China Daily Global Edition (USA)
TENANTS ON MOVE AS RENTS SOAR IN BEIJING
Real estate agencies shift focus from selling to leasing
Cao Yaomin, 27, a clerk in Beijing, is thinking of buying an apartment next year after being faced with a rent increase of about 20 percent early this month and having no choice but to accept it.
He lives in a 60-square-meter apartment on the 2nd West Ring Road in Xicheng district. The rent was 4,700 yuan ($688) when he moved in last year after finding the apartment through the Century 21 China real estate agency.
In August, the agency told Cao that the rent was to be raised to 5,600 yuan a month.
“Half, or even 60 percent, of my salary goes on rent, which I think is too much of a burden for me,” he said.
“I don’t think soaring rents can be stopped in the short term, so I’m considering buying an apartment next year. However, I cannot afford one in the area where I rent. I have to sacrifice the location and buy one much farther away, which means I will have a much longer commute to work every day.”
Cao is not alone in this respect, with many tenants in the capital facing rent increases this summer.
Xie Zuopeng, 25, who works for a securities company in Xicheng district, moved twice last year as a result of such increases.
In April, he rented a twobedroom apartment with a friend in Fengtai district through Ziroom, which is a long-term apartment rental agency owned by the Lianjia Group.
“The rent was 5,386 yuan a month in April and it was raised to around 6,100 yuan a month in June, but I don’t want to move anymore,” he said.
“It’s too troublesome to move. I spend half an hour going to work by bus at present, which I think is enough for me. So, I decided to stay even though the rent is higher.”
Both Cao and Xie rent their apartments from agencies instead of from individual landlords.
As the central government has acted to control housing prices in previous years, real estate agencies have shifted their focus from the selling to leasing business, which appears to be more profitable.
Agencies expand
In Chinese cities, agencies buy or rent apartments from individuals or landlords. They then restore the apartments in a similar style to build up a brand and to rent to tenants. The agencies profit from the difference in price and also charge management fees to both sides.
As these agencies, including Ziroom, YOU+ and MoFang Apartment, have gained billions of dollars in investment and grown rapidly in the past two years, they have expanded their market share by buying a large number of apartments. This helps them to monopolize the market and raise rents, China Real Estate Business, a newspaper focusing on the industry, reported last week.
Xia Lei, deputy head of the Evergrande Research Institution, co-established by the Evergrande Real Estate Group and Tsinghua University, said capital has played an important role during the latest round of rent increases.
“Under the pressure of competition, the agencies have kept raising capital to invest in renting apartments to gain pricing power,” Xia said. “The investors urgently want to start making money ... which will inevitably lead to soaring rents.
“Housing prices are an economic issue, while rent is a social problem. Increased housing prices may affect economic stability, but rapid rent growth will affect people’s living quality and willingness to consume, which will damage a city’s competitiveness and attraction.”
He said the government should intervene in the rental market and regulate the industry.
Zhang Dawei, chief analyst at Centaline Property Agency, said increased capital has entered the long-term rental market and transformed mid- and low-end apartments into high-end ones, resulting in rent increases.
“In January, Ziroom announced a 4 billion yuan financing plan, with a clear target of gaining more apartment contracts,” he said.
On Aug 9 and 17, the Beijing Municipal Commission of Housing and Urban-Rural Development and other related authorities organized meetings with major real estate agencies including Lianjia, Century 21 China and Centaline Property as well as online platforms that publish rental information. It asked them to strictly examine information relating to the apartments and to stop operating if they did not have a business license.
The commission also ordered the agencies not to use bank loans to buy apartments.
“The agencies should not pay a price higher than the market level to landlords in order to gain more apartments for stock, which will drive up rents. Any realtor will be fined or closed if found to have used unreasonably high sums to gain apartment contracts,” the commission said.
On Aug 19, a group of Beijing real estate agencies held a meeting with the heads of 10 major long-term apartment rental companies. The companies promised not to drive up rents, and to release more than 120,000 apartments from stock to the market for tenants.
Ziroom promised to provide 80,000 apartments from its stock to the market — the highest number.
Supply and demand
Even though the agencies put more apartments on the market after these meetings with the authorities — which proved that they had been holding apartments in stock — they said publicly that the major reason for the rent rises is a supply shortage, rather than the influence of speculation.
According to a report from RealData, a research institution owned by the Lianjia Group, the Beijing municipal government has been tearing down illegal buildings and co-renting apartments to prevent safety risks in recent months, which has led to a reduction in supply.
Tenants who used to favor low-end apartments, which can be shared by several people, had to turn to higherlevel ones, which cost more.
In the past year, Beijing has torn down 59.85 million square meters of illegal construction and plans to demolish another 40 million sq m this year.
On the other hand, the city’s overall saleable area of apartments in the past year was 8.75 million sq m and its affordable housing area was 2.67 million sq m. Beijing’s total floor space for residential buildings is 882 million sq m.
Yang Xianling, chief economist and head of RealData, said the imbalance between supply, which has been falling, and the growing demand — especially from new graduates in summer — was the major reason for the rent increases.
According to the institution, the average rent in Beijing in the first seven months of this year grew by 10.7 percent year-on-year and monthly increases during this time were 2.6 percent on average.
Yang said a growing number of white-collar workers are switching from co-renting apartments to standardized apartments with better furniture provide by the agencies — another reason for the increases.
“This trend — which is a structural improvement for the rental market — will continue for a long time,” he said in a report.
He also said people are generally moving into the city’s downtown area, where rents are higher.
“The illegal buildings were mainly in suburban areas. People have to find new places to rent nearer the downtown area. New graduates also tend to live downtown where there are more job opportunities. High rents downtown have pulled up the average level,” Yang said.
He said the supply shortage is the major cause of the rent increases, and predicted that the number of new tenants will start to fall this month, reducing the level of such rises.
No worries
Liu Ridu, a 38-year-old Beijinger who owns four apartments in the capital, has just raised the rent from 6,000 to 7,000 yuan a month for one of his flats — a 90-sq-m apartment in Jintai Road, off the Third East Ring Road in Chaoyang district.
“I know the rise this year is a bit strange, but for me, seeing that others have raised their rents, why should I refuse more money?” he said.
“I don’t rent my apartments to tenants directly. People seldom do that now. We rent to agencies and pay one and a half months’ rent as their fee, and then have no worries about keeping tenants. The agencies will do that for us.”
Liu said rents had usually risen by about 10 percent annually in recent years. This summer, they increased by 17 percent in the residential community in Jintai Road, where this apartment is located.
A realtor at the Beijing Maitian Real Estate Agency, surnamed Wei, who asked that his full name not be disclosed, said agencies started to speculate on rents in May.
Before May, it took about one month on average to rent out an apartment. But after capital entered the rental market, they take only two weeks or less to rent out, which clearly means that some agencies have been stocking apartments.
“In the past two years, more real estate agencies that used to mainly sell properties started to focus on the leasing business, because the property trading market was weakening,” Wei said.
He added that when agencies go to landlords to obtain leasing contracts, they usually offer a price that is 10 percent higher than the average.
Zhang, the chief analyst at Centaline Property, said rents will continue to increase because all the factors contributing to such rises remain.
According to China Economic Weekly, up to 13 first- and second-tier cities in China saw rent increases of more than 20 percent in the past year.
Chengdu, the capital of the southwestern province of Sichuan, ranked top with a rise of 30.98 percent on average, followed by Shenzhen, Guangdong province, with rent growth of 29.68 percent.
Rent increases in Beijing and Guangzhou, the capital of Guangdong, also surpassed 20 percent yearon-year this month.
Zhang Guodong, 32, who works for a travel agency in Beijing, said he is considering moving to a subsidiary in Hangzhou, the capital of Zhejiang province, if the company accepts his proposal.
“The soaring rent may be the final trigger that helps me to make up my mind,” he said.
“I have been thinking about this for a few months. More and more white-collar workers in Beijing have moved out to the Sixth Ring Road, which is far from the city center, and it has become common practice to rent a room instead of an apartment to save money. That’s not the life I want.”
Zhang Guodong said he plans to go to Hangzhou to rent a place that is bigger and nearer the city center.
“I’m willing to work hard and I also want to enjoy my life,” he added.