Investors looking to break away from more traditional investments in commercial real estate may want to consider China’s rising rental housing market. In Beijing, the market has developed swiftly and is set to expand rapidly over the coming years thanks to strong leasing demand and a highly supportive policy environment.

In the first half of 2018 in Beijing alone, around 20 major rental housing operators stepped up to manage some 100 projects and nearly 17,000 units – a figure that is projected to skyrocket to more than 250,000 units in just a few short years, according to our latest research publication Opportunity knocks: China’s rising rental housing market.

Robust demand from young generations

With just 30% of rental housing units in Beijing located within the Fourth Ring Road, the remaining 70% are located in the outer areas of the city. Situated mostly near metro lines, roughly half of the supply is skewed to the east in Chaoyang District, aligning with business and commercial clusters.

Strong demand comes from Beijing’s large, non-local Chinese population (residents without a Beijing hukou or household registration), and particularly recent graduates looking to settle in the city as increasing barriers to homeownership make it even harder for young people to buy homes. Most projects were able to reach occupancy rates of more than 90% in three to six months after opening.

Supportive policy environment

The rental housing market in Beijing is projected to further benefit from a continuously supportive policy environment. China’s latest tax reforms, which saw personal income tax deductions for Chinese tenants become effective at the start of 2019, are believed to only be the start of a series of related incentives to come. This is expected to support wider development of both the residential leasing and rental housing markets.

As rental deductions become a more standardized market practice, we expect there to be a knock-on effect that will also help to improve overall regulation and transparency in the residential leasing and rental housing markets. This is likely to further attract demand to both markets as tenants increasingly seek quality housing alternatives to the highly priced residential sales market.

The bigger picture

As Beijing rises as the nation’s cultural centre, technological innovation centre, and international relations centre, its highly developed technology and professional services sectors are expected to continue attracting a steady stream of talents from all over. Recent graduates swarming the city’s job market for opportunities are also expected to drive a key source of leasing demand.

During the recent Two Sessions – China’s top political meetings – Prime Minister Li Keqiang reaffirmed the central government’s commitment to provide better housing solutions to make cities like Beijing more liveable and inclusive for residents. As high prices in the Beijing residential sales market are unlikely to retreat over the foreseeable future, the prospects for rental housing to develop as a long-term mechanism to relieve housing pressures in the city are sound, especially as more people in the city require affordable and reliable housing options.

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