Business / Industries

Rents on the rise as home prices slacken

By Wu Yiyao in Shanghai (China Daily) Updated: 2012-07-09 10:38

Rents on the rise as home prices slacken

Uncertainty in the market is discouraging potential buyers

To rent or buy? It's a tricky question for Lu Yi, a 32-year-old wealth manager in Shanghai as well as for many white-collar professionals who have not yet purchased their own homes in the city.

Lu and his wife, Wang Ting, a 28-year-old primary school teacher, and their 2-year-old son are living in a two-bedroom 70-square-meter apartment in Pudong. The rental price was 4,500 yuan ($714) a month in the first six months of this year.

"The landlord said he would raise the rent to 5,000 yuan a month for the second half of 2012 because almost every landlord is considering increasing rents," said Lu.

Home rentals across China experienced a 2.2 percent growth year-on-year in May, according to the National Bureau of Statistics.

Average home rental prices in 10 major cities in China witnessed an 8.41 percent year-on-year growth, according to a report released by the China Index Academy, a research institute run by, one of China's largest online property information platforms.

The average rental price in Chengdu, capital of Southwest China's Sichuan province, saw a 14.88 percent year-on-year increase in May. Beijing witnessed a 13.86 percent year-on-year increase and Shanghai a 6.48 percent increase, according to the report.

Average prices for new homes in the same 10 major cities including Guangzhou, Nanjing and Wuhan saw a 3.22 percent year-on-year decrease in May. Average prices for second-hand homes saw a 4.33 percent drop.

But in June, there was a rebound in Beijing as home sales in China's capital jumped to 25,602 units in June, 10.5 percent more than in May and 50.6 percent more than June 2011, according to Xinhua News Agency.

The trading volume of new homes in Beijing rose 14.1 percent month-on-month to more than 11,983 units in June, according to data released by the municipal commission of housing and urban-rural development.

The average new-housing price in Beijing in June was 20,678 yuan per square meter, a 2.1 percent increase from the previous month, according to data from 5i5j Real Estate, a major housing agent in China.

Despite the possible rise in both new-housing price and rent, Lu and his wife said they will stay at the current apartment. "It is not the right time to buy an apartment," Lu said.

In Shanghai, in some popular areas for tenants, monthly rents increased up to 30 percent in May, according to statistics from Centaline Shanghai, a property agency and consultancy service provider.

The average rental price for second-hand apartments rose for six consecutive months since the end of 2011, said a report based on rental prices in all districts in Shanghai, according to the Shanghai second-hand housing index office.

Meanwhile, sales of second-hand homes fell for seven consecutive months from late 2011, according to the report.

It was expected that many people would purchase apartments as policy controls over mounting housing prices strengthened. However, many decided to postpone buying and adopted a wait-and-see outlook on prices, according to the report.

"If you calculate the sale and rental ratio, you'll find that actually renting an apartment is more economic," said Li Chuan, a 30-year-old software engineer.

Li said he is living in an 90-square-meter apartment in Huangpu district which costs him 7,000 yuan a month, about 30 percent of his monthly income. If he would like to buy it, the house would cost him 3.6 million yuan. The ratio between buying and renting over the course of a year is 514 yuan to 1 yuan, which provides a strong excuse for property owners to increase their rents.

"The profit margin of leasing my apartment is about 2 percent. That is lower than the deposit interest rate so I have to either increase the margin or sell my house and save the money in a bank or undertake some other investment," said Xu Jindi, a 65-year-old who owns two apartments in Jing'an district, Shanghai.

In that part of the city, many high-end apartments with monthly rents exceeding 10,000 yuan are so popular that potential tenants have to sign up with agents and wait for up to two weeks to see if there is a unit available.

"Some high-income residents including scientific researchers, expats and financial services professionals are not planning to stay for long and some are not eligible to buy a home because of policy controls so they want to rent well-decorated, spacious apartments in prestigious locations," said Hu Jiayun, an agent with Sanhe Property Agency in Jing'an district.

Despite the fact that Shanghai launched a public rental housing scheme in 2012 which was expected to cool rocketing housing prices in the city, statistics show that it has had a limited effect because it covers the housing needs of only a few residents.

Some public and low-rent housing projects are too spacious for the needs of young tenants and prices can be beyond their ability to pay. Furthermore, the infrastructure for some public rental housing projects is not yet complete, according to Liu Haisheng, head of the housing management authorities in Shanghai.

As migrant workers and college graduates who have not obtained Shanghai household registration are not eligible to apply for low-rent housing and public housing, they need to seek apartments at market prices.

It is predicted that the rent in some communities in Yangpu and Zhabei districts, where many colleges are located, may rise up to 20 percent in the upcoming two months as fresh graduates seek to rent apartments, said Zhang Yulin, an agent with Xinyuan Property Agency in Zhabei.

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