China Index Research Institute: China's housing rental market was generally running smoothly in the first quarter, and the average residential rent in 50 cities fell slightly by 0.29%

The Zhitong Finance App learned that on April 22, the China Index Research Institute released a summary of China's housing rental market for the first quarter of 2024. In the first quarter of 2024, China's housing rental market was generally running smoothly. In terms of rent, the average residential rent in the 50 cities fell slightly by 0.29% in the first quarter. The market was in the process of changing from off-season to peak season, and rents stopped falling and rising month-on-month in March. In terms of policies, the central government introduced a limited number of guiding policies in the first quarter, mainly the implementation of local policies. All regions actively introduced policies on both supply and demand sides to promote the healthy development of the rental market. On the corporate side, long-term rental apartment companies are actively expanding their business, and the scale of open and managed properties has steadily increased. By the end of the first quarter, TOP30 companies had managed a total of 1.659 million units.

Trends in the 50 city residential rental price index

Table: Residential Rental Price Index for 50 Cities in March 2024 (yuan/square meter/month)

1. Index trend: Average residential rents in 50 cities fell 0.29% cumulatively in the first quarter of 2024

Residential rents fell slightly cumulatively in the first quarter of 2024. According to the China Index Research Institute's 50-city residential rental price index, the average residential rent in 50 cities fell by 0.29% cumulatively in the first quarter of 2024. On a monthly basis, due to the Spring Festival holiday, the release of rental demand slowed in January and February. The housing rental market was in the traditional low season, and rents continued to decline month-on-month; in March, driven by factors such as people returning to the city and job changes after the holiday season, rental demand was concentrated, and the housing rental market gradually entered the peak season. In March, the average residential rent in 50 cities was 36.5 yuan/square meter/month, which stopped falling by 0.73% year on year.

Figure: Average residential rent trends in 50 cities from July 2021 to March 2024

2. Urban rents: The cumulative decline in average residential rents in 39 key cities in the first quarter of 2024

Judging from the absolute level, rents in 36 key cities are in the range of 20-40 yuan/square meter/month. Specifically, in March 2024, rent levels in Beijing, Shanghai, and Shenzhen exceeded 80 yuan/square meter/month, significantly higher than other cities; 5 cities including Hangzhou and Guangzhou had rents of 40-60 yuan/m2/month; 36 cities including Zhuhai, Fuzhou, and Suzhou had rents of 20-40 yuan/m2/month; and 6 cities including Huizhou and Taiyuan had rents below 20 yuan/m2/month.

Judging from the rise and fall rate in the first quarter, rents fell cumulatively in 39 key cities. Specifically, in the first quarter of 2024, rents rose cumulatively in 11 cities including Beihai and Sanya; Wenzhou had the biggest cumulative decline of -2.00%; 8 cities including Xiamen and Xuzhou had a cumulative decline of 1.0%-2.0%; 15 cities including Lanzhou and Dongguan had a cumulative decline of 0.5% (inclusive) -1.0%; and 15 cities including Hefei and Guiyang had a cumulative decline of less than 0.5%.

3. Rental income ratio: The average rental income ratio in 50 cities is 18%, and Shenzhen, Beijing, Sanya, and Shanghai exceeds 30%

The overall rent income ratio of China's key cities is within a reasonable range, and a few cities have slightly higher rent income ratios. According to China Index monitoring data, in March 2024, the average rent income ratio of the 50 key cities was 18%, which is within a reasonable range. Among the 50 cities, most cities have a rent income ratio of less than 20%; Shenzhen, Beijing, Sanya, and Shanghai have a rent income ratio of more than 30%, and residents are under high pressure to rent a house. Recently, the rent trend has stabilized. At the same time, with the steady increase in residents' income levels, the rent-to-income ratio is declining. In the future, as bonded housing enters the market on a large scale, it will calm the rent trend, and the rent burden on residents is expected to be further reduced.

Figure: Rental income ratio for 50 key cities in March 2024

4. Rent-to-price ratio: The overall rent-to-housing ratio in the 50 cities is at a low level, but recently it has shown an upward trend

With the rapid development of China's real estate market, housing prices in key cities are generally high, the overall rent to housing price ratio is low, and the return on housing rental investment is limited. The rent-to-price ratio is an important indicator reflecting the level of return on housing rental investment. Given future rent increases, the lower the rent-to-price ratio indicates that the return rate of the “buy-rent” model is lower. The low return on investment is one of the important factors that have limited the development of China's housing rental market for a long time.

