Date
14 August 2018
Beijing-based real estate agency Lianjia is now believed to be operating a portfolio of 500,000 rental apartments spread across nine Chinese cities. Photo: ebrun.com
Beijing-based real estate agency Lianjia is now believed to be operating a portfolio of 500,000 rental apartments spread across nine Chinese cities. Photo: ebrun.com

Why China property agency Lianjia moved into rental business

The hottest investment theme in China this year so far is rental apartments, after President Xi Jinping said earlier that “houses are for living in, not for speculation”.

Xi’s remarks have promoted the property sector and private-equity investors to jump into the rental apartments market.

Lianjia, a Beijing-based real estate agency, now operates a portfolio of 500,000 rental apartments in nine Chinese cities, worth about 600 billion yuan.

Internet giant Tencent injected 4 billion yuan into the project together with US venture capital firm Sequoia Capital and other investors.

Noticing the policy direction, property developers have also viewed rental apartments as a new revenue source.

Vanke, one of China’s largest developers, has taken the lead. It is already managing around 100,000 properties.

Other mainland firms like Country Garden and Longfor Properties also plan to tap into the property leasing market this year.

However, rental apartment is yet to be a profitable business for developers if they have to build the properties and then lease them out. Because their funding costs, typically around 5 percent, is far more than the current average rental yield of 2 percent.

Still, developers consider rental apartments business as a long-term strategic focus. They are also making the bet to heed the call from top policymakers.

Compared to developers, Lianjia has taken a different path. Leveraging its customer base, the company is renting the flats from owners, putting them under a standardized management system, and then renting them out at a slightly higher rate.

For property owners, they can get stable rental income from Lianjia while avoiding various headaches in managing the properties.

For tenants, they are ensured that Lianjia-managed flats would be properly-furnished and bundled with a service package.

China’s property leasing market is still in the early stage; there is a serious lack of trust between landlords and tenants, resulting in wastage of resources and high transaction costs.

For instance, tenants may have to give landlords a deposit equivalent to as much as six-months rent. Also, some owners simply leave their flats idle to avoid the hassle of dealing with difficult tenants.

That has left room for institutional landlords to act as intermediary between individual property owners and tenants.

This article appeared in the Hong Kong Economic Journal on Jan 19

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal columnist

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