The Zhitong Finance and Economics APP learned that the China Index Research Institute stated that in the third quarter of 2024, China's residential rental market operated steadily overall. In terms of rent, the average rent of residences in 50 cities cumulatively decreased slightly by 0.56%, and the market entered the off-peak season in August and September. In terms of policies, the Third Plenary Session of the Central Committee in the third quarter emphasized accelerating the establishment of a housing system with both renting and buying, and various local policies focused more on non-residential to residential conversions and rent subsidies. In terms of enterprises, the enthusiasm of enterprises in the layout of the residential rental industry has increased. The scale of long-term apartment companies opening and managing rental properties has steadily increased. By the end of the third quarter, the entry threshold for the TOP 30 companies' opening scale had increased to 0.014 million units. Looking ahead, with the significant acceleration of measures to stabilize growth since the end of September, the Political Bureau meeting pointed out the need to "promote the stabilization and recovery of the real estate market," it is expected that the real estate market in core cities will gradually stabilize, and rent levels are also expected to gradually stabilize.

Trend of the Residential Rental Price Index in 50 Cities

1. Index Trend: In the third quarter, the average rent of residences in 50 cities cumulatively decreased slightly by 0.56%, and the market entered the off-peak season in August and September.

According to the China Index Research Institute's Residential Rental Price Index for 50 cities, in the third quarter of 2024, the average rent of residences in 50 cities decreased by 0.56%. Monthly breakdown shows that in July, supported by the graduation season effect, the residential rental market maintained some heat, with a slight increase in average rent in key cities; in August, as the graduation season effect diminished, the pace of rental demand release slowed down, and the rental level in 50 cities turned slightly downwards; In September, the average rent for residences in 50 cities was 36.1 yuan/square meter/month, a month-on-month decrease of 0.39% and a year-on-year decrease of 2.52%.

Table: Residential rental price index of 50 cities in September 2024 (yuan/square meter/month)

2. City Rents: In the third quarter, residential rents rose in 8 key cities, while rents in most cities fell slightly.

In terms of rental levels, rents in 36 key cities are in the range of 20-40 yuan/square meter/month. Specifically, in September 2024, rents in Beijing, Shenzhen, and Shanghai were over 80 yuan/square meter/month, significantly higher than other cities; rents in Hangzhou and Guangzhou were between 50-55 yuan/square meter/month, ranking in the second tier; rents in Sanya, Xiamen, and Nanjing were between 40-45 yuan/square meter/month, ranking in the third tier; rents in cities like Zhuhai and Suzhou among the 36 cities were between 20-40 yuan/square meter/month; rents in 6 cities like Huizhou and Taiyuan were below 20 yuan/square meter/month.

Table: Residential rental price index of 50 cities in September 2024 (yuan/square meter/month)

Looking at the cumulative changes in the third quarter, rents have increased in 8 key cities. Specifically, in the third quarter of 2024, Beihai had the highest cumulative rent increase at 1.53%, while 7 cities including Quanzhou and Hefei had cumulative increases of less than 1%; among cities experiencing declines, 8 cities including Wenzhou and Shaoxing had cumulative decreases of over 1.0%; 20 cities including Nanning and Jinan had cumulative declines between 0.5% and 1.0%; and 14 cities including Shenyang and Wuxi had cumulative decreases of less than 0.5%.

Looking at different tiers, the cumulative rents in cities of all tiers have declined in the third quarter. According to the residential rental price index of 50 cities, in the third quarter of 2024, the average residential rent in first-tier cities cumulatively decreased by 0.49%, second-tier cities by 0.63%, compared to the same period last year when increases turned into decreases; third and fourth-tier representative cities' average rent cumulatively decreased by 0.35%, with a decrease of 0.12 percentage points compared to the same period last year.

3. Rent-to-income ratio: The average rent-to-income ratio of 50 cities in September is 17.7%, with a slight relief in residents' rent burden.

The overall rent-to-income ratio of key cities in China is relatively reasonable. According to the monitoring data of Zhongzheng, in September 2024, the average rent-to-income ratio of 50 key cities was 17.7%, within a reasonable range. Specifically, among the 50 cities, 39 had a rent-to-income ratio below 20%, indicating relatively low rent burden; cities like Hangzhou and Guangzhou had ratios between 20% and 30%; while Shenzhen, Beijing, Sanya, and Shanghai had ratios exceeding 30%, indicating a relatively high pressure on residents for renting. In 2024, due to minor adjustments in rent, residents' rent burden has slightly eased; comparing with the same period last year, the rent-to-income ratio of the 50 cities in September 2024 decreased by approximately 1.3 percentage points (from 19.0% in September 2023).

