Rents in the first- and second-tier cities have risen constantly due to urban transformation and public investment in the living environment as well as growth in the number of companies involved in the market.

---

 

The leasing sector has been reinvigorated in last two years by increased demand coupled with restrictions on purchasing and favorable policies in major cities. But rents in the first- and second-tier cities have risen constantly due to urban transformation and public investment in the living environment as well as growth in the number of companies involved in the market. Controlling rents has become a hard task.

Monthly rental price per square meter in Shanghai rose by 4 percent year on year in the first quarter. During the same period, the quarterly increases in Shenzhen and Hangzhou were 3.2 percent and 6.3 percent respectively, according to the statistics of Qianlong Net, a website run by multiple Beijing-based media agencies.

The Ministry of Housing and Urban-Rural Development recently issued a notice on real estate management, calling for price stabilization, rent controls, risk management and structural adjustment. In particular, the ministry emphasized the goal of curtailing rental prices. Some first-tier cities and major second-tier cities have drafted policies to attract talent in recent years, which has raised the demand for housing along with rent prices.

Shenzhen has seen a net increase in population for years. Its monthly housing rents grew by nearly 2 percent this April and the tendency became evident as early as December 2017. In terms of suppliers, locals are the majority of lessees, so the supply-demand relationship has a huge effect on rental price.

It is estimated that the number of housing properties available for rental will surge in major cities, prompting a dramatic transformation in the supply-demand relationship. At that time, a wide array of organizations will expand their role in the housing rental market, including real estate developers, internet startups and intermediary agencies.

Housing organizations may construct buildings through land acquisition or to obtain stocking apartments, but their primary concern is cost. Many of them are seeking rent premiums to earn a stable amount of money from the rental market, which was once not profitable. 

The renovation of stocking houses drives the increase in the absolute value of rents, said Luo Fengming, founder of Hewoo, a Chengdu-based provider of long-term rental flats.

Another factor also contributes to the higher rents. Without harsh restrictions, few lessees paid rental income tax when private rental dominated the market. But housing companies have few ways to avoid taxes and the tax rate may be as high as 25 percent.

In 2017, Wang Feng, director of the Shenzhen Real Estate Research Center, addressed the question of whether the transformation of the urban villages would lead to a sharp rise in rents, saying that if the leasing market showed structural imbalances, the government would adopt the regulatory policies like it had in the real estate sector.

Luo held that the renovation of stocking houses should develop products for people with different abilities to pay. This is a task for governments.

Compared with housing price, rents pose a greater impact on the costs of living. Like the real estate sector, the proposed rent control requires a long-term mechanism. In addition, many cities are striving to construct public rental housing to hedge against the rising rent. The notice also emphasized to ensure the land supply for public rental housing and at least half of the land will be supplied for public rental housing, rental housing and joint-property housing in three to five years.

However, it is crucial to figure out how to promote affordable housing, such as public rental housing, in the market and make them reach the people in need, said Ray Wu, deputy managing director of Savills Shenzhen Unit.

 

The article was translated from 21st Century Business Herald.

(edited by MA YUHONG)