According to China Index monitoring data, in March 2024, the average rent to housing ratio in the 50 key cities was 2.15%, which is at a low level. Of the 50 cities, 26 have a rent-to-price ratio of less than 2.0%. The rent-to-housing ratio in Xiamen is only 1.0%. Housing prices in core Tier 1 and 2 cities such as Shenzhen, Beijing, and Nanjing are higher, and the rent-to-housing ratio is comparatively lower, around 1.5%.

Figure: Ratio of rent to housing prices in 50 key cities in March 2024

As housing prices continue to fall, the rent-to-price ratio has rebounded. Since 2022, second-hand housing prices in 50 cities have shown a continuous downward trend. As housing prices continue to fall, the rent-to-housing price ratio has rebounded. According to China Index monitoring data, in March 2024, the average rent price in the 50 cities was 0.09 percentage points higher than the low at the end of 2022. In the short term, as housing price expectations continue to weaken, the rent-to-housing ratio is expected to continue to rise, which will help increase the return on investment in rental projects and highlight the operating value of rental projects.

Figure: Ratio of average second-hand housing prices to rent prices in 50 cities from July 2021 to March 2024

Summary of housing rental policies for the first quarter

Since 2021, with the development of guaranteed housing as the core, the central government has actively introduced housing rental support policies. The housing rental policy system has been improved and gradually entered the stage of policy implementation promotion. In the first quarter of 2024, the central government issued a limited number of guiding policies, mainly the implementation of local policies.

1. Central Policy: “17 Housing Rental Finance Rules” were officially released, and the housing rental finance policy environment was further improved

In the first quarter of 2024, housing rental policies at the central level mainly focused on financial support. In particular, the official release of the “17 Housing Rental Finance Rules” was of some landmark significance. On January 5, the People's Bank of China and the China General Administration of Financial Supervision and Administration jointly issued “Opinions on Financial Support for the Development of the Housing Rental Market” (Yinfa (2024) No. 2), which launched 17 measures to strengthen innovation in housing rental credit products and service models, broaden diversified investment and financing channels in the housing rental market, and strengthen and improve housing rental finance management (“17 Housing Rental Finance Rules” for short) to support the development of the housing rental market. The draft for comments on the “17 Rules on Housing Rental Finance” was released in February 2023. This official release marks the further improvement of China's housing rental finance support system.

The “17 Rules for Housing Rental Finance” provides diversified, multi-level, full-cycle financial products and financial services for the investment, development, operation and management of rental housing. What is very important is the establishment of a credit support product system covering the entire cycle of rental housing projects, including development and construction loans, group home purchase loans, and operating loans. The “17 Housing Rental Finance Rules” further strengthen financial support for the housing rental market, which is conducive to broadening the financing channels for housing rental enterprises, reducing financing costs, and making rental housing projects more able to “calculate accounts”, thereby increasing the enthusiasm of housing rental enterprises to invest and operate, and promoting the rapid and healthy development of the rental market.

Table: Housing Rental Credit Product System

2. Local policies: All regions actively introduce leasing policies for both supply and demand to promote healthy market development

Table: Classification of key housing rental policies introduced in various regions in the first quarter of 2024 (incomplete statistics)

On the supply side, equal emphasis is placed on policy support and regulation, and local authorities are actively introducing policies to promote the healthy development of the rental market. In terms of policy support, cities such as Guangzhou, Fujian, and Qingdao have further implemented financial and fiscal support policies. For example, Guangzhou made it clear that part of the area of newly built affordable rental housing is exempt from urban infrastructure support fees; Qingdao proposed to support eligible housing rental companies to issue bonds specifically for the construction, purchase, and operation of rental housing, and accelerate the pilot work of rental housing loan support programs. Provinces and cities such as Guangzhou and Hainan have introduced land-related support policies. For example, Guangzhou has made it clear that if an old factory building on state-owned land is converted into affordable rental housing, there is no need to pay additional land prices. In terms of regulation and supervision, Beijing has strengthened supervision and management of deposits and rents, stipulating that deposits are managed by a third party deposit escrow account, and that parts other than rent for more than three months are supervised; Guangzhou has strengthened the credit management of housing rental companies and made relevant regulations on the scope of application, division of responsibilities, and methods of obtaining credit management. In addition, cities such as Beijing, Shenzhen, Fuzhou, Hefei, Xiamen, Jinan, and Suzhou have introduced relevant management measures on the allocation, rent, and construction of guaranteed housing and talent apartments.

On the demand side, local policies mainly focus on rental subsidies and provident fund support. Cities such as Shaoxing, Daqing, Zhangzhou, Guangzhou, and Haikou have introduced or improved rental subsidy policies for families with housing difficulties and imported talents. Cities such as Chengdu, Shanwei, Shaoxing, and Qingyang have further improved policies relating to withdrawing rent from provident funds. For example, Chengdu raised the monthly withdrawal limit for unregistered rental contracts from 1,000 yuan to 1,200 yuan.

