‘Home Rental’ plan attenuated by limited public resources, low rental yield
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As China pushes apartment rental as an alternative to home ownership in bid to reign in on speculation and satisfy housing needs of the country’s ever-growing migrant population, analysts say that super-low returns for home rental companies and scarce public resources may pose the biggest challenges to the government’s campaign.

It’s expected that by 2025, the value of home rental markets in China will surpass 3 trillion yuan, according to an industry organization which is under direct supervision of China’s Ministry of Housing and Urban-Rural Development. On the other hand, some industry analysts pointed out the planned growth in the rental sector may be hindered by a low return rate on investment, reported thepaper.cn, a Shanghai-based news portal.

At the 2018 Asia Pacific Real Estate Rental Summit held on Thursday, Cai Yun, the general secretary of a committee under the China Real Estate Association, said the market value of home rental sector had already exceeded 1 trillion, and it’s forecast to be worth over 3 trillion by 2025.

According to Cai, government policies to encourage development of rental markets have gone into effect, and the sub-sector of real estate in the country will start gaining momentum. She elaborated that on one hand, the future market will see more supply of rental apartments, and on the other, more policies will be rolled out to guarantee tenants equal rights with homeowners and access to public services.

Chen Cheng, executive president of the China Real Estate Data Academy, a real estate research institute, pointed out that there are still some problems to be resolved, and low rental yield in even top-tier Chinese cities is one such problem that may cripple the nascent market’s growth.

First-tier cities including Beijing, Shanghai and Shenzhen occupy 50 percent of the total market. “Rental yield rates for residential housing are usually below two percent,” he said, citing relevant data which shows the average yield rate for rental apartments in Beijing, Shenzhen, Shanghai and Guangzhou were respectively 1.37, 1.38, 1.48 and 1.69 percent.

Since 2017, China’s government began to actively encourage development of the property rental market especially long-term rental apartments, with the belief it will rein in skyrocketing home prices while providing new urbanites more affordable and suitable housing. The Xinhua News Agency reported at the time that China’s rental business makes up merely 2 percent of the whole real estate market, while in developed countries, the share usually ranges between 20 and 30 percent.

After that, China’s three Internet giants Alibaba, Tencent and JD.com had all showed their interest and support in the government-backed efforts by investing into projects themselves or through startups in the sector. This June, Chinese authorities stepped up efforts by asking big state-owned banks to chip in. According to a Reuters report, the big state banks had pledged more than 3 trillion yuan in home rental financing, with real estate developers, rental companies, and tenants covered by their financing programs.

“Although the government has been trying to prop up long-term rental apartment brands, for the startups and enterprises adopting asset-light strategies, it remains a challenge to develop in the sector,” said Chen Yutong, chairman of Shanghai Yuanlai Industrial Limited, a property management company.

Another major push for the so-called “Home Rental Era” is for tenants to enjoy the same level of public services which were only available to property owners before. It was widely reported last year that the Chinese government introduced a pilot program in 12 major cities including Guangzhou, Chengdu and Hangzhou where tenants would be entitled to the same rights and access to public resources as owners of rental properties.

One year after the pilot plan, Outlook, a weekly magazine under the Xinhua News Agency, surveyed government officials and industry insiders to find out that without sufficient and quality public resources in place, the idea of granting the same right to tenants as the property owners could hardly be achieved in the real world.

Zhao Xiuchi, a professor with the Capital University of Economics, told Outlook that the access to educational, welfare and medical resources is sometimes more valuable than housing requirements. “Especially for the fast-growing cities experiencing population growth, this is an urgent issue to be addressed.”

An official with the Jiangsu provincial government who’s in charge of related matters told Outlook that in big cities with large-scale population inflow, good-quality public resources are limited, so there are “practical difficulties” in enforcing “equal rights.”

Industry insiders including Xie Yong, chairman of 5i5j.com, one of the major real estate agencies in China, believe that for the top-tier cities, public resources are scarce and unevenly distributed, and that’s the reason why non-discriminatory “equal rights” could not be applied at the current stage. For example, it’s widely reported by foreign media that many Chinese families would like to spend quite a fortune on so-called “school-district housing” which entitles them to seek enrollment in best schools.

In this case, industry insiders and analysts surveyed by Outlook generally suggested the government should first realize more balanced allocation of public resources, and establish longer-term mechanism in a bid to guarantee that tenants of rental properties truly “equal rights”.    
 

 


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