Image: Rent-to-income ratio of 50 key cities in September 2024

Note: Rent-to-income ratio = Average residential rent in September 2024 × per capita housing floor area × 12 ÷ per capita disposable income of urban residents in 2023, with per capita housing floor area estimated at 30 square meters.

4. Rent-to-price ratio: The rent-to-price ratio of the 50 cities in September has risen to 2.12%, easing the phenomenon of rent and sale ratio inversion.

The rental-to-price ratio of key cities in China is steadily rebounding from a low level. According to the monitoring data of China Index, in September 2024, the average rental-to-price ratio of 50 key cities was 2.12%. Specifically, among the 50 cities, 24 cities had a rental-to-price ratio below 2.0%; among them, Xiamen had a ratio of only 1.0%, the lowest level among the 50 cities; high-priced real estate in core first and second-tier cities such as Shenzhen, Beijing, and Nanjing resulted in relatively lower rental-to-price ratios, between 1.5% and 1.6%. Compared with the same period last year, due to the adjustment cycle of the real estate market in key cities, the price decline in the 50 cities was more significant than the rental decrease. In September 2024, the rental-to-price ratio of the 50 cities increased by 0.1 percentage point compared to the same period last year (2.02% in September 2023), with a slight increase in the rental-to-price ratio at a low level, alleviating the phenomenon of inverted price-to-rent ratio.

Chart: Rental-to-price ratio of 50 key cities in September 2024

Note: Rental-to-price ratio = Average residential rent in September 2024 x 12 ÷ Average price of second-hand residential housing in September 2024.

Summary of third-quarter housing rental policies

In the third quarter of 2024, the Third Plenum of the Twentieth Central Committee once again emphasized the policy of "promoting both renting and buying," accelerating the improvement of the housing system that combines buying and renting, and various ministries actively expressed their support. Measures include optimizing the issuance conditions of infrastructure REITs, increasing support for re-loans for affordable housing, and other initiatives to support the development of the housing rental market. At the local level, housing rental policies focus on areas such as provident fund support, rental subsidies, policy cultivation, market supervision, and stock acquisition, aiming to reduce tenants' rental burdens, improve housing rental management standards, activate existing assets, and enhance the efficiency of raising funds for rental housing.

1. Central Policies: The Third Plenum emphasized the establishment of a housing system that combines renting and buying, further improving the financial support system.

The Third Plenary Session set the tone for the 'combination of renting and buying.' On July 21, the Decision of the Central Committee of the Communist Party of China on Further Deepening Overall Reform and Advancing China's Modernization was announced, emphasizing 'accelerating the establishment of a housing system that combines renting and buying, accelerating the construction of a new real estate development model. Increasing the construction and supply of affordable housing to meet the rigid housing needs of the working class.' On July 30, the Politburo meeting further clarified 'actively supporting the purchase of existing commercial housing for use as affordable housing,' and on September 26, the Politburo meeting pointed out the need to 'promote the stabilization and recovery of the real estate market.' The central government's clear direction on subsequent policies greatly boosted market confidence, and since the third quarter, various ministries have mainly focused on financial support for housing rental policies.

Public offering REITs policy environment continues to be optimized and improved, with asset exit channels becoming increasingly smooth. In July, the National Development and Reform Commission issued a notice on the normalization of the issuance of Real Estate Investment Trusts (REITs) in the infrastructure sector, including market-based long-term rental housing for the first time in public offering REITs' underlying asset category, and optimized policies in various aspects, such as adjusting and optimizing the scale requirements, no longer restricting the use of funds for new/building asset acquisitions and relaxing supplementary working capital requirements, abolishing cash flow distribution rate or internal rate of return requirements, and others. The expansion of public offering REITs for rental housing provides an exit channel for various types of rental housing investments, boosting corporate enthusiasm for participating in the housing rental business.

