Key Points:
- China’s rental yield exceeds deposit rates, hitting 2.03%.
- Older properties, apartments yield 3-4%; outshine savings.
- Banks slash rates; highest fixed deposit at 1.8%.
- Shift from savings to real estate, consumption encouraged.
- Renting trend boosts demand, redefines property value.
Recent data compiled by Zugezhaofang, a leading real estate analytics firm, reveals a surprising development in China’s housing market: rental yields in key cities have climbed above bank deposit rates. According to the analysis of 50 major urban centers, the average rental yield for the first half of 2024 reached 2.03%, marking a 0.07 percentage point increase from the previous year. This figure, the highest since 2019, outpaces current five-year deposit rates offered by the country’s top five banks.
The calculation of rental yield, defined as the ratio of annual rent to the total property value, has become a critical metric for investors assessing the potential return on housing investments. While the average sits at 2.03%, this figure varies significantly depending on property type and location. Newer properties in first-tier cities typically offer lower yields around 1.5%, whereas older units and apartments often command higher returns, sometimes exceeding international benchmarks at 3-4%.
City-specific data shows that smaller cities boast higher rent-to-price ratios compared to metropolises. Notably, Yinchuan leads the pack with a ratio of 4.58%, followed by Urumqi at 3.63% and Guiyang at 3.44%. Among tier-one and tier-two cities, Xiamen exhibits the lowest ratio at 1.32%, while Shenzhen, Suzhou, and Beijing post ratios of 1.61%, 1.66%, and 1.81%, respectively.
The resilience of residential rental prices, despite economic downturns that have impacted office spaces, has contributed to the rise in rental yields. As housing prices have declined, over 80% of cities have witnessed a notable uptick in rent-to-price ratios. Exceptions exist, however, such as areas experiencing population outflows or oversupply, which have led to rent decreