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THE BOTTOM LINE In acountry with one of the world’s highest
rates of homeownership, a shift to rental housing is seen as a way
to temper rising real estate prices.long-awaited property tax, are poised to unfold
over the next several years.
For a development on the outskirts of
Shanghai, China Vanke Co. is targeting millen-
nials. Monthly rents for one-room apartments
start at $400—not bad by local standards. Rooms
range from 161 square feet to 215 square feet.
The complex, in a neighborhood dotted with
office buildings and car manufacturers, offers
dormitory-style common areas, an indoor gym,
and vending machines for food and drinks.
Some 95 percent of 395 units offered in the ini-
tial phases have been rented, mostly to people
born after 1985, says Yan Yong, Vanke’s Shanghai
head for rental business.
In big cities around the world, renting isn’t
unusual for young people getting a foothold. But
in China, people buy young: The average age to
buy a starter home is about 30, according to China
Securities Co., compared with 33 in the U.S. and
39 in Japan. Homeownership rates in China are
among the highest in the world. Parents often help
their sons buy a place as a prerequisite for mar-
riage. Rentals, meanwhile, have been a hard sell,
in part because of limited tenant rights and the low
quality of much of the stock, with some units lack-
ing bathrooms and kitchens.
Vanke’s rental projects in Shanghai have
broken even. The returns so far haven’t been “sat-
isfying,” says Yan, who expects future demand
to be unleashed as policies become more sup-
portive. In theory, a thriving rental sector would
help stabilize the housing market and defuse
the risks from “irrational” home prices, says
Deng Yongheng, of the University of Wisconsin
School of Business. He helped carry out a study
that showed a 1,538 percent gain in land prices in
Beijing from 2004 to 2016. Price surges, followed
by short-lived declines, have reinforced a mindset
that property is a bet that always wins.
Even if the new policies can help change that
thinking, challenges abound. China’s leaders have
to tame the market without causing home prices
to tank and triggering big property-related losses
in financial markets. They’ll have to balance other
factors, such as a glut of unsold homes in some
of the nation’s smaller cities and lower rates of
population growth. And officials will need to drop
an old habit of letting prices boom whenever the
economy needs a boost.
Still, government backing could help drive
annual rental payments to 4.2 trillion yuan
($657 billion) by 2030, almost half of total home
sales in 2017, according to estimates from Orient
Securities Co. Shanghai has allocated 42.5 million
square meters of land for rental homes throughHurricane Maria was devastating for the residents
of Puerto Rico. It hurt debt investors, too. Some
of the island’s bonds plunged more than 40 per-
cent after the storm flooded the island, knocked
out its electric power, and clobbered its economy.
Now bond rating agencies such as Moody’s
Investors Service and S&P Global Ratings are look-
ing at whether they should be including more disas-
ter forecasting in calculating the grades they give
to government debt and to companies in industries2020, more than for owner-occupied housing. The
city of Beijing kicked off a trial of housing owned
jointly by the state and private individuals. About
30 percent of new supply in the capital will be des-
ignated for rentals by 2021. Office buildings, malls,
and factories will be converted to rental units.
To lure tenants to rental projects, the state
lender China Construction Bank Corp. devised a
“rent loan” in Shenzhen to assist with rent pay-
ments. Without collateral, apartment tenants can
borrow as much as 1 million yuan for as long as a
decade, with interest rates lower than mortgages,
according to Caixin magazine.
Analysts say it could take years for the changes
to take hold in the market, but some point to the
resolve of Xi, perhaps China’s most powerful
leader since Mao Zedong. “When Xi started his
antigraft campaign years ago, people didn’t expect
it to be so powerful, but it proved to be beyond
imagination,” Mizuho’s Shen says. “Now, most
people still hold the belief that home prices will
never fall, and speculation is rampant. That’s one
place where Xi hasn’t succeeded. And that means
policy execution will be heavier until his goal is
achieved.” —Bloomberg News180%17813583715534○ Rise in housing prices
from 2010 to 201717171412 FINANCE Bloomberg Businessweek January 29, 2018