Xi Jinping's plan to boost supply of rental housing backfires

Chinese President Xi Jinping delivers a speech during a session of the Eastern Economic Forum in Vladivostok, Russia, on Sept 12, 2018.
Chinese President Xi Jinping delivers a speech during a session of the Eastern Economic Forum in Vladivostok, Russia, on Sept 12, 2018.PHOTO: REUTERS

Surge of property investors leads to soaring rents in big cities, fuelling public frustration.

BEIJING/HANGZHOU • When President Xi Jinping 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.

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 Mr Xi vowed to help - many of them white-collar workers or recent college graduates - to downgrade to smaller flats and relocate to less desirable areas.

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 per cent year on year last month, compared with 3.12 per cent a year earlier, China Real Estate Association (CREA) data showed. Similar trends were seen in other major Chinese cities.

Mr Wang Zhilu, 23, rented a room in a mid-tier Beijing neighbourhood last year for 3,000 yuan (S$600) a month. Now, he pays 4,500 yuan for a room in a similar area.

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

"Rent now makes up about 30 per cent of my salary, while my housing condition is worse," said 35-year-old Beijing resident Tian Enyu, a divorced office manager.

CREA said at least 19 provincial capitals saw rents soar this summer, with Chengdu in Sichuan province posting the biggest year-on-year rise of 32.95 per cent last month.

Investors have been piling into the rental housing sector.

Ziroom, which is owned by Mr 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.

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.

Ziroom had about half a million rooms in China and a market share of 30 per cent at the end of last year, according to Reuters calculations based on an April report by Meadin.com. Xiangyu, a rental unit owned by 5I5J, was a close second with a 27 per cent share.

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

Ziroom and Xiangyu typically source units from owners, 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 Mr Yu Runze, who leased his two-bedroom Beijing flat to Ziroom for 7,800 yuan a month in May after rejecting an offer from Xiangyu.

The rent Xiangyu charges is often double the sum that it pays to flat owners for their properties, said former 5I5J property agent Zhang Yongjing, who is based in Taiyuan, capital of northern Shanxi province.

While the rental giants have been accused of driving up prices, a lack of regulations means regulators have limited power to act or enforce existing rules, said property analysts and a government source.

"The market is neither balanced nor transparent," the source at the Ministry of Land and Resources told Reuters. But "if Xi doesn't say something needs to be done, these ministries won't do anything", said the source, who requested anonymity.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 15, 2018, with the headline 'Xi's plan to boost supply of rental housing backfires'. Print Edition | Subscribe