China’s youth-targeted rental apartments on the rise
It’s like getting a job: the basic requirements are under 35, single, no children. You fill out a questionnaire about your hobbies and dreams. Then you wait for an interview. If you fail it, you won’t be able to move in.
That’s how a growing number of young Chinese adults, mostly born after 1985, rent apartments for three months or more nowadays. Unlike their parents, they are not in a rush to buy a house. Nor can they bear to live in tiny, filthy flats packed with unfamiliar friends of roommates. They prefer temporary “homes” that reflect their taste in design, make it easier to socialise and, most important of all, never bore them.
The youth-targeted rental apartment is the latest trend in a leasing market estimated to be worth 800 billion yuan a year and increasing at an annual rate of 60 billion yuan, as young university graduates enter the job market in first-tier cities like Guangzhou, according to a report from Hua Chuang Securities.
Last month, Yuan Hongfan, 30, decided to move out of his single studio in northern Guangzhou, even when though his lease hadn’t expired. He forfeited his deposit and moved into WOWQU, a long-term-lease apartment building targeting “interesting young people” in suburban Guangzhou.
Opened in September, the eight-storey building has a 300 square metre lobby and facilities including a gym, pool table and gaming room. Its 147 flats range from 18 square metre Japanese tatami style to Yuan’s two-floor loft.
“This place feels a bit like college dorm. It never bores me,” he said. “If you live in ordinary apartments, you probably never get to know your neighbours … but here, you can drop by the flats of other [tenants] make food together, and play together in the lobby.”
It’s not cheap to live in such an apartment. Yuan pays a monthly rent of 2,500 yuan for his renovated loft, more than he paid for his old apartment, but the savings lie elsewhere.
“It’s saved me lots of expense on social events. For instance, I like playing pool. If I go to a pool store, I will probably spend 400 yuan per night. Here, I can play for free,” Yuan said.
The youth apartment concept didn’t become trendy until last year, when Chinese smartphone maker Xiaomi invested 100 million yuan in an apartment leasing start-up, You+ International Youth Community, which aims to provide accommodation for young entrepreneurs. Founded in Guangzhou in 2011, You+ now operates eight You+ projects in the area and has expanded to Beijing, Shanghai and Hangzhou.
The market has heated up in the past year as venture capital flows have grown, with the number of youth apartment brands mushrooming as big developers and hotel companies entered the pool.
Declining profitability due to surging land prices and capped home prices is forcing developers to think outside the box for earnings growth, with the apartment leasing business, which can bring in steady cash flow, becoming increasingly popular.
China’s largest residential real estate developer, Vanke, unveiled its apartment leasing brand, Vanke Yi, as one of five new businesses in August. Vanke Yi now manages around 10,000 units across the mainland, targeting new urban immigrants, mostly young adults, with rents ranging from 1,200 to 1,800 yuan a month.
It plans to roll out 150,000 such units by 2017, making it one of the top three companies in the industry, according to Vanke senior vice-president Tan Huajie.
“There is plenty of room for this business, but the reason why it’s doesn’t scale up so fast is that it’s difficult to generate profits from rents because of high operation cost,” Tan said, adding that Vanke’s apartment leasing business could achieve rental returns of 6 per cent – an industrywide goal but still difficult to achieve – by taking advantage of its own property inventories and supply chains.
Tan is right about Vanke’s edge when it comes to inventory, because for apartment investors, the biggest headache is finding a supply of housing. One common way is renting a factory building and transforming it into an apartment building like You+’s projects and Vanke’s apartments, which are convenient to manage but costly to renovate. The other way is to lease homes from landlords in separate buildings in one neighbourhood and convert them into custom-made styles, which costs less in renovation but is more time-consuming when it comes to management.
In a mixed-use project developed by Vanke in eastern Guangzhou’s Huangpu district, buyers are encouraged to invest in an apartment building that will be mostly managed by Vanke Yi in the first five years after the purchase.
But some analysts remain dubious about Vanke’s strategy of expanding its apartment leasing business, since selling homes remains it main business, with hopes that the young tenants living in its apartments might eventually become buyers of its homes.
“Our view is that if it’s a property project that can easily sell out, you don’t need so many conceptual things to promote it. So these new concepts are mainly used for clearing properties in less demand,” said David Hong, research director at E-House China’s CRIC real estate consultancy.
Other big developers are testing the waters by teaming up with third-party apartment management firms. In September, state-backed developer China Resources Land announced plans for the Walnut apartment, to be located next to its MixC shopping mall in Xian and managed by Shenzhen-based Walnut Asset Management.
Analysts said the real competition for developers in apartment leasing came from budget hotel companies, such as WOWQU’s parent company Plateno, which could transplant its own room management system into apartments easily and cheaply. Mainland media have reported that at least four budget hotel groups on the mainland have launched apartment leasing businesses so far this year.
Besides, young people living in refurbished flats are not there just for living. They are looking to build up their social networks, which requires active, offline events planning and organising – an area where developers are less competitive than companies like You+ or WOWQU.
“That’s why partnership is a better business model here. Let the master do the things he is good at,” Chen Min, an apartment analyst, said.