China has begun a great rental giveaway, offering cheap land and subsidised loans in an effort to kick-start development of home leasing markets in major cities across the nation.
Anyone expecting a rental housing boom to match the growth of the private purchase market may be disappointed, though: China's real estate industry is likely to remain dominated by the development of apartments for sale.
The increase in property prices to unaffordable levels has put a strain on migrant workers and middle-class residents in many urban centers, highlighting the low number of apartments available for rent. In July, the government identified 12 cities that have seen net population inflows, including the southern metropolis of Shenzhen, as urgently needing more supply. Others including Beijing and Shanghai have joined the push.
Those cities have become great places to be a tenant. Nanjing, for instance, gives rental subsidies, while Guangzhou and Shanghai are among those offering tenants the right to have their children educated in local schools - a privilege usually reserved for homeowners or those who hold a prized local hukou, as China's household registration system is known.
Shenzhen, a centre for technology companies including internet giant Tencent Holdings, has been even more generous. Tenants can withdraw up to 65 per cent of their monthly pension contributions to pay rent or even take out a loan from China Construction Bank.
Real estate prices in the city bordering Hong Kong have more than doubled in the past couple of years; even so, taking out a loan for a monthly liability like rent is unusual, to say the least.
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Read more:
Five reasons why the world's priciest property market keeps on soaring
City superstars on course to crash as global property bubble inflates
China's home price growth picks up amid government clampdown on lending
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On the supply side, the government is using its control over land and financing to persuade developers to become landlords.
That won't be easy. Real estate companies already have a model that works: load up on debt, buy land and start pre-sales in short order, enabling investments to be recouped in less than a year. That method has helped businessmen such as China Evergrande Group Chairman Hui Ka Yan become some of the country's richest people.
Shanghai has marked out 31 per cent of the land it's selling between 2017 and 2021 for rental housing, having previously ignored the sector, according to research firm Gavekal Dragonomics. Local governments have also made such land cheaper: one plot in the eastern city of Hangzhou, home of Alibaba Group Holding, went for 5,050 yuan (US$763) a square metre, a fraction of the 40,000 yuan per sq m price of market housing nearby.
State-controlled lenders such as Industrial & Commercial Bank of China have set aside hundreds of billions of yuan to lend to developers building homes for lease. Meanwhile, closely held Mofang Apartment issued an asset-backed security this year at a rate of 4.8 per cent to 5.4 per cent, lower than the average funding cost of about 10 per cent for rental companies, according to HSBC Holdings.
Real estate investment trusts are also slowly emerging, with state-owned Poly Real Estate Group selling a 5 billion yuan REIT made up of rental units in October.
The potential for growth is probably limited, though, by the deep-seated preference of Chinese households for home ownership. In a country with few investment options and a weak pension system, most people still see owning an apartment as a store of value and source of security. Today's young graduate renters are all likely to aspire to buy at some point.
Another challenge for developing this market is the flip-side of China's endemically high property prices: low returns on investment. Rental yields in tier-1 cities are about 1.5 per cent, based on data from Centaline Property Agency cited by HSBC.
Selling developers on an asset-heavy model like rentals, where payback takes at least five years, is a tough proposition. Companies entering the rental market such as China Vanke and Longfor Properties have low leverage and cheap funding costs and can afford to wait, according to Bloomberg Intelligence analyst Kristy Hung.
Highly indebted firms such as Evergrande and Sunac China Holdings won't be big rental investors because they cannot afford to raise funds that are locked up for a long time, even if they are able to charge high rents in luxury buildings with swimming pools and indoor gyms.
Ultimately, until there's a significant change to the hukou system enabling more migration to cities, or the REIT market develops more rapidly, China will remain a housing market for buyers.
It's not just an Englishman whose home is his castle.
Nisha Gopalan is a Bloomberg columnist covering deals and banking.
In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”
Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners
TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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A list of the animal rescue organisations in the UAE
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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So what is Spicy Chickenjoy?
Just as McDonald’s has the Big Mac, Jollibee has Spicy Chickenjoy – a piece of fried chicken that’s crispy and spicy on the outside and comes with a side of spaghetti, all covered in tomato sauce and topped with sausage slices and ground beef. It sounds like a recipe that a child would come up with, but perhaps that’s the point – a flavourbomb combination of cheap comfort foods. Chickenjoy is Jollibee’s best-selling product in every country in which it has a presence.
