangzhou have become the first to grant tenants and homeowners equal rights to local education resources; home ownership is a requirement for children to attend local schools in most of the country’s cities.

Other policies have led to the construction of rent-only apartment complexes in major cities such as Shanghai and Beijing, while many banks are extending credit lines to developers, financing rental projects. “This is part of the government’s priority to build a balanced and sustainable development in its priority, by moving away from build-to-sale strategy,” said Zhou.

Still, rental demand isn’t likely to dampen Chinese appetite for buying their own properties. Zhou points out that rental homes tend to cater to those in less mature stages of their lives – for instance fresh graduates, young couples or newcomers to a city, who cannot afford their own homes. “For affluent and qualified households, owning their own assets remains as the first choice,” he adds.

But if moves from the tech firms is a hint at what’s ahead, there is room to grow for the budding multifamily sector. Zhou foresees more diversified housing products entering the market.

Moreover, as yields are low in China’s residential rental market, these tech firms are simply fighting for market share. “There will be market consolidation and institutionalization ahead with new players – both investors and operators – entering.”

Click to learn more about China’s real estate market.



Joe Zhou

Head of Research, JLL China

Never miss an update from The Investor.

Subscribe Now!