Falling Chinese rental yields may indicate property bubbles

19 Jul 2017

Shanghai China

Registering rental yields of less than two percent, well below average yields in major cities such as New York and Tokyo (4.7 percent and 4.3 percent respectively), China’s first-tier cities Beijing, Guangzhou, Shenzhen and Shanghai may be entering a property price bubble.

Despite the moderation in home price growth, home rental yields in some Chinese cities continued to drop in the last quarter, indicating the existence of a property price bubble, reported South China Morning Post.

Shanghai-based E-house China R&D Institute revealed that all of China’s first-tier cities – Beijing, Guangzhou, Shenzhen and Shanghai – and nine second-tier cities registered rental yields of below two percent.

The average yields are far below the level recorded in major global cities like New York and Tokyo at 4.7 percent and 4.3 percent, respectively.

“Rental yields in first-tier cities have continued to fall for over a year because policies have boosted the number of properties available for rent, which has pushed the average rent down,” said Lai Qin, an analyst at E-house China.

Former vice housing minister Qiu Baoxing noted that home price to rent ratio is more accurate in gauging property bubbles compared to the home price to income ratio.

This is because the latter indicates the long-term, macro trend, while the former is time- and location-sensitive.

Speaking at a recent forum, he explained that it becomes “dangerous” when the property price is 30 times the rent or higher. In Shenzen, the price is 66.7 times rent and in Xiamen the multiple is 100 times.

And given the rising mortgage rates and stricter purchasing curbs, some previously overheated cities are already seeing the bubble burst. Primary homes sales in Yanjiao, a mega community near Beijing, almost ground to a halt following the exodus of speculative buyers, while secondary home prices declined by an average of 30 percent in the last three months.


This article was edited by Denise Djong.


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