How China's plan to develop rental housing backfired

Yawen Chen
Shu Zhang
John Ruwitch
/ Reuters
September 17, 2018 12:00 PM SGT
BEIJING/HANGZHOU, China (Reuters) - When President Xi Jinping of China 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.
FILE PHOTO: A man stands on a bridge next to buildings of the Jianwai Soho residential and commercial complex in Beijing, China August 29, 2017. REUTERS/Jason Lee/File Photo
But 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 flats and relocate to less desirable neighborhoods.
Companies flush with investor funding – like Ziroom and 5I5J - have been aggressively developing hundreds of thousands of rental homes in the past year.
But the homes do not come cheap, despite the increased supply. The average rent in Beijing jumped 21.16 percent year-on-year in August, compared with 3.12 percent a year earlier, data from the China Real Estate Association (CREA) shows. Similar trends were seen in other major Chinese cities.
In 2017, Wang Zhilu, 23, rented a room in a mid-tier Beijing neighborhood for 3,000 yuan ($438.17) 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 in August, according to CREA.
Investors have been piling into the rental housing sector.
Ziroom, which is owned by Zuo Hui, chairman of the Chinese real estate broker Lianjia, raised 4 billion yuan in January from investors including Tencent Holdings, Warburg Pincus and Sequoia Capital.
The Singapore 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.
FILE PHOTO: A man walks along at old residential buildings in Shanghai, China September 13, 2017. REUTERS/Aly Song/File Photo