Starter: UBP Credit Platform***
I. Introduction
As an important part of improving people's well-being and improving the quality of life, the report of the 20th National Congress of the Communist Party of China proposed to adhere to the principle of "housing for living, not speculation" in the housing sector, and accelerate the establishment of a housing system with multi-subject supply, multi-channel security, and simultaneous rental and purchase. In the future, "housing is not speculation", building a long-term mechanism for real estate, and accelerating the supply-side structural reform in the housing field will continue to be promoted, and the two legs of commercial housing and affordable housing will be used, especially in the field of affordable housing and rental housing, more attention will be paid to making up for shortcomings, and the focus will be tilted towards the continuous inflow of population into the city.
Figure 1: China's urban population growth
Source**: Wind, UBP Platform Value Institute.
2. Affordable rental housing REITs have been successfully issued and have many innovative highlights
1.The market is performing well and gaining the attention of investors
A total of 5 affordable rental housing REITs were issued in the public REITs market, and the initial offering size of 5 products was 805.6 billion yuan, accounting for 778%。The market trend of affordable rental housing REITs is better than the overall performance of the market, with strong anti-risk and anti-cyclicality.
Figure 2: Listing performance of affordable rental housing REITs
2.There are many innovative highlights and a hundred flowers are blooming
According to the Notice of the National Development and Reform Commission on Further Improving the Pilot Work of Real Estate Investment Trusts (REITs) in the Infrastructure Sector (Fagai Investment No. 2021 No. 958), the operation time of the project shall not be less than 3 years in principle, and the operation period requirement can be appropriately reduced for projects that have been able to achieve long-term stable income. However, Hongtu Shenzhen Anju REIT, CICC Xiamen Anju REIT, and China Resources Youchao REIT have broken this provision, which shows the strength of support for this type of asset.
The underlying assets are diversified, involving different land use properties, and actively respond to the major national strategy to ensure the development of the housing rental market. CICC Xiamen Anju REIT allocated land for transfer, China Resources Youchao Sijing Project is the first batch of pilot projects in Shanghai to use collective land to enter the market for rental housing, and Youchao Eastern Economic Development Zone and Chengtou Kuanting Rental Housing REIT Project are rental housing land (R4).
3. Key points of valuation of public REITs for affordable rental housing
1.Closely related to the policy, the rent pricing of affordable rental housing varies greatly in different cities
Table 1: Rental pricing basis for issued affordable rental housing REITs
2.The return rate of core parameters has a great impact on valuation
Table 2: Statistics of the return rate of the income method of public REITs of affordable rental housing
Data**: Product prospectus, compiled by UBP Platform Value Institute.
3.The analysis of the net cash flow distribution ratio is inseparable from the assessment**
The net cash flow distribution rate is equal to the estimated annual distributable cash flow The net value of the target real estate appraisal is one of the important parameters that investors pay attention to, because affordable rental housing as an underlying asset has special significance, different city rental pricing standards, and different asset management and operation capabilities of operating institutions will affect the distribution rate of public REITs.
Figure 3: Relationship between factors influencing the estimated distribution rate
Table 3: Annual distribution rates of five affordable rental housing public REITs**
Table 4: Composition of operating income of public REITs of affordable rental housing
Data**: Product prospectus, compiled by UBP Platform Value Institute.
Therefore, it can be seen that changes in the net appraised value of the target real estate, operating income and cash payment cost will affect the net cash distribution rate, which are closely related to the evaluation, and paying attention to the asset management and operation capabilities of the public offering REITs of affordable rental housing is the key to the accuracy of the evaluation.
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