Following the rise in popularity of shared bikes, ride-sharing, and co-working – co-living has arrived in Tianjin, the northern port city neighbouring Beijing. The first major co-living project to test the waters in Tianjin’s growing sharing economy, Port Apartment, is a nine-storey building by Vanke.

Run under a long-term lease from local government, the developer’s new co-living property offers 180 units ranging from 27-43 square metres in size for rent at slightly higher than the market average. With contracts starting at six months, residents can take advantage of a communal laundry area, gym, games room, and community-based events such as cooking competitions and holiday parties.

Why developers are considering co-living space in China

As home prices in China continue to escalate, co-living spaces are growing in appeal among young professionals and graduate students. But when yields for co-living projects appear to be lower than the traditional residential development model for sale, and are estimated as low as two per cent, why are developers interested in such investments?

Developers are turning to co-living for the following reasons:

1. Lack of new land: Limited residential land released by the government, especially in city centres, makes obtaining new land increasingly competitive for developers. This is pushing them to consider more non-traditional business models that make it easier to plan for the longer term.
2. Tighter regulations: Price caps now apply to land auctions in Tianjin and other Chinese cities. Once developers reach the ceiling price, they must explore alternative options to win land plots. Governments favour developers that commit to leasable units to increase the stock of apartments for rent.
3. Government direction: The central government and local authorities have published several documents to encourage developers to add more rental properties to their portfolios, in a bid to promote greater housing affordability. For example, the Shanghai government plans to add 700,000 rental units including co-living space by 2020. Beijing and Nanjing governments have also released interim measures giving renters the same schooling and healthcare rights as homeowners.
4. Cheap alternative to acquiring land: Due to the high cost of residential-use land and the challenges in obtaining land from the government, developers sometimes favour buying an existing commercial building and re-purposing it. This could be money-saving because, in some cases, the price of an existing commercial building could be half the price of a new piece of land.
5. Diversification in revenue stream: As prices rise for land, construction, and labour, developers’ profit margins are expected to shrink. This sector may provide developers a new profit source and a steady revenue stream.

The development of co-living across China will vary by city as its success will largely depend on economic growth, government support, innovation from market players, and acceptance of the model by younger generations. In Tianjin, where two more co-living projects are under construction and set to compete with Vanke’s Port Apartment, this will no doubt be an interesting sector to watch.

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