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Owners, tenants caught in price spiral
July 8, 2010, Thursday
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MA Xiaoyun, a fresh graduate from Fudan University, was relieved after finally settling down in a barely decorated apartment on Shanghai's outskirts.
He and his friend share the apartment and each pays 850 yuan (US$125) a month. The price is 13 percent higher than in March, he says, when the previous tenants moved out. The owner raised the rent because of higher consumer prices and a general rise in the area's home rents.
"I don't mind spending one more hour on the Metro to save several hundred yuan a month," Ma said. "A senior student warned us of the tight supply of accommodation immediately after graduation, but growing prices weren't a big problem in his days."
As the graduation season approaches, more attention has been paid to growing rental prices. The media reported an increasing demand for rental homes in June, driving up prices between 10 and 15 percent from a month earlier in some of the most popular locations.
Such rapid growth has highlighted an upward trend evident in rent prices that's been going on for several months and different people offer various reasons for the markup.
"Rents went up a lot near Metro stations convenient to the Expo site after March following an inflow of exhibitors seeking temporary accommodation till the end of the event," said Ma Ji, head of market research at Centaline Property.
"Prices for short-term leasing can rise as much as 40 percent, driving up market prices in the nearby areas."
He said there's been an average 15 percent increase in rent from the previous year, a figure higher than usual. He added that rent in high-end homes, such as those in Xintiandi in Luwan District and Lujiazui in the Pudong New Area, remained flat as both supply and demand are stable. The most turbulence took place along the Metro line and in older neighborhoods, which boast convenient traffic and service facilities.
Ma Ji attributed the rises to two reasons. On one hand, demand expanded as more consumers who planned to buy a home adopted a wait-and-see attitude. They expect a drop in home prices in the near future as the central government implements tight property controls to curb speculation. On the other hand, house owners affected by the new regulations tried to pass on costs to tenants.
Some insiders also blamed agencies for pushing up prices to make larger profits. For each leasing contract, most agencies charge 35 percent of monthly rent from both the owner and the tenant, a very small amount compared with those charged from sales transactions.
Property transactions dropped more than 65 percent in May from a year earlier, and a flat market is expected for the coming months. Agencies have to pay stronger attention to leasing to squeeze profits.
"Some agencies would persuade the house owner to set higher prices so they can charge higher commissions," said a property agency employee, who asked not to be identified. "Other agencies would rent apartments from the owners to lease them out later when market prices rise. This adds to the pressure of supply in the current market."
Whatever role agencies play in the deals, it's always the house owner that has the last word. Most owners will naturally decide on higher prices if the demand is guaranteed, though not without exceptions. Some will determine a price based on the type of tenants. They charge lower prices for families, students and office workers if they stay for a long term.
"We chose not to raise the price even though we know about the rise in market prices," said Su A'hui who has been leasing her old home to a single out-of-town woman working in Shanghai for several years. "The additional rent won't improve our life essentially, and we are reluctant to raise the issue."
High property prices have already affected many Chinese people's intentions to rent a home. Growing rents will drive those in dire need of accommodation to the limit. The out-of-towners are among the most affected.
"Some young office workers coming from other cities have left because they could not afford the rent," said Gao Zhihua, head of the residential committee of Kangle Neighborhood with some 2,500 families.
She said the rent for a 50 to 60-square-meter apartment in the neighborhood recently rose to 2,800 yuan from 2,500 yuan the previous year. Many out-of-town white-collar workers complained to her about high living costs as rent makes up as much as half of their income.
To keep in line with their budget, many young couples have to share an apartment with another family, or stay in their relatives' home. Lack of privacy caused conflict among residents and even within the families. Gao has dealt with several consequent issues of divorce and caring for elders.
But on the other side, she has also seen positive signs.
"There are also people moving out because their companies are providing more dorms," she said.
Shanghai municipal government has proposed guidelines, yet to be approved, to boost supply of inexpensive homes for leasing.
"It's still questionable whether home prices will really drop in the future," says Ma from Centaline Property. "If not, there will be no respite from growing rents."
He and his friend share the apartment and each pays 850 yuan (US$125) a month. The price is 13 percent higher than in March, he says, when the previous tenants moved out. The owner raised the rent because of higher consumer prices and a general rise in the area's home rents.
"I don't mind spending one more hour on the Metro to save several hundred yuan a month," Ma said. "A senior student warned us of the tight supply of accommodation immediately after graduation, but growing prices weren't a big problem in his days."
As the graduation season approaches, more attention has been paid to growing rental prices. The media reported an increasing demand for rental homes in June, driving up prices between 10 and 15 percent from a month earlier in some of the most popular locations.
Such rapid growth has highlighted an upward trend evident in rent prices that's been going on for several months and different people offer various reasons for the markup.
"Rents went up a lot near Metro stations convenient to the Expo site after March following an inflow of exhibitors seeking temporary accommodation till the end of the event," said Ma Ji, head of market research at Centaline Property.
"Prices for short-term leasing can rise as much as 40 percent, driving up market prices in the nearby areas."
He said there's been an average 15 percent increase in rent from the previous year, a figure higher than usual. He added that rent in high-end homes, such as those in Xintiandi in Luwan District and Lujiazui in the Pudong New Area, remained flat as both supply and demand are stable. The most turbulence took place along the Metro line and in older neighborhoods, which boast convenient traffic and service facilities.
Ma Ji attributed the rises to two reasons. On one hand, demand expanded as more consumers who planned to buy a home adopted a wait-and-see attitude. They expect a drop in home prices in the near future as the central government implements tight property controls to curb speculation. On the other hand, house owners affected by the new regulations tried to pass on costs to tenants.
Some insiders also blamed agencies for pushing up prices to make larger profits. For each leasing contract, most agencies charge 35 percent of monthly rent from both the owner and the tenant, a very small amount compared with those charged from sales transactions.
Property transactions dropped more than 65 percent in May from a year earlier, and a flat market is expected for the coming months. Agencies have to pay stronger attention to leasing to squeeze profits.
"Some agencies would persuade the house owner to set higher prices so they can charge higher commissions," said a property agency employee, who asked not to be identified. "Other agencies would rent apartments from the owners to lease them out later when market prices rise. This adds to the pressure of supply in the current market."
Whatever role agencies play in the deals, it's always the house owner that has the last word. Most owners will naturally decide on higher prices if the demand is guaranteed, though not without exceptions. Some will determine a price based on the type of tenants. They charge lower prices for families, students and office workers if they stay for a long term.
"We chose not to raise the price even though we know about the rise in market prices," said Su A'hui who has been leasing her old home to a single out-of-town woman working in Shanghai for several years. "The additional rent won't improve our life essentially, and we are reluctant to raise the issue."
High property prices have already affected many Chinese people's intentions to rent a home. Growing rents will drive those in dire need of accommodation to the limit. The out-of-towners are among the most affected.
"Some young office workers coming from other cities have left because they could not afford the rent," said Gao Zhihua, head of the residential committee of Kangle Neighborhood with some 2,500 families.
She said the rent for a 50 to 60-square-meter apartment in the neighborhood recently rose to 2,800 yuan from 2,500 yuan the previous year. Many out-of-town white-collar workers complained to her about high living costs as rent makes up as much as half of their income.
To keep in line with their budget, many young couples have to share an apartment with another family, or stay in their relatives' home. Lack of privacy caused conflict among residents and even within the families. Gao has dealt with several consequent issues of divorce and caring for elders.
But on the other side, she has also seen positive signs.
"There are also people moving out because their companies are providing more dorms," she said.
Shanghai municipal government has proposed guidelines, yet to be approved, to boost supply of inexpensive homes for leasing.
"It's still questionable whether home prices will really drop in the future," says Ma from Centaline Property. "If not, there will be no respite from growing rents."
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