Guaranteed housing development

1. Guaranteed housing raising: Many cities have released 2024 guaranteed housing raising plans, and guaranteed housing fundraising will remain on a large scale

The 2023 bonded housing raise exceeded the annual target. During the “14th Five-Year Plan” period, the country plans to raise 8.7 million guaranteed housing units (units). By the end of 2023, 5.73 million units (units) had been raised, with a completion rate of 66%. Among them, the national guaranteed housing fund raising target for 2023 was 2.04 million units (units), and 2.13 million units (units) were raised, exceeding the annual target. The scale of the task of raising the remaining 2.97 million units (units) of guaranteed housing in 2024-2025 is quite large, and there is still a window for companies to enter the long-term rental apartment circuit.

In the first quarter, many cities announced plans to raise guaranteed housing for 2024. Key cities such as Guangzhou, Shanghai, and Beijing have announced their 2024 guaranteed housing financing plans. Overall, the 2024 guaranteed housing plan fundraising scale has decreased compared to 2023, but the absolute amount remains high.

Table: 2024 Guaranteed Housing Funding Plans for Selected Key Cities

2. Guaranteed Housing REITs: The target completion rate of the 2023 Guaranteed Housing REITs allocable amount exceeded 100%, and the rental rate of the underlying asset projects was high

Judging from the core financial indicators, the overall operating performance of bonded housing public REITs showed a steady trend. According to the latest disclosed data, in the fourth quarter of 2023, Huaxia Beijing Guaranteed Housing REIT achieved revenue of 18.29 million yuan, a month-on-month decrease of 0.63%, and an allocable amount of 13.79 million yuan, an increase of 0.30%; Red Earth Innovation Shenzhen Anju REIT achieved revenue of 13.63 million yuan, a decrease of 0.79% month-on-month, and an allocable amount of 10.82 million yuan, a decrease of 18.83%; CICC Xiamen Anju REIT achieved revenue of 19.44 million yuan, a year-on-month decrease of 6.03%; Huaxia Fund Runyouchao REIT achieved revenue of 19.89 million yuan, an increase of 0.48% over the previous month, and an allotable amount of 14.34 million yuan, a slight decrease of 0.09% over the previous month. In addition to the large month-on-month decline in the amount available for distribution of Red Clay Innovation Shenzhen Anju REIT, the overall operating performance of Guaranteed Housing REITs has been steady.

Figure: Data on core financial indicators for public rental housing REITs

All four guaranteed housing REITs have exceeded their allotment targets in 2023. According to the latest disclosed data, in 2023, the completion rate of the four public rental housing REITs that can be distributed exceeded 100%. Among them, the completion rate of Huaxia Fund's China Resources Youchao REIT was as high as 125%, the completion rate of Huaxia Beijing Guaranteed Housing REIT and CICC Xiamen Anju REIT was around 110%, and the target completion rate of Red Earth Innovation Shenzhen Anju REIT was 104%, which is slightly lower than the other three bonded housing REITs. Compared with 2022, the completion rate of Red Clay Innovation Shenzhen Anju REIT's allocable amount target has declined, the completion rate of Huaxia Fund China Resources Youchao REIT and Huaxia Beijing Guaranteed Housing REIT has increased, and CICC Xiamen Anju REIT is basically the same.

Table: Target completion rate of the amount of money that can be distributed by public rental housing REITs

The operating performance of listed bonded housing REITs underlying asset projects has been relatively stable, and the occupancy rate has remained high and fluctuating. According to the latest disclosed data, in the fourth quarter of 2023, CICC Xiamen Anju REIT, Red Earth Innovation Shenzhen Anju REIT, and Huaxia Beijing Guaranteed Housing REIT all had a rental rate of over 96%. Among them, the occupancy rate for CICC Xiamen Anju REIT was 99.8%, and the rent was basically full.

Table: Comparison of rental rates for various guaranteed housing REITs underlying asset projects in different periods

In the first quarter of 2024, Guotai Junan Chengtou Kuanting Guaranteed Housing REITs were officially launched, and several guaranteed housing REITs are being prepared for release. On January 12, Cathay Pacific Junan City Investment Kuanting Guaranteed Housing REIT was officially launched, raising more than 3 billion yuan. It is currently the largest guaranteed housing REIT issued. Benefiting from policy support, the pace of issuance of public rental housing REITs has now accelerated. A number of guaranteed housing REITs, such as Jianxin Jianrong Homeland Rental Housing REIT, Qingdao Housing Insurance REIT, Shanghai Lingang Science and Technology City, and Beijing Changping Public Rental Housing REIT, are preparing for issuance. Among them, Jianxin Jianrong Homeland Rental Housing REIT has been declared to the Shanghai Stock Exchange and received feedback from the Shanghai Stock Exchange on April 15.

Table: Basic Information on Cathay Pacific Junan Chengtou Housing Insurance REIT

Ranking of long-term rental apartment companies by size

1. Business scale list: TOP30 entry threshold raised to 11227

According to statistics from the China Index Research Institute, by the end of the first quarter of 2024, TOP30 centralized long-term rental apartment companies had a cumulative total of 1.127 million units opened, an increase of 41,000 units over the end of the fourth quarter of 2023. Among them, the cumulative operating scale of TOP5 enterprises reached 521,000, an increase of 40,000 over the end of the previous quarter, accounting for 46.2% of the total TOP30 scale, down 1.3 percentage points from the end of the previous quarter. At the end of the first quarter of 2024, the entry threshold for the TOP30 opening scale was 1,1227, up 1,527 from the end of the previous quarter.

In terms of classification, in the top 30 opening list, there are 13 housing rental companies, 7 local state-owned enterprise departments, 5 entrepreneurship departments, 3 hotel departments, 1 intermediary department, and 1 finance department, respectively. Among them, the number of local state-owned enterprises increased by 1 compared to the end of the previous quarter. In March, due to 2 projects, Ningchao Apartment was divided from the parent company Hangzhou Anju to the Ningchao brand, and the scale of operation increased markedly and entered the list. Judging from the changes in the scale of operations, due to the entry of new enterprises into the list, the opening scale of local state-owned enterprises increased significantly, reaching 18,000 units; in addition, the opening scale of the Department of Entrepreneurship and the Hotel Department also increased significantly, to 10,000 rooms and 90,000 rooms, respectively. Large-scale guaranteed housing has already been raised in the first half of the “14th Five-Year Plan”. In the future, with the gradual entry of guaranteed housing already raised into the market, the scale of housing units opened by local state-owned enterprises is expected to expand further significantly.

Table: Statistics on the operating scale of various housing rental companies in the TOP30

2. Management scale list: TOP30 companies have managed a total number of 1.659,000 properties

According to statistics from the China Index Research Institute, as of the end of the first quarter of 2024, TOP30 centralized long-term rental apartment companies managed a total of 1.659 million units, an increase of 31,000 units over the fourth quarter of 2023. Among them, the cumulative management scale of TOP5 enterprises was 726,000, an increase of 11,000 units over the end of the previous quarter, accounting for 43.8% of the total TOP30 scale, which is basically the same as at the end of the previous quarter. At the end of the first quarter of 2024, the entry threshold for the TOP30 management scale was 18,000, a slight increase of 222 units over the end of the previous quarter.

In terms of classification, in the top 30 management lists, there are 11 housing rental companies, 9 local state-owned enterprise departments, 6 entrepreneurship departments, 3 hotel departments, and 1 intermediary department, respectively. The structure has not changed since the end of the previous quarter. Judging from changes in management scale, the Department of Housing Enterprises, the Department of Hospitality, and the Department of Entrepreneurship have increased significantly, with 90,000 rooms, 80,000 rooms, and 70,000 rooms, respectively.

Table: Statistics on the management scale of various types of housing rental enterprises in the TOP30

Conclusions

Since 2016, with the construction of a “combined rental and purchase” housing system and the development of affordable rental housing, a large number of long-term rental apartment brands have emerged, and the housing rental market has developed rapidly. In 2023, due to a decline in residents' income expectations in the short term, housing rental consumption showed a certain downward trend; however, in the long run, with China's continuous social and economic development, the size of the floating population will further expand, compounded by the continued support of housing rental policies, the housing rental market is expected to continue to develop.

In the first quarter of 2024, the overall development of the housing rental market was steady. All regions actively introduced policies on both the supply and demand sides to promote the healthy development of the rental market; long-term rental apartment companies actively expanded their business, and the scale of properties opened and managed increased steadily; in the first quarter, the rental market was in the process of changing from low season to peak season, and rents changed from decline to increase month-on-month.

Looking ahead, in 2024, the long-term rental apartment market is still facing challenges due to further macroeconomic recovery, and the development of the long-term rental apartment market is also expected to face some pressure. Long-term rental apartment companies need to strengthen services and focus on new customer development and customer renewal. At present, the “14th Five-Year Plan” guaranteed housing financing has entered the second half. Housing rental companies should seize the policy window period, respond reasonably to market risks, fully combine their own advantages, and actively expand their business scale. With the continuous development of China's housing rental market, the process of market institutionalization and scaling will inevitably accelerate. Rental companies should strengthen their own operating capabilities and ride the waves in the rapidly developing market.