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May 24, 2017

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Home » Business » Real Estate

It’s a renter’s market, at least momentarily

ABOUT one month ago, Janet Li, a partner at one of the Big Four international accounting firms, moved into a two-bedroom apartment with her husband near Laoximen Metro station in the Huangpu District.

The couple had been living in a three-bedroom apartment in the Pudong New Area, which they purchased some 15 years ago. Li’s parents rented an apartment next door. When the landlord decided to sell that flat to take advantage of soaring property prices, the family faced a dilemma.

Unable to find an equally good furnished unit in the same building or even in the same community in a short time, Li and her husband finally decided to lease a place in downtown Puxi and give her parents their home.

In what was a bit of a surprise, the couple was able to find a rental in just over a week. The landlord, whose flat has been vacant for three months, was so happy when the property agent brought Li and her husband to view the apartment, that she reduced the rent by 1,000 yuan (US$144) a month, about a 7 percent discount.

As is common practice, the couple paid the landlord four months’ rent in advance, including a deposit equal to one month’s rent, and immediately got the key to their new apartment.

“I’ve heard so many times from work colleagues and friends that rents have been soaring in Shanghai in the past few years,” Li said. “I hardly expected a landlord to give us discount and even without any haggling. This will give us time to look around for an apartment to purchase and will help cut commute time for me and my husband.”

The local home leasing market has been stuck in the doldrums for quite some time as supply increased and demand slackened.

“The city’s residential leasing market usually sees its biggest growth every year in February and March,” said Lu Wenxi, senior manager of research at Shanghai Centaline Property Consultants Co, a leading property agency in Shanghai. “That is usually fueled by a notable pickup in demand following the Spring Festival holiday. But this year, it didn’t happen.”

Centaline’s monthly home rental index, which tracks 295 residential projects in all segments in 78 areas across the city, fell 1.09 percent in April from a month earlier. That was a 4.4 percent drop from a year earlier and a 6 percent decline from the index peak in September 2016.

Many factors play into the decline. Migrant workers are going home as metropolitan life becomes too expensive and job prospects in the hinterland hometowns improve. People investing in rental properties have increased, causing a glut of homes to let. And people who can’t sell homes in an increasingly regulated market are sometimes forced to rent them out instead.

Demographics tell part of the story. City dwellers with permanent residency permits reached a peak of 24.25 million at the end of 2014. That figure comprised 14.29 million local Shanghainese and 9.96 million out-of-towners. By last year, the population was 24.19 million, with 14.39 million Shanghainese and 9.8 non-locals, according to official city data.

“Uncertain economic prospects coupled with ever-rising living costs in metropolitan cities like Shanghai are driving more migrant people back to their hometowns, leaving demand for rentals sluggish,” Lu said. “On the other hand, a series of tightening measures imposed by the local government to cool down the overheated property market also made home sales more difficult for individual owners, many of whom have decided to pull their houses from the market and perhaps lease them out until the sales market improves.”

Indeed, the restrictions on home purchases have tightened. Even first-time home buyers are subjected to higher down payments and more restrictions on eligibility. Curbs on people buying second homes are even tougher.

Since December, sales of existing homes have remained below the normal level of 20,000 units for five straight months in Shanghai, according to data compiled by Centaline. In April, sales of existing homes dropped 20 percent from a month earlier to 15,500 units.

Those who can’t sell investment properties often choose to lease them out while waiting for the sales market to recover. With more rentals available, rents began to fall.

In the Yangpu District, for example, most landlords have to wait at least one month before finding a suitable tenant, whereas in the past, it only took about two weeks or so.

Discounts in the rental market have become more prevalent.

In Yangpu, the rent for an ordinary one-bedroom apartment has fallen to 3,200 yuan (US$463) a month from the previous 3,500 yuan. For a two-bedroom home, monthly rent has dropped from about 6,000 yuan to between 5,300 yuan and 5,500 yuan. Large-sized apartments with three bedrooms now cost tenants between 7,500 yuan and 7,800 yuan per month, down from around 8,500 yuan per month before, according to Centaline.

The property agency said its home-leasing deals in April fell 21 percent from March to 1,197 rentals.

Citywide, only two districts — Jing’an and Hongkou — managed to register growth in rents last month. The Luwan, Huangpu and Xuhui districts suffered the steepest drops.

A separate report released earlier by the city’s home leasing index office found average rentals on a downward trajectory amid prevailing lackluster demand.

The monthly index, which covers all 16 districts in the city, fell 0.23 percent in April, with high- and medium-end apartments suffering the biggest retreats.


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