Credit rating system needed for enterprises to reduce, prevent business risks

The long-term rental housing sector is entering a boom with its market scale expanding to the trillion-yuan level, and the country's latest guideline on rental housing will provide policy support for guaranteeing the sector's healthy development, experts said.

China's existing rental housing market currently has a total asset value of some 500 billion yuan ($77.75 billion).

The central government has made it clear that a certain amount of residential land supply will be set aside for rental housing development during the 14th Five-Year Plan period (2021-25), which is expected to add more than 500 billion yuan in new assets to the sector in the coming five years, according to industry experts.

"The COVID-19 outbreak has led to an industrial reshuffle in the long-term rental housing sector over the past year, with the most famous case being Beijing-based Danke Apartment being delisted from the New York Stock Exchange," said Li Jianlin, research director of rental business unit with China Real Estate Information Corp, owned by E-House (China) Enterprise Holdings Ltd.

Li said since 2017, several long-term rental property firms have struggled with bankruptcy.

"The fall of Danke displayed the fragility of rental housing enterprises, even publicly listed ones," said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institution.

For players anxious to achieve success in the sector, they should first acquire strong risk prevention capabilities and establish a good reputation to become true industry leaders, Yan said.

It's necessary to form a credit rating system for long-term rental housing enterprises to reduce or prevent business risks, Yan said.

In a guideline issued in late April, six government bodies－including the Ministry of Housing and Urban-Rural Development and the National Development and Reform Commission－vowed to tighten regulations on asset-light housing rental enterprises and clarify regulatory measures for those engaged in subleasing activities.

Under the guideline, real estate leasing companies and individuals subleasing more than 10 homes or rooms are legally required to register as market entities and obtain business licenses, Xinhua News Agency reported.

The guideline also urged housing rental companies to set up accounts to regulate rental funds at local commercial banks and defuse financial risks.

Activities that attempt to disguise actual financial business practices, including embedding housing rental consumption loans into lease contracts, using tenant credit to obtain consumption loans and prompting tenants to use such loans, are also prohibited by the guideline.

"Stricter regulation is aimed at maintaining order in the leasing market, guiding the market in a stable direction and protecting tenant interests," said Hui Jianqiang, head of research at Beijing Zhongfang-Yanxie Technology Service Ltd.

Li said the country is further improving leasing market development rules to ensure its healthy development in the long run. In the future, market entry standards will become clearer for long-term rental market players, and those with truly stable operating capabilities can enjoy a stable business environment, which is also beneficial for the whole market.

The guideline is the first systematic regulatory measure announced targeting the long-term rental housing sector, a promising industry that is expected to reach a market scale of 1 trillion yuan in the coming years, experts said.

The central government has been encouraging the development of rental housing by boosting supply, implementing industrial regulations and offering favorable policies since the 13th Five-Year Plan period (2016-20), and the sector is likely to welcome accelerated development in the 14th Five-Year Plan period (2021-25).

Premier Li Keqiang said in the Government Work Report released in March that "by increasing land supply, earmarking special funds and carrying out concentrated development schemes, China will increase the supply of government-subsidized rental housing and shared ownership housing."