China’s Real Estate Problem. A Soft Rental Market

Wednesday, January 7, 2009 6:59
Posted in category Uncategorized

Over the last few months, I have written a few pieces on the fact that the real estate market in Shanghai (and other locations) was softening.

Market prices were coming down, occupancy rates were falling, and tenants were in the drivers seat when negotiating rents across the board.

It is a market that has seen layoffs at all the real estate firms, developers are hemorrhaging , and developers to risked life and limb by reducing market prices below a level considered acceptable by previous buyers – and regulators.

The lead sentence of the China Stakes article Housing Market a Drag on into 2009 and Beyond says it best:

“If I still can’t sell 10 apartments, I’ll drink 10 bottles of melamine.” –the MSN signature of a sales director of a Beijing-based real estate company.

In essence, China’s real estate market (like interbank lending) has evaporated, and when the government recently announced policy changes to bring people back to real estate, I was skeptical.

The primary reason for my skepticism being that falling rental rates in the last half of 2008 have lead to landlords being unable to achieve a positive yield on their investement, and that new investors will not enter the market in the current market environment wthout some assurances that they can realistically expect to at least cover the mortgage.

Recent announcements that Shenzhen, Beijing, and that there are official reports now (OFFICAL REPORTS) that Maori’s tower has cut their rental pricing in HALF, makes it clear to me that the investment market for the next 3-6 months are going to be underperformers.

But.. there is a silver lining.

According to one agent we spoke with last night (yes, they call at night now), there was a 380 sq meter villa with (80 sq meter garden) in a center part of town going for 4 million USD –  a 2 million USD discount from the pricing that would have garnered 3 years ago.

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7 Responses to “China’s Real Estate Problem. A Soft Rental Market”

  1. Dan says:

    January 9th, 2009 at 6:55 pm

    The problem all along (at least with condos/flats/houses/apartments) was that the rent typically didn’t come close to paying the mortgage. This is why my firm never purchased a condo in either Shanghai or Qingdao: because we always thought the prices were too high.

  2. Rich says:

    January 9th, 2009 at 7:35 pm

    Dan,

    While I can see your point in Qingdao (other 2nd tier cities often had difficult markets), making a yield in Shanghai was quite possible as long as your bought early.

    Which is why I saw a change in the buyers last year. Buyers who were entering last year were not looking for yield, they were looking for capial appreciation… they were riding the top to the bubble.

    fortunately for you, you decided not to buy, and were not in that position.
    R

  3. dubaiprop says:

    January 5th, 2010 at 5:31 am

    with the fact that there are a lot of people in china..real estate should be a good business there..

  4. aphrodite says:

    January 14th, 2010 at 4:41 am

    i agree to dubaiprop..business there in real estate should be big enough for business people..

  5. larnarca says:

    January 22nd, 2010 at 10:11 am

    the problem in china is that there might be possibilities of scarcity in real estate since the population there is booming..

  6. limassol says:

    January 26th, 2010 at 5:53 am

    thanks for the post..its really great to hear news about china and updates about themm

  7. dubailand says:

    January 30th, 2010 at 10:11 am

    china always wants to be the headline in everything..now they’re back hacking sites..