The People's Bank of China has repeatedly emphasized the implementation of the 300 billion yuan policy for re-lending of indemnificatory apartments, and further strengthened the funding support policies in the third quarter. On September 24, the State Council Information Office held a press conference to introduce the relevant financial situation supporting the high-quality development of the economy, proposing, "To further enhance the market-oriented incentives for banks and acquiring entities, we will increase the proportion of the People's Bank of China's investment in the policy of re-lending indemnificatory apartments from the original 60% to 100%."

Table: Summary of key housing leasing policies issued by the central and various ministries in the third quarter of 2024

Data Source: Comprehensive compilation by China Real Estate Index Research Institute.

2. Local Policies: Local policies in various regions mainly focus on non-residential to residential conversion and rental subsidies, with continuous promotion of state-owned enterprises' acquisition and holding.

Table: Summary of key housing leasing policies issued by various regions in the third quarter of 2024 (not fully comprehensive)

Data Source: Comprehensive compilation by China Real Estate Index Research Institute.

On the supply side, housing leasing policies to support and regulate management continue to be introduced. Many places support the acquisition of existing commercial housing for use as indemnificatory apartments. Tianjin, Chenzhou and other places support non-residential to residential conversion. For example, in Tianjin, guidance is provided to promote the conversion of non-residential existing properties. Legal construction within administrative areas, idle and underutilized commercial offices, hotels, factories, warehouses, research and educational facilities, and other non-residential existing properties (including non-residential existing properties on collectively operated construction land) can apply for conversion into rental housing for indemnification. In terms of regulation and management, Fujian, Guangzhou and other places have issued regulations on public rental housing, rental housing, and other normative regulations. They have further improved entry conditions, allocation methods, operational services, supervision, and management to regulate housing leasing behavior. Beijing has strengthened the deposit escrow and rent supervision of the entire city's housing leasing, with deposits being deposited into accounts specified for deposit escrow according to the deposit payment time and amount specified in the housing lease contract. Shenzhen explicitly states that the rental for socially owned preferential rental housing shall not exceed 90% of the reference rental for leasing housing of the same period, area, and quality. In addition, over 40 provinces and cities such as Guangdong Province, Dalian, and Nanning support the acquisition of existing commercial housing for use as indemnificatory apartments, with continuous progress in the acquisition and holding processes across various regions.

On the demand side, local policies mainly focus on rental subsidies and provident fund support. Shanghai's Changning District, Shenzhen's Nanshan District, Wuxi, and Ziyang have introduced or improved rental subsidy policies for families facing housing difficulties and for attracting talent. Henan, Xinjiang, Beihai, and other places have further improved policies related to using provident fund to pay rent. For example, Beihai has increased the rental withdrawal limit for those without housing deposits, abolished the city and county division standard, and unified the adjustment for single employees to 900 yuan/month·household, and for married employees to 1500 yuan/month·household. At the same time, Henan, Lu'an, Beihai, and many other places support reimbursements based on actual rental expenses for multi-child families that exceed the rental withdrawal limits.

Indemnificatory apartment public reits operation performance.

1. The overall performance of indemnificatory apartment reits is stable, and the sixth indemnificatory apartment reits has been officially established.

The overall performance of indemnificatory apartment public reits operation performance has fluctuated slightly. According to disclosed data, in terms of fund income, in the second quarter of 2024, Zhongjin Xiamen Anju REIT and Huaxia Fund Huarun Youchao REIT both saw a slight year-on-year increase, while Huaxia Fund Beijing indemnificatory apartment REIT slightly declined, Hongtu Innovation Shenzhen Anju REIT remained basically the same as the same period last year in terms of income; in terms of net income, Huaxia Fund Beijing indemnificatory apartment REIT and Huaxia Fund Huarun Youchao REIT both saw quarter-on-quarter growth in the second quarter, Hongtu Innovation Shenzhen Anju REIT and Zhongjin Xiamen Anju REIT fluctuated slightly; in terms of distributable amount, the four indemnificatory apartment reits listed in 2022 all showed a decrease in the second quarter of 2024 compared to the previous year. Overall, in the environment of declining rents, Huaxia Fund Beijing indemnificatory apartment REIT, Zhongjin Xiamen Anju REIT, and Huaxia Fund Huarun Youchao REIT have relatively stable operations, with no significant decrease in income, net income, and distributable amount indicators.

Table: Core financial indicators data of indemnificatory apartment public reits

Data source: Indemnificatory apartment REITs public information.

2. The underlying asset projects of indemnificatory apartment reits are operating steadily, with an average rental rate of over 96% for multiple projects.

The five listed indemnificatory apartment reits have stable operation of underlying assets, maintaining a high level of rental rates. According to the second quarter report disclosure data of indemnificatory apartment reits, as of the end of June 2024, the 12 underlying asset projects of the five listed indemnificatory apartment reits all have rental rates of over 90%. Among them, the rental rates of the underlying asset projects of Zhongjin Xiamen Anju REIT, Hongtu Innovation Shenzhen Anju REIT, and Huaxia Fund Beijing indemnificatory apartment REIT are all above 96%, basically fully leased. The Huaxia Fund Huarun Youchao REIT project, which operates in a more market-oriented manner, has an average rental rate of 94.2%, remaining basically stable compared to the end of the first quarter; the Guotai Junan Urban Investment Kuangting indemnificatory apartment REIT has an average rental rate of 90.3%, a decrease of 1.4 percentage points from the end of the first quarter.

Table: Comparison of rental rates of different period underlying asset projects of indemnificatory apartment reits.

Data source: Indemnificatory apartment REITs public information.

In the third quarter of 2024, the secondary market of indemnificatory apartment REITs continued its upward trend. In the third quarter, the prices of 5 public indemnificatory apartment REITs in the secondary market all showed a cumulative upward trend, but the overall increase was lower than that of the second quarter. Among them, Huaxia Beijing indemnificatory apartment REIT and China Jin Xiamen Anju REIT showed outstanding gains, ranging from 6% to 8%; Huaxia Fund Huarun Youchao REIT and Hongtu Innovation Shenzhen Anju REIT had cumulative gains between 2% and 4%; GTJA City Investment Kuanting Indemnificatory Apartment REIT saw a marginal increase of 0.4%. In view of the cumulative decline of 0.9% in the China Securities REITs Index (closing) in the third quarter, indemnificatory apartment REITs performed well among the public infrastructure REITs.

Table: Price changes of public indemnificatory apartment REITs in the secondary market in various time periods.

Data source: Wind, China Index Research Institute integrated compilation.

In September, China Merchants Fund Shekou Rental Housing REIT was officially established, and multiple indemnificatory apartment REITs continued to advance in the preparation of REITs issuance. On August 22, China Merchants Fund Shekou Rental Housing REIT was officially approved; On August 30, it obtained approval from the China Securities Regulatory Commission and became the sixth indemnificatory apartment REIT in China; On September 26, China Merchants Fund China Merchants Shekou Rental Housing REIT was established, with an initial scale of 1.363 billion RMB. Currently, the issuance of public REITs in China has entered a normalization stage, and the pace of application and issuance of public indemnificatory apartment REITs has accelerated. Vanke Boyu REIT, Xiongan Group Rental Housing REIT, and others are progressing with the preparation for REITs issuance. Vanke Boyu REIT has already received relevant guidance and feedback, with the target assets being indemnificatory apartment projects with excellent operational performance in Beijing, Tianjin, Hangzhou, and other areas. At the same time, several listed indemnificatory apartment REITs have started additional fundraising efforts. On August 30, China Jin Xiamen Anju REIT announced its plans for additional fundraising, intending to acquire infrastructure projects including the Linbian Apartment project in Siming District and the Renhe Apartment project in Huli District, Xiamen. Huaxia Beijing Indemnificatory Apartment REIT is taking a faster step, having officially submitted a request for fund change registration to the China Securities Regulatory Commission, and submitted an application to the Shanghai Stock Exchange for fund product changes and additional share issuance listing.

Table: Basic information of China Merchants Fund Shekou Rental Housing REIT.

Source: Recruitment brochure.

Performance of long term rental apartment companies.

1. Opening scale list: TOP30 entry threshold raised to 0.014 million units, local state-owned enterprises accelerate the expansion of leasing business.

According to the statistics of China Index Research Institute, as of the end of the third quarter of 2024, the cumulative opening housing inventory of the TOP30 centralized long-term rental apartment enterprises reached 1.214 million units, an increase of 0.054 million units compared to the first half of 2024. Among them, the cumulative opening scale of the TOP5 enterprises reached 0.539 million units, an increase of 0.007 million units from the end of the previous quarter, accounting for 44.8% of the total TOP30 scale, a decrease of 1.5 percentage points from the end of the previous quarter. At the end of the third quarter of 2024, the entry threshold for the TOP30 opening scale list was 13659 units, an increase of 1001 units from the end of the previous quarter.

In terms of classification, among the TOP30 opening list, there are 13 housing enterprises affiliated with real estate companies, 7 affiliated with local state-owned enterprises, 5 with entrepreneurship backgrounds, 3 with hotel backgrounds, 1 with intermediary backgrounds, and 1 with financial backgrounds, with an increase of 1 real estate company compared to the end of the previous quarter. LianTou XinQingNian and FangYu Apartments have recently opened multiple stores, with a significant increase in scale, entering the list. In terms of changes in opening scale, due to the influence of new companies entering the list, the opening scale of real estate affiliated companies increased by 0.035 million units. In addition, local state-owned enterprises across the country have gradually entered the market by acquiring existing commercial housing for rental housing, driving a significant increase in the opening scale of local state-owned enterprises by 0.015 million units, and it is expected that the opening housing inventory scale of local state-owned enterprises will further expand in the future.

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

2. Management scale list: TOP30 entry threshold raised to 0.02 million units.

According to the statistics of China Index Research Institute, as of the end of the third quarter of 2024, the cumulative managed housing inventory of the TOP30 centralized long-term rental apartment enterprises reached 1.767 million units, an increase of 0.055 million units compared to the first half of 2024. Among them, the cumulative management scale of the TOP5 enterprises is 0.775 million units, an increase of 0.013 million units from the end of the previous quarter, accounting for 43.8% of the total TOP30 scale, a decrease of 0.67 percentage points from the previous quarter. At the end of the third quarter of 2024, the entry threshold for the TOP30 management scale list was 20330 units, an increase of 2321 units from the end of the previous quarter.

In terms of classification, among the TOP30 management list, there are 12 housing enterprises affiliated with real estate companies, 8 affiliated with local state-owned enterprises, 6 with entrepreneurship backgrounds, 3 with hotel backgrounds, and 1 with intermediary backgrounds, with no structural changes compared to the end of the previous quarter. In terms of changes in management scale, real estate affiliated companies, hotel affiliated companies, and local state-owned enterprises have shown significant increases, with increments of 0.018 million units, 0.016 million units, and 11,000 units respectively.

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

Conclusion

Since 2021, the central government has proposed accelerating the development of indemnificatory rental housing. Policies supporting the housing rental industry in finance, taxation, land, and other aspects have continuously been introduced, promoting the rapid development of the housing rental market. In 2024, policies such as the '17 Financial Measures for Housing Leasing' and the expansion of the underlying assets of public REITs have successively been implemented, further improving the financing environment for the housing rental industry. Simultaneously, with the inclusion of market-based rental housing in the scope of underlying assets of public REITs, the successful closure of the commercial loop 'investment, construction, operation, and exit' for long-term rental apartments has significantly boosted the enthusiasm of enterprises to layout in the housing rental industry, and the scale of opening and managing rental sources of long-term rental apartment enterprises has steadily increased.

In the short term, looking at the first three quarters, China's GDP has increased by 4.8% year-on-year, with a 4.6% year-on-year increase in the third quarter. The economy is facing some downward pressure. Against this backdrop, since the end of September, measures to 'stabilize growth' have been introduced significantly faster. The Political Bureau meeting pointed out the need to 'promote the stabilization and recovery of the real estate market.' It is expected that the core city real estate market will gradually stabilize, and rental levels are also expected to gradually stabilize. In addition, the acquisition of existing commercial housing converted to rental housing may drive more high-quality properties into the market, improve market supply, and also promote housing rental enterprises to enhance brand building and improve operational capabilities to cope with market competition. Meanwhile, as the scale of housing resources held by state-owned enterprises for stockpiling further expands, it will also provide certain opportunities for output with light assets for market-oriented leasing companies.

In the long term, there is still considerable space for urbanization in China. Along with the population gathering in major cities, core city long-term apartment markets have institutionalized development opportunities. In recent years, with the continuous improvement of financial policies, various enterprises have been actively entering the long-term rental track. Top housing rental enterprises have shown a trend of rapid growth in scale. In the future, housing rental business is expected to provide sustained growth momentum for enterprises.