In recent weeks, the six rental housing Real Estate Investment Trusts (REITs) that have been listed have released their operational performance for the fourth quarter of 2024. This release comes at a time when the macroeconomic environment reflects a "weak recovery," amidst intensifying competition within the marketNevertheless, the underlying infrastructure assets have managed to exhibit resilience, becoming a "safe haven" for capital amid what is being described as an "asset famine."

One of the most notable aspects of these rental housing REITs is their remarkable anti-cyclical capacityThe combined revenue of these six entities amounted to 139 million yuanLeading the pack is the Guotai Junan Chengtou Kuanting rental housing REIT, which specializes in large leasehold communities and recorded an impressive revenue of 46.78 million yuanFollowing closely behind is the China Merchants Fund Shekou Rental Housing REIT, generating revenue of 20.69 million yuan.

Turning attention to dividends, these six rental housing REITs reported a net operating cash flow of 113 million yuan, with a total distributable amount reaching 101 million yuanThe Guotai Junan and China Merchants Fund REITs stood out with the highest distributable amounts at 34.58 million yuan and 14.63 million yuan respectivelySuch figures illustrate the capacity of these REITs to maintain stability and strength in an otherwise volatile market environment.

Another reassuring indicator is the overall rental occupancy rate across these REITsExcluding the China Merchants Fund's Shekou REIT, which registered a point-in-time occupancy rate of 70.37% due to expiring leases from corporate tenants, the average occupancy rate of the remaining five REITs was approximately 95.32%. Notably, this represents a slight decrease of 0.11 percentage points compared to the previous quarter in 2024, indicating a stable overall performance despite market headwinds.

In an interesting juxtaposition, the Huaxia Fund’s Huarun Youchao REIT witnessed a substantial rebound from the third quarter's decline of 3.48 percentage points, with its project in the Sujing area achieving a rental rate exceeding 94% in the fourth quarter

Advertisements

In contrast, the Hongtu Innovation Shenzhen Anju REIT's Poly Champagne Garden project experienced a nominal increase in rental rates, moving up by only 0.49 percentage points following a drop of 5.25 points in the earlier quarter.

Moreover, the Zhongjin Xiamen Anju REIT's underlying infrastructure projects demonstrated competitive resilienceThe announcement indicated the introduction of a new affordable rental housing project near the Xiamen Metro Aimingong District, located about 8.7 kilometers from the Garden Expo Apartment and approximately 5.5 kilometers from the Hengqi Apartment, adding 2,284 rental units to the marketIn this context, both Garden Expo and Hengqi apartments maintained occupancy rates well above 99% in the fourth quarter.

The Zhongjin Xiamen Anju REIT emphasized its geographical advantages and convenience in transportation and amenities compared to the newly introduced projectsThis positioning highlights the strategic importance of location in attracting tenants and securing stable rental income.

Looking ahead, the performance of these rental housing REITs in the capital market has shown positive momentum as they move towards 2025. As of January 21, the average increase for these six rental housing REITs was recorded at 7.46%. The Huaxia Beijing Guaranteed Housing REIT and the Hongtu Innovation Shenzhen Anju REIT both reported gains exceeding 9%. Since their listings, these REITs collectively averaged a rise of 46.55%, with both Huaxia Beijing and Zhongjin Xiamen Anju experiencing increases of over 60%.

In-depth research conducted by Zhongtai Securities sheds light on the dynamics and trends in the current rental marketIt notes that urbanization is progressing at a rapid pace amid broader developments in societyA significant population shift from rural to urban areas, and from smaller cities to major metropolitan hubs, is resulting in rising urban density and profound changes to housing demand structuresAlongside this, increased mobility is influencing the tendency for individuals to change cities frequently due to job transitions, studies, or entrepreneurial ventures, subsequently enhancing the vibrancy of the rental market.

The younger generation, in particular, is undergoing a monumental shift in housing preferences

Advertisements

Unlike older generations who viewed home-buying as a necessary step toward a stable life, contemporary youth are prioritizing flexibility and quality of livingThis demographic is less inclined to commit to large mortgage payments, choosing instead to meet their housing needs through rentalsSuch an evolving attitude acts as a catalyst, significantly boosting the potential demand within the rental sector.

Looking to the future, the continued rollout of affordable rental housing initiatives is expected to recalibrate the supply-demand dynamics within the rental marketThese projects aim to provide stable and affordable housing solutions for middle and low-income groups, recent employment seekers, and the youth demographicThe large-scale creation and introduction of these projects will likely alleviate existing tensions in the rental market, steering it toward a more balanced state.

From an investment perspective, the benefits of renting housing REITs become increasingly compellingFirstly, these assets possess strong counter-cyclical characteristicsTypically, during economic downturns, the real estate market is susceptible to fluctuations in pricing and declines in demandHowever, the demand for affordable rental housing, as a vital social infrastructure, remains relatively stable and less impacted by the economic cycleDuring times of economic hardship, individuals tend to favor renting housing options that are both cheaper and more stable, allowing rental REITs to maintain consistent returns.

Secondly, these REITs are benefiting from a prevailing macroeconomic backdrop of declining risk-free interest ratesWith interest rates falling, the yields on fixed-income products are generally diminishingIn contrast, rental housing REITs present stable cash flow and high dividend potential, making them increasingly attractiveInvestors seeking higher returns are leaning more towards these REITs, driving market prices upwards and amplifying their investment appeal.

Research from Guotai Junan highlights that under the current circumstances of low interest rates, the high dividend characteristics of REITs will continue to sustain their robust market performance

Advertisements

Advertisements

Advertisements