Why China’s millennials opt for rental housing

December 3, 2018 / By  

Rental housing in China refers to market-based rental apartments with single-ownership, lease periods upwards of six months, and the unified provision of basic services (centered on the sanitation of public areas and shared facilities such as public kitchens, gyms, meeting areas, and other recreational facilities) by a property management company. China’s rental housing market grew rapidly in the past three years. As of 1H18, total rental housing stock reached 135,000 units in six key cities including Shanghai, Beijing, Shenzhen, Guangzhou, Hangzhou and Chengdu. On the back of strong leasing demand from the millennial generation, projects can achieve an occupancy rate of over 90% on average within six months of launch. So, why is rental housing so well received by China’s younger generation?

Barriers to home ownership remain high

At the end of 2017, the average housing price-to-income ratio (defined as the ratio of home prices to annual household income) among China’s four first-tier cities was as high as 34.9 years. Starting in late 2015, we saw accelerating growth in housing prices, larger down payments, and rising mortgage interest rates, all of which dramatically widened the gap between monthly payments for home purchases and monthly rent for homes of a similar size. This growing gap has led people who once might have preferred buying a home to instead consider the rental market.

Figure 1: To own or to rent (Shanghai example)
Note: Calculations are based on a 90-sqm apartment and factored in average sales price,
down payment ratio, mortgage rate and benchmark interest rate in different periods of time
Source: JLL Analysis

Better protection on lease tenure

China’s residential leasing market has historically been dominated by individual landlords’ shadow leasing market (C2C model). Tenants have few legal protection, leaving the traditional market suffering from shortcomings such as fake housing, insecure leases, and misleading advertising. This situation has caused an outcry for demand to further regulate the residential rental system. As such, the younger generation now prefer more institutionalized rental housing projects (B2C model) managed by professional operators who guarantee on lease tenure and provide basic services.

Smaller-sized units cater to the needs of younger generation

The average unit size in regular apartments in six key cities is around 90-100 sqm per unit which far exceeds the actual needs and affordability of millennial renters (mainly fresh graduates and young professionals). In the past, millennial renters usually shared old and cheaper apartments and split rents with flat mates. Presently the rental housing projects mostly offer 25-40 sqm studios that cater to the needs of the younger generation.

Community concept and co-living elements attract young people

As most rental housing projects now target young graduates and professionals, they often emphasize on community concept and take on co-living elements to meet the social needs of that generation. Usually, they offer a basic gym and shared kitchen at no cost (even if they provide individual in-room kitchen). Once a week, the building manager holds events that bring young tenants together.

We believe growth in China’s rental housing market will accelerate in the near future, with favorable demographics, strong fundamental leasing demand and continued trend in flexible living options.

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