Fri, Sep 21, 2018 - Page 9 News List

How China’s plan to develop rental housing backfired

Investors have been renovating properties and renting them out at a premium, resulting in soaring rents that have forced people to downgrade to smaller homes

By Yawen Chen, Shu Zhang and John Ruwitch  /  Reuters, BEIJING and HANGZHOU, China

Illustration: Mountain People

When Chinese President Xi Jinping (習近平) vowed to increase the supply of rental housing last year, millions of young Chinese expected to find homes they would finally be able to afford.

However, the government’s initiative has had an unintended effect: a surge of property investors into the rental market that has dramatically pushed up prices.

This summer, rents in China’s major cities soared in the double-digits, forcing the people that Xi vowed to help — many of them white-collar workers or recent college graduates — to downgrade to smaller apartments and relocate to less desirable neighborhoods.

Companies flush with investor funding — such as Ziroom and 5I5J — have been aggressively developing hundreds of thousands of rental homes in the past year.

Yet the homes do not come cheap, despite the increased supply.

The average rent in Beijing jumped 21.16 percent year-on-year last month, compared with 3.12 percent a year earlier, data from the China Real Estate Association (CREA) showed.

Similar trends were seen in other major Chinese cities.

Last year, Wang Zhilu, 23, rented a room in a mid-tier Beijing neighborhood for 3,000 yuan (US$437.84) a month. Now, he pays 4,500 yuan for a room in a similar area.

Soaring rents have fueled widespread public frustration as the cost of living surges in cities, outpacing salary growth for many people.

“Rent now makes up about 30 percent of my salary, while my housing condition is worse,” said Tian Enyu, a 35-year-old divorced office manager in Beijing.

At least 19 provincial capitals have seen rents soar this summer, with Chengdu in Sichuan Province posting the biggest year-on-year rise of 32.95 percent last month, CREA said.

Investors have been piling into the rental housing sector.

Ziroom, which is owned by Zuo Hui (左暉), chairman of Chinese real-estate broker Lianjia, raised 4 billion yuan in January from investors including Tencent Holdings, Warburg Pincus and Sequoia Capital.

Singaporean sovereign wealth fund GIC launched a 4.3 billion yuan venture with Nova Property Investment in May to acquire rental apartments in cities like Beijing and Shanghai.

Tiger Global Management, a US-based global investment firm, led a US$70 million financing round in June for Danke, a Beijing-based rental flat operator.

Ziroom had about half a million rooms in China and commanded a market share of 30 percent at the end of last year, Reuters calculations based on an April report by Meadin.com showed.

Xiangyu, a rental unit owned by 5I5J, was a close second with a 27 percent share.

About 1.66 million rooms were owned or managed by rental companies and developers at the end of last year, Meadin said.

Ziroom and Xiangyu typically source units from property owners. They then renovate the properties and rent them out at a premium, which some experts call a “forced upgrade” for tenants.

“These companies are very aggressive in securing flats this year,” said Yu Runze, who leased his two-bedroom Beijing apartment to Ziroom for 7,800 yuan a month in May after rejecting an offer from Xiangyu.

The rent that Xiangyu charges is often double the price that it pays to apartment owners for their properties, said Zhang Yongjing, a former property agent with 5I5J in Shanxi Province’s capital, Taiyuan.

Ziroom could not be reached for comment. 5I5J did not respond to a request for comment.

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