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July 24, 2017

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Home » Business » Benchmark

Tipping the scales to balance renting and buying

JUSTIN Zhou, a white-collar worker in his late 20s from Jiangsu Province, finally moved into a one-bedroom apartment in the Pudong New Area, a year after applying for accommodation under a program reserving some rentals for out-of-towners.

The 40-square-meter furnished apartment, about 10 minutes’ walk from the Guanglan Road Metro station, costs Zhou and his girl friend 2,000 yuan (US$294) a month in rent, property management fees and utilities. That’s about half what they would pay without the program.

”We feel lucky,” Zhou said “We are allowed to stay here a maximum of three years.”

The program is part of efforts to woo talented workers to Shanghai by providing more affordable options for people whipsawed by the housing bubble.

According to the city’s 13th Five-Year Plan (2016-2020) on housing, which was released on July 7, about 1.7 million new housing units will be added during the period, an increase of 60 percent over the previous five years.

Of the new housing, around 450,000 units will be “commodity houses,” which are defined as residential properties outside of the city’s subsidized low-income public housing program. Some 700,000 units will be reserved for leasing.

To facilitate the construction, 5,500 hectares of land parcels will be released to the market under the five-year plan. That’s an increase of 20 percent from the previous period.

Of that figure, 2,000 hectares will be designated for commodity housing development, 1,700 hectares for rent-only homes and the rest for low-income housing.

By 2020, the city’s housing program will be more balanced between home ownership and rentals. Policies will also be introduced to encourage the expansion of home-rental businesses.

“For the first time, the city government is establishing a system that places equal importance on sale and leasing,” said Lu Wenxi, senior manager of research at Shanghai Centaline Property Consultants Co, a leading realty chain in the city. “That is without a doubt the biggest highlight in the newly released plan. Young talent from outside of Shanghai will benefit under the new policy, while local people who cannot afford a home of their own will also get better options.”

Two days before the release of the latest plan, the Shanghai land authority had already released two parcels designated solely for residential leasing, the first project of its kind ever presented to developers in the city.

The starting floor price for the larger of the two parcels, a 65,007-square-meter site in Zhangjiang in Pudong, was set at 723.9 million yuan. That’s a gross floor area price of 5,568 yuan per square meter.

The smaller plot, a 28,513-square-meter site on the fringes of the Jiading District, has a starting price of 424.2 million yuan, or a gross floor area price of 5,950 yuan per square meter, according to a statement posted on the city’s official land website.

Developers are required to hold these two developments for 70 years and are not allowed to sell any units, the land watchdog said. At present in Shanghai, developers who acquire land plots designated for residential purposes are usually required to hold 15 percent of the space, with the rest being allowed for sale on the open market.

“This is definitely an attempt by the government to increase the supply of residential rental units that are of guaranteed quality,” said Joe Zhou, head of research for China operation at JLL, an international property services provider. “The initiative is tapping new options to address the accommodation needs of those who find homes priced beyond their means, which can discourage talent from moving here.”

Recruiting professional talent is part of the city’s plan to turn itself into a global hub of technology, innovation and culture. But out-of-towners who have something to contribute to that goal are often put off by exorbitant costs.

“The cost of living in Shanghai is notoriously high, not to mention the crazy home prices here,” said Zhou, whose current plan is to stay here for a few more years before returning to his hometown and getting married. “But if the government provides more long-term leasing apartments with competitive rents, I will definitely consider a longer stay in the city.”

Shanghai is not alone in its quest to provide more affordable housing. The government of the southern city of Guangzhou, one of the 15 mainland cities where home prices are most closely monitored and where the toughest-ever measures against property speculation have been adopted, issued a package of 16 measures earlier this month to accelerate development of the residential leasing market.

To increase the supply of residential leasing units, commercial properties can be transformed into residential leasing units once the developer receives approval from the government. Renters of such units will be charged the same utility fees as ordinary households, according to a statement posted on the government website.

For some qualified renters, children will be eligible for enrollment in nearby schools — a prerogative previously only available to homeowners. In addition, developers agreeing to allocate the highest proportion of space to residential leasing will be given priority over other bidders in auctions for publicly owned land, the statement said.

On July 11, Beijing also released its 2017 housing white paper, saying that it will speed up the development of its residential leasing market.

Government attempts to rein in runaway housing prices are having some effect. Stricter requirements on who can buy homes, bigger down payments and higher mortgage rates have halved new home sales in Shanghai in the first six months of this year, according to Shanghai Homelink Real Estate Agency Co.

Sales of new residential properties, excluding government-subsidized low-income housing, totaled 29,300 units, a 52 percent drop from the first half of 2016.

Despite the retreat in transaction volumes, home prices in Shanghai still remain high.

New homes sold in Shanghai during the second quarter of this year rose to new high of 47,600 yuan per square meter on average, up 0.4 percent from the first three months, according to Savills.


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