Guangzhou Tests Developers’ Appetite for Rental Housing

(Guangzhou) — One of China’s largest cities is testing an innovative housing project aimed at boosting the supply of apartments for rent amid a government campaign to alleviate a shortage of affordable homes in the country’s biggest industrial and commercial hubs.

The land resources and planning authorities in a development zone in Guangzhou in southern China are asking developers to bid for a plot of land for the construction of housing with some unusual conditions attached — they must retain ownership of the development for the entire 70-year term of the land-use rights and can rent the apartments only to the employees of industrial enterprises.

As an incentive, the government is capping the cost of the land at 219.7 million yuan ($33.6 million), according to a notice of the project posted on Monday on the website of the Guangzhou Public Resources Trading Center, which provides a trading platform for land transfers, construction projects and government procurement.

With permission for the construction of up to 21,090 square meters (227,000 square feet) of floor space, the per-square-meter land cost of an apartment will be kept below 10,500 yuan, less than half that of other residential properties in the same area.

Developers “must retain ownership of the project in its entirety after construction and will not be allowed to sell any part of the development,” according to the notice. The development will have the same land-use rights as other residential developments, and only tenants approved by the local government will be allowed to rent, it said.

Last year, the State Council, China’s cabinet, ordered local governments to develop the rental market, to help meet rising demand for housing in towns and cities and rein in surging property prices.

In July, the government told local authorities in areas with net population inflows to provide more support for renting, including setting up government-backed rental platforms.

Guangzhou — the capital of Guangdong, the country’s biggest exporter and most populous province — was among 12 cities selected to roll out pilot programs. The city plans to build 750,000 residential units over the next five years, of which a fifth will be for renting, the municipal government announced last month.

The eastern city of Hangzhou, which was also selected to conduct trials, said last month it is teaming up with e-commerce giant Alibaba Group Holding Ltd. to set up an official online property rental platform, while the Beijing city government announced it is planning a shared ownership program between purchasers and the local government.

The project announced by the Guangzhou government this week represents a significant change from the city’s past practice to encourage the supply of rented housing. Previously, developers bidding for land were required only to retain ownership of a certain percentage of apartments and were allowed to specify how long they wanted to keep them. The higher the ratio and the longer the pledged ownership period, the higher a developer’s chances of winning the bid. A Caixin analysis of publicly available bidding results found that the ratio has never exceeded 55%

Since the beginning of 2016, there have been only six cases nationwide in which developers submitting bids voluntarily offered to retain ownership of all the apartments to be built on the land, according to data from a research institute affiliated to Poly Real Estate Group Co., Ltd., a state-owned property developer. Four were in Beijing, one was in the southern city of Foshan, and the other was in Hangzhou.

Contact reporter Fran Wang (fangwang@caixin.com)