Categories Real Estate » Rent Property

China’s residential property market is unlikely to recover soon

hanun — Thu, 17 Mar 2011 21:31:03 +0000

Rents have moved up much less than prices in China over the past few years. As a result, in 5 cities in China – Beijing, Chengdu, Guangzhou, Shanghai and Shenzhen – gross rental yields are now a modest 4.42%, based on a sample of high-end used apartments (www.globalpropertyguide.com).

Shanghai’s gross rental yields average only 3.74%. These are lowest gross rental yields in our China sample, but then Shanghai is the only city where apartment selling prices have apparently not dropped, according to the China Real Estate Index System (CREIS) and eHomeday. Shanghai residential asking prices average US$2,742 per square metre (sq. m.).

Beijing apartments earn slightly higher gross rental incomes of around 4.21%. These are the country’s most expensive apartments, with an average offer price of average US$2,977 per sq. m. for the high-end used apartments in our sample.

Chengdu also has rather low gross rental yields, an average of 3.88%. Chengdu apartments are the cheapest among the five cities, at US$1,060 per sq. m.

The highest rental yields are in Shenzhen, where apartments in our sample earn gross rental yields of 5.69%. The high-end used apartments in Shenzhen cost an average of US$ 1,780 per sq. m.

Guangzhou apartments earn mid-range gross rental yields of 5.41%. Our sample of Guangzhou apartment prices averages around US$1,577 per sq. m.

BACKGROUND IDEA – RENTAL YIELD

What does “gross rental yield” mean? It’s very similar to the Price / Earnings (P/E) ratio in the stock market. Just as share prices have a P/E range, house prices tend to fluctuate around a rental yield range, research shows.

The gross rental yield is the annual rental earnings / the value of the property.

So if the rent is US$5,000 and the property is worth US$100,000, the yield is 5%.

Our rule-of-thumb is that a gross rental yield of 6% to 7% means a housing market is ‘fairly valued’, though importantly, developing country housing markets usually have higher yields than developed, because of structural issues discouraging housing purchase such as the difficulty of getting mortgage finance.

Where yields (and rental costs) are comparatively low:

· People will prefer to rent, rather than to buy

· Investors are unlikely to ‘buy-to-let’

· Rents will tend rise faster than prices

Conclusion: No turnaround in China’s residential prices likely soon.

When the Chinese housing market was roaring ahead, rents moved up much less than prices. With the current market downturn, rents have dropped together with property prices (though slightly less). Gross rental yields now average a modest 4.42%.

Why are Chinese rental yields so low? Prices in China surged till September 2007, and then paused – and have not substantially dropped since then, according to CREIS, which uses a hedonic methodology (eHomeday arrives at closely similar results).

How far do gross rental yields need to rise in China? China’s gross rental yields of 4.42% are lower than would be expected in a developing economy. They are low, also, compared to other economies with similar income-per-capita.

We conclude that until one of two events occurs – more residential price falls, or substantial increases in rents – residential prices are unlikely to begin a sustained recovery in urban China.

The Chinese government has taken steps to support the market, such as temporarily suspending the business tax for residential property transfers, and encouraging cities to permit foreign purchases. China’s economy remains relatively strong, because of prompt government measures. Consumption spending is strong, restaurants are full, optimism remains high.

However, gross rental yields are still too low. Therefore, it is unlikely that there will be a convincing upturn in Chinese residential prices soon, the Global Property Guide believes.

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The Benefits of “Part Buy Part Rent” Property

admin — Sun, 28 Nov 2010 01:44:48 +0000

‘Part Buy Part Rent’ is perhaps more commonly known in the public domain as ‘shared ownership’ and it means that you own part of a property, whereas the lender owns the other part. Often this is split in a 50/50 or 60/40 percentage.

When you buy a property on a part buy part rent scheme you don’t own all of the property, but there are many benefits to doing this that make it worthwhile. For example, with a part buy part rent scheme you wouldn’t require as much deposit, which is useful now that mortgages are becoming very strict on deposits and most lenders require at least 10%, some rising to 40% for the best mortgage deals.

Another advantage is that your mortgage repayments would be much lower, usually being less than 50% of the property’s value.

One of the main advantages of part buy part rent though is that families on lower income can afford to set foot on the property ladder with a part buy part rent property because they work out much cheaper.

Shared ownership doesn’t mean that you’ll never own your property outright though, because you can always buy a greater percentage of the property as your circumstances change.One of the main advantages of part buy part rent though is that families on lower income can afford to set foot on the property ladder with a part buy part rent property because they work out much cheaper.

ownership doesn’t mean that you’ll never own your property outright though, because you can always buy a greater percentage of the property as your circumstances change.One of the main advantages of part buy part rent though is that families on lower income can afford to set foot on the property ladder with a part buy part rent property because they work out much cheaper.

Shared ownership doesn’t mean that you’ll never own your property outright though, because you can always buy a greater percentage of the property as your circumstances change.

What To Look Out For When You Rent Property

admin — Sun, 14 Nov 2010 02:00:51 +0000

Renting a house should be nice and simple. As a tenant there’s very little risk to you, especially if you’re only signing a lease for a few months.

Or is there? See, while it’s easy to spot a flat or house that looks like it could do with a lick of paint, there are lots of other issues to consider when you rent property.

Use this simple guide to assess your potential new home when you look round it.

Do some research before you view: Even though you are only renting, you should use the same tricks buyers do to check out a potential new home. Visit the area at different times of the day, on a weekday and at the weekend. Is the street a shortcut for angry drivers during rush hour? Do local school children gather around the shop on the corner? Is the street the main route home for local clubbers at 2am every morning? These factors don’t matter so much when you rent property, but could affect your quality of life forcing another move in a few months’ time.

Take someone with you to view the property: Never look at a potential home on your own. Because while you’re wondering if you can live with the pink bathroom, your friend will be finding the real flaws. It’s also a sensible security measure, especially if you are meeting a private landlord, rather than someone from the local property shop.

Compare the property to your lifestyle: Got a car? Got a driveway or parking space for it? Where are the nearest shops or other amenities? When you rent property it’s easy to overlook these things, yet they’re just as important as when you actually buy a house. Don’t forget to look into public transport and the extra costs of living there, such as council tax and any residents’ parking charges. And have a think about how much stuff you have and whether it will all fit in your new home. It’s also worth checking if pets are allowed when you rent property.

Is the property in good condition? Even though it’s not your responsibility to repair the fabric of the house, it will be a lot less hassle to ensure it is in good nick before you move in. Once you have signed a lease there is little incentive for the landlord to undertake significant repairs. Use their desire to rent property quickly as a lever to get major projects completed. Check the roof and gutters are sound, and look at the doors and drains carefully. What kind of condition is the garden in – and whose responsibility is it to keep it well maintained?

Can you decorate? Some landlords want to keep control over their interior, some are happy for you to slap paint anywhere you want. Check before you agree to rent property.

What horrors await? Keep an eye out for some terrors inside the property. Are there mouse traps or droppings? Check for signs of damp in every room, including flaking paint and loose wallpaper.

Check the building is safe: There should be at least one working smoke detector in the property; many owners provide fire extinguishers or blankets. The landlord must get a gas safety inspection by a CORGI registered engineer once a year. Does the electrical wiring look in good condition – or at the very least do switches it look like they have been installed within the last few decades?

Can you have a nice bath? Bathrooms are often problem areas when you rent property. So check all taps work OK and you can get hot water on demand. It’s also worth road testing the toilet and checking the sinks and baths aren’t damaged or cracked.