Canada’s CDPQ bets on China rental property

International institutional investors are wading into an upcoming segment of the market, encouraged by a business-to-consumer model and the possibility of a publicly traded Reit.
Canada’s CDPQ bets on China rental property

The push by Canada's public retirement schemes into Asia continues apace, with Chinese real estate a key focus.

On Monday (March 11), Mofang Apartments said it had closed a $150 million funding round, led by Caisse de dépôt et placement du Québec (CDPQ), Canada’s second largest pension fund with $231 billion in assets under management as of end-2018.

The Shanghai-based long-term rental apartment operator, backed by US private equity firm Warburg Pincus, said it will be using the cash to partly fund acquisitions in China's fast-developing rental housing market, as well as to develop a franchise business.

China's long-term rental apartment sector has grabbed the attention of an increasing number of sovereign wealth funds and pension funds in the past few years.

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 occupancy rate of long-term rental apartments in the six top-tier Chinese cities are all above 90%, according to research from property services firm JLL.

The rental industry has transitioned from a consumer-to-consumer model into 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. 

Warburg Pincus has been active in the Asian real estate market in various forms. As Mofang's largest shareholder, it is trying to gain market share as the Chinese firm expands. It said it will continue to support Mofang’s future real estate financing.

Mofang's chairman Alex Zheng said: “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."

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.


Overall, CDPQ has bold plans for the region. It raised its emerging markets allocation from 7% in 2017 to 11% today and is targeting 16% by 2022, Anita George, Delhi-based executive vice president of strategic partnerships for growth markets, told AsianInvestor in September last year.

Asia accounts for $16 billion of the fund's $26 billion emerging markets investments, with $11 billion in China and $4.5 billion in India.

CDPQ is not the only big Canadian fund to be building its Asian exposure, and property is a rising regional focus for some of these funds, as it is for other international institutional investors.

Among those to have voiced their Asian ambitions are Canada Pension Plan Investment Board (CPPIB), Healthcare of Ontario Pension Plan (Hoopp)Investment Management Corporation of Ontario (Imco), Ontario Municipal Employees Retirement System (Omers) and Public Sector Pension Investments (PSP).

Canada’s three largest retirement funds – CPPIB, CDPQ and Ontario Teachers’ Pension Plan – hold at least $70 billion of assets in the region. And they are looking to add a great deal more.

CPPIB and CDPQ already have large exposure to property in Asia and expect it to rise.

Executives from  Ontario Teachers’ Pension Plan and Hoopp told AsianInvestor late last year those funds did not hold Asian real estate, but indicated that this could change as they look to diversify their equity-heavy regional exposure.

Meanwhile, US asset managers Nuveen and PGIM have said they are developing open-ended funds focused on Asian real estate to tap rising global investor demand for core property in the region.

*This story was originally published by sister publication FinanceAsia, and adapted for AsianInvestor.

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