Could Chinese developers Forbes Global 2000 rankings spark hope for Aussie build-to-rent solutions?

Two of China’s largest residential property developers, with stakes in build-to-rent in the country, have ranked in the latest Forbes’s Global 2000 list of the 10 largest real estate companies in the world.

China Vanke Co, which was established in 1984, ranked second on the list of the condensed list of the largest real estate companies, but 228 on the overall Forbes Global 2000 list.

The Forbes Global 2000 list ranks the largest companies in the world using four metrics: sales, profits, assets and market value.

Vanke, as its brand is shortened to, has a market value of $18.4 billion, behind Hong Kong’s China Resources Land Limited at 220 and with a market value of $33.1 billion.

Longfor Group Holdings ranked fourth on the list of the 10 largest real estate companies in the world, and 305 on the overall Forbes Global list, with a market value of $17.1. billion.

According to its website, Vanke positions itself as a “city and town developer and service provider” with four roles – “to provide a setting to a beautiful life, to contribute to the economy, to explore creative experimental fields and to construct a harmonious ecosystem”.

In recent years the residential property developer has expanded its offering to include commercial development, logistics, warehousing, ski resorts, education and also, importantly, rental housing.

In 2020, Vanke, became the first developer to welcome tenants to the country’s first village-turned-rental-housing estate, as part of a pilot program that allowed farmers to make gains by transferring land management rights to developers that built apartments for renting.

The housing estate provided about 900 studio units aimed at young suburban workers.

Earlier this year, Vanke joined forces with China Construction Bank’s CCB Housing Leasing Fund to create a US$1.5 billion rental housing investment fund.

According to YiCai Global, the first six projects the fund will focus on are Vanke’s in-operation, long-term rental apartment projects in Beijing, Shanghai, Chengdu and Wuhan.

Vanke first entered into rental housing in 2014 and formed Boyu, China’s largest single rental apartment operator, two years later. 

Boyu had revenue of CNY2.3 billion in the first nine months of last year, and managed about 215,000 long-term apartments, with an occupancy rate of 95 percent.

Longfor Group was founded in Chongquig in 1993 and its main business includes real estate development, commercial investment, long-term rental apartments, property management and smart construction.

According to the Longfor Group website it’s rental business, called Longfor Goyoo, has launched “more than 40 guaranteed rental housing projects, and opened nearly 20,000 rooms in 12 cities, including Beijing, Chongqing and Tianjin…”
According to Mingtiandi, a leading online real estate news platform, Longfor entered the Chinese mainland built-to-rent sector in 2016 and soon after joined forces with Canada Pension Plan Investment Board to invest at least $817 million in building rental housing projects in China.

Why does this matter to Australia?

Build-to-rent is still an emerging entity in the Australian housing landscape, but one that several experts believe could dramatically help ease the nation’s growing housing crisis.

Vanke’s involvement in the model in China is one model of how the system can work, albeit in circumstances unique to that country.

The latest figures from CoreLogic show that over the past 12 months rents in 44.4 per cent of Australia’s house and unit markets have surged at least 10 per cent.

Rising migration and tight supply are largely to blame, but so too is the fact investors are selling up, with rising interest rates and legislation changes ranking highly among the reasons for doing so.

In Queensland alone, 30 per cent of rental homes, some 162,000 properties have been taken out of the pool in just two years, according to the 2022 Property Investment Professionals of Australia (PIPA) 8th Annual Investor Sentiment Survey.

“From Coolangatta to Cairns, investors have deserted the Queensland market over the past two years, with more rental pain on the horizon as well,” PIPA Chairwoman Nicola McDougall told Elite Agent in September.

“We had an inkling that investors had been selling their holdings over the past year or two, but these results show that even we had underestimated the volume of rental properties that have been jettisoned from the market.”

Build-to-rent is one large avenue that can help turn the situation around as investors are usually large companies, such as developers, superannuation firms or rental investment trusts.

A recent study from the Property Council of Australia revealed up to 150,000 new apartments across 72 BTR projects are expected to be built in desirable inner-middle city locations in Melbourne, Sydney, Brisbane and Perth over a 10-year period.

Property Council of Australia Chief Executive Mike Zorbas said at the time that build-to-rent housing was the missing ingredient in Australia’s housing mix.

“With a 79,300-home deficit to 2033, Australia needs better planning, more land supply, proper housing targets and a national strategy on build-to-rent and purpose-built student accommodation,” Mr Zorbas said. 

“The potential to create 150,000 homes over the next 10 years with just one asset class shows build-to-rent is about as close to a housing policy silver bullet as they come. 

“Australia is grappling with a worsening housing affordability crisis where state governments miss their housing targets and planning systems fail to keep up.” 

Government support

In the May Federal Budget, the Albanese Government offered greater support to the build-to-rent asset class, offering incentive to  increase the supply of rental homes through changing the investment arrangements in build-to-rent accommodation.

This includes increasing the depreciation rate from 2.5 per cent to 4 per cent per year for eligible new build-to-rent projects.

In addition, the government will reduce the withholding tax rate for eligible fund payments from managed investment trusts to foreign residents on income from newly constructed residential properties from 30 per cent to 15 per cent. This will come in after July 1, 2024.

Another success story

Elite Agent also recently covered a case study on Australia’s first build-to-rent community, the Smith Collective, which was formed on the Gold Coast at the former Athletes Village of the 2018 Commonwealth Games.

Smith Collective General Manager Matt Taplin said the village was designed and built, from the beginning, with the knowledge that it would be used for build-to-rent once the Games were over.

Five years later, 2200 tenants call the Smith Collective home in a mixture of one and two-bedroom apartments and three-bedroom townhouses. 

They also enjoy a long list of services, amenities and benefits, with Mr Taplin calling on the Queensland Government to create another build-to-rent community once the Brisbane 2032 Olympic Games are complete.

Mr Taplin said the Smith Collective was owned by a Middle East Sovereign investment fund, with stability being one of the top benefits build-to-rent offered investors.

“It’s a very stable asset class,” he said.

“Unlike other industries that can be subject to fairly volatile movements that might be from global events, housing tends to be a lot slower to move one way or the other, so it tends to be a lot more stable.”

As for Vanke, according to The Straits Times, the company posted a 22.6 billion yuan (AUD$4.7 billion) annual profit in 2022, despite the country’s liquidity crisis.

And perhaps this, combined with its Forbes Global ranking can offer another positive case study to investors considering build-to-rent on Australian shores.

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.