Canadian pension fund bets on Chinese rental market

International investors are entering the Chinese rental apartment market. They are encouraged by a business-to-consumer model and the possibility of a publicly traded Reit.

Mofang, a Chinese long-term rental apartment brand, said on Monday that it had closed its $150 million Series D funding from Canadian pension fund Caisse de dépôt et placement du Québec (CDPQ).

Existing investor Warburg Pincus remains the largest shareholder after the financing round.

Founded 10 years ago in Shanghai, Mofang is the largest institutional rental apartment company in China and manages more than 70,000 apartments in 20 Chinese cities. According to chief executive Kitty Liu, Mofang wants to use funds raised to expand its franchise business.

Mofang previously completed three rounds of equity fundraising totalling $400 million from investors that include DT Capital and China’s AVIC Trust. Mofang has also acquired other Chinese home rental brands such as V-land and Woqu as well as co-developing projects with real estate operators in China.

“In a more established market such as the US, the institutional for-rent apartment industry is already a trillion-dollar market. For China, the urban rental population is three times the size of its US counterparts and we expect this market to grow rapidly in the coming years,” said Mofang's chairman Alex Zheng.

Over the last couple of years, China's long-term rental apartment sector has grabbed the attention of sovereign wealth funds and pension funds. Canada Pension Plan Investment Board (CPPIB), for example, inked a partnership with Chinese local real estate developer Longfor in July last year to invest about $817 million into rental housing programmes in the region.

The rental apartment industry has transformed from a consumer-to-consumer model to a business-to-consumer one. And it is expected to evolve even further. According to a government instruction last month, China intends to experiment with a real estate investment trust (Reit) in the Xiongan New District. 

The occupancy rate of long-term rental apartments in the six top tier Chinese cities are all above 90%, according to research from JLL. It said that the Chinese long-term rental apartment market has entered a fast-developing stage on the back of continuous urbanisation and demographic changes. The younger generation is expected to rent for longer as it delays marriage. The number of long-term rental apartments in the six top Chinese cities are expected to grow almost six times from the current 135,000 to 756,000 within the next four years. 

“Having a well-known and reputable investor like CDPQ will help Mofang accelerate its development and further consolidate its leadership position,” said Joseph Gagnon, managing director of Warburg Pincus. The private equity investor has been active in the Asian real estate market in various forms. As Mofang's largest shareholder, Warburg Pincus is trying to gain market share as the Chinese firm expands. It said that it will continue to support Mofang’s future real estate financing.

Discussions in China about legislation for real estate investment trusts are also good news for the development of the long-term rental apartment market. More exit strategies will tempt more investor into the market.  


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