Activating the existing stock has become the new underlying logic of the real estate industry.
According to the data from the National Bureau of Statistics of China and the Ministry of Housing and Urban-Rural Development, the built-up area of Chinese cities has expanded rapidly in the past more than forty years. The built-up area of urban districts in 2020 increased by 8.16 times compared to that in 1981, and both the incremental construction of cities and the growth of the employed population are approaching their peaks.
"The era of stock is a very profound underlying logical change that comes very rapidly." Li Kunyue, Vice President of CCB Housing Rental Private Equity Fund Management Co., Ltd., believes that the real estate industry has entered the era of stock from the era of increment, and the relevant capabilities of enterprises must also be reshaped accordingly.
At the same time, relying on the continuous improvement of policy issuance and industrial paths, revitalizing the stock has become the mainstream proposition for the development of major cities, state-owned enterprises and central enterprises.
At the Leading · The 6th International Forum on Housing Rental Industry on October 24, Qin Hong, Director of the Urban Renewal Research Center of Renmin University of China, pointed out when interpreting the strategic significance of revitalizing the stock: "Revitalizing the stock and implementing renewal in cities is an important driving force for the high-quality development of cities, and it is also an important aspect of building a new housing system and a new model for the real estate development. The policy window period has arrived."
Revitalizing the stock is an inevitable link in the urban renewal process, and it has also become a "tough issue" for state-owned enterprises and central enterprises this year. In July this year, the State-owned Assets Supervision and Administration Commission of the State Council approved the establishment of a special fund for revitalizing the land assets of state-owned enterprises with a total scale of 30 billion yuan, and the revitalization pilot of the stock land assets of relevant central enterprises has also been quietly launched.
What to Revitalize: In the Context of Revitalizing the Stock, Rental Housing Becomes a Hotspot Again
In the official expression, revitalizing the stock refers to the process of improving the market value, use efficiency, and economic return of existing stock assets (such as idle land, old buildings, underutilized commercial properties, residential properties, etc.) through renovation, upgrading, or reuse.
According to the policy collation of the ICCRA Housing Rental Industry Research Institute, China's revitalization policy of the stock began to germinate around 2000, and has experienced exploration, full-scale implementation, and advancement. Until 2021, it has entered a high-quality development period, with the stage characteristics of detailing the types of stock assets and emphasizing holding and operation.
"Rental housing is an important direction for revitalizing the stock assets, which is manifested in the increasing volume of bulk transactions of long-term rental apartments and the excellent performance of REITs for guaranteed rental housing." Zhao Ran, Dean of the ICCRA Housing Rental Industry Research Institute, analyzed that in the 50 typical bulk transaction cases in 2023, calculated by the construction area, the proportion of rental housing has exceeded 35%. The main reasons for considering investing in this direction are two: The first reason is that guaranteed rental housing has been clearly included in public offering REITs, with a complete exit path; the second is that the investment stability is very strong.
The ICCRA Housing Rental Industry Research Institute found based on the data collation of platforms such as Wind that the market has given a very positive feedback signal to rental housing assets. Among the returns considering dividends, the average increase or decrease of REITs for guaranteed rental housing relative to the issue price is 26%, while that for warehousing logistics and industrial parks is negative growth, and that for industrial factory buildings is 13%, and that for consumer infrastructure is 5%. The rental housing format has a better anti-cycle advantage.
However, although revitalizing the stock is becoming a market focus, and many enterprises have explored the revitalization path of rental housing, due to reasons such as difficult financing, long investment return cycle, and pressure on capital costs, the large-scale progress in the rental housing field is slow.
In Zhao Ran's view, "The underlying logic of revitalizing the stock is the game and synergy between the short-term economic interests and the long-term sustainable development of all stakeholders. The key to breaking the deadlock lies in how the stakeholders can achieve a balance between short-term economic benefits and long-term social benefits under the framework of a win-win situation through an effective cooperation mechanism, policy support, and institutional guarantee."
For example, the Nanzhongzhou International Cultural and Technological Park, which aims to build a metaverse industrial park complex, not only gathers a number of representative enterprises in the field of "digital culture + metaverse", but also is equipped with diverse formats such as talent apartments and industrial services. Behind the improvement of urban functions and the realization of the balance between work and residence, what is needed is the collaborative operation of different functional sections on the industrial chain. In order to maximize the value of each format, Zhao Ran suggests: "The stock asset holders should start from the perspective of the whole process of 'investment - financing - construction - management - exit' to carry out the strategic planning of asset revitalization." Through an all-round strategic layout, asset holders can take the lead in revitalizing the stock, not only improving their own market competitiveness, but also promoting the healthy and sustainable development of the rental housing market.
How to Revitalize: Focus on Financial Assistance and Absorb Renewal Practices
The report "Value Discovery of the Housing Rental Industry in the Context of Revitalizing the Stock" believes that revitalizing the stock is the process of discovering the value of stock assets, and "identifying high-quality assets" and "exploring the asset appreciation potential" are two key links that the industry particularly needs to exert efforts on.
Source: Report of "Value Discovery of the Housing Rental Industry in the Context of Revitalizing the Stock"
According to Zhang Jun, Deputy General Manager of Shanghai United Assets and Equity Exchange Holdings Co., Ltd., "Long-term rental apartments are a typical form of revitalizing stock assets", which can effectively exert the resource allocation function of the property rights market and promote the value discovery and orderly circulation of state-owned stock assets of enterprises.
The report "China Rental Housing Market: Investment Potential and Value Insight" jointly released by the ICCRA Housing Rental Industry Research Institute and Cushman & Wakefield shows that rental housing, with its advantages of stable cash flow, strong policy support, growing market demand, long-term asset appreciation potential, and anti-cyclical risk, is becoming an extremely attractive investment choice in the real estate market.
"Due to the rent pricing of guaranteed rental housing being regulated by the government, REITs have a strong anti-risk ability and can effectively avoid short-term fluctuations in the market or the macro economy, and therefore are more favored by investors." Zhang Ping, Chairman of the BOMA China Research Committee and Executive Director of the IFFRE International Financial Real Estate Alliance, said. Public data shows that the increase of guaranteed rental housing REITs in the first half of 2024 reached 16.56%, ranking first among a number of public offering REITs, showing a high investment return.
Shouchuang Heyuan · Fanxing Community is a representative of the revitalization track of housing rental. Its predecessor was the largest stone material wholesale market in North China. Under the operation of Shouchuang Group, it has transformed into the largest single guaranteed rental housing community in Beijing. At the forum, Tang Ruoji, Marketing Director of Shouchuang Heyuan, summarized the "Fanxing Experience" as "Accurately matching the positioning with the needs of the customer group is the core of revitalizing the stock assets". By launching studio, one-bedroom, and loft products suitable for young people, as well as two-bedroom and three-bedroom units designed for family life, the community can meet the needs of tenants of different ages and lifestyles.
Tang Ruoji believes: "The development stages and economic structures of different regions and cities are significantly different. Therefore, when revitalizing the stock assets, it is necessary to accurately match the actual local needs."
The renewal and transformation of the Dahongmen Clothing Trade City, which has received high attention in Beijing, provides another solution of "industrial chain thinking" for the transformation of the complex. Yan Fu, Chairman of Nanzhongzhou (Beijing) International Cultural and Technological Development Co., Ltd., shared the key role of urban space in the industrial complex project at the forum. He said that urban renewal is not only the renewal and transformation of existing buildings, but also the organic integration of industrial, service, and residential functions in the spatial planning. "This is also the underlying industrial logic of the renewal and operation of the South Central Axis - only by optimizing the spatial layout can the spatial vitality be fully activated, and the industrial agglomeration, the balance between work and residence, and the improvement of residents' quality of life can be truly realized."
In this regard, Tang Yan, Professor of Urban Planning at the School of Architecture, Tsinghua University, further pointed out that in the future, the revitalization of the urban stock must pay special attention to the three key dimensions of "the balance between work and residence, convenient transportation, and convenient living". This is not only an effective strategy to help ensure the revitalization of the stock assets, but also an important means to improve the livability of the city and promote sustainable development.
From the "transformation" of the industrial park in the South Central Axis to the industrial remains becoming "internet-famous check-in spots", if we comb through with an updated perspective, it is not difficult to find that there have been many best practices for the revitalization of various types of assets. Shanghai United Assets and Equity Exchange mainly engages in the asset transactions of state-owned enterprises and central enterprises, and has accumulated a lot of experience in the preservation and appreciation of state-owned assets.
Three Trends of Revitalizing the Stock
Zhao Ran, Dean of the ICCRA Housing Rental Industry Research Institute, predicts that there will be three trends in the revitalization of the stock in the future:
The first trend is that the acquisition and storage of the stock housing is expected to reshape the market supply structure. As the acquisition and storage of the stock housing in local areas enter the large-scale stage, a management scale of more than 100,000 may lead to the emergence of some dark horse brands in operation management in some cities. But at the same time, a more market-oriented operation idea is needed to prevent the occurrence of supply mismatch problems.
The second trend is the diversification of stock assets, which increases the difficulty of revitalization. Enterprises will face two main challenges. One is that the diversification of assets increases the difficulty of enterprises in screening assets, and the second is that the complex transformation will further compress our profit space, especially in Beijing and Shanghai where there are now problems of village-in-city renovation.
The third trend: Revitalizing the stock requires a stronger industrial chain thinking and a vision of asset portfolio. Investment, financing, construction, management, and exit all need to be highly consistent.
"Facing the new trends in the rental industry, we need to more meticulously regulate the long-term rental market, empower long-term rental enterprises, and promote the healthy and sustainable development of the industry." Zhao Xiaoying, Secretary-General of the Long-Term Rental Housing Branch of the China Real Estate Association, said that in the new stage, the revitalization of stock assets is not only the reuse of existing resources, but also a direct driving force for the high-quality development of cities.