Affordable rental housing: a major development opportunity for green and prefabricated buildings

Affordable rental housing will be the key development direction during the "14th Five-Year Plan" period:

Policy level: In November 2020, the Party Central Committee first proposed to expand the supply of affordable rental housing. In July 2021, the State Council issued Document No. 22 for affordable rental housing, which clarified the top-level design of the housing security system at the national level for the first time. We estimate that during the "14th Five-Year Plan" period, the country's newly added affordable rental housing may exceed 8 million units (rooms), accounting for 11.6% of the total area of commercial residential housing completed during the "13th Five-Year Plan" period (neutral calculation).

At the financial level: affordable rental housing cannot be equated to the concept of low-rent housing. It has a higher degree of marketization and rental returns or close to the market level. The combination of affordable rental housing and REITs solves the problem of excessively long project capital payback periods for the former. Providing exit channels and large-scale low-cost funds (equity funds) can also increase the enthusiasm of social capital for participation and promote the accelerated development of the affordable rental housing market.

Affordable rental housing: economy gives way to policy-oriented, early delivery can create time value, economy gives way to policy-oriented: Compared with real estate developers who regard economic efficiency as the primary consideration, when leading related projects, the central and local governments pay more attention to conform to the macro policy orientation, regard relevant policy regulations as the primary consideration factor, and put economic efficiency in a secondary position. Therefore, government-led projects will tend to increase the proportion of green buildings and prefabricated buildings as much as possible, and raise corresponding standards (such as assembly rate).

Early delivery creates time value: Early delivery of rental housing means that rents are generated in advance, and one of the most important advantages of prefabricated buildings is the saving of construction time. We assume that the rental price of affordable housing is 40 yuan/square meter/month. If the structural part and decoration part save about 9 months of construction period in total, the corresponding rental value is 360 yuan/square meter. This part of the rental value can partially cover the static cost increase of prefabricated construction/decoration.

Investment advice: affordable rental housing will be a major development opportunity for prefabricated and green buildings. We predict that during the "14th Five-Year Plan" period, only affordable rental housing will bring more than 12%, 24%, and 190% of the incremental market space (area caliber) to prefabricated PC, steel structure, and prefabricated decoration, respectively. If the increase in assembly rate is considered, the increase in the scale of industry output value will be more obvious. In addition, as the scale of the industry expands, the cost of assembly will gradually decrease under the benefit of scale, and the acceptance by owners will also increase. The assembly industry will enter a stage of benign development in the long term.

Steel structure direction: mainly recommend Honglu steel structure and precision steel structure, and it is recommended to pay attention to Fuhuang steel structure and Hangxiao steel structure; Prefabricated decoration direction: Focus on recommending BNBM, and it is recommended to pay attention to Yasha, Kelida, and Gold Mantis; Prefabricated PC direction: focus on recommending China Railway Assembly, focusing on Drawin Intelligent Manufacturing Technology (H shares); MIC construction may be the next generation of revolution: It is recommended to pay attention to China State Construction International (H shares). In addition, optimistic about the prefabricated building design and supporting third-party services, it is recommended to pay attention to Huayang International and Shenzhen Ruijie. Affordable rental housing will also bring investment opportunities related to green building materials. Green building thermal insulation and energy-saving materials mainly recommend Luyang Energy Conservation, low-E glass mainly recommends Kibing Group and CSG A, and green star testing and Quarantine Group for green star testing and evaluation.

Risk analysis: the risk of operating loss for affordable rental housing, the risk that the advancement of affordable rental housing is less than expected, the advancement of infrastructure public offering REITs is less than expected, and the penetration rate of the steel structure industry is less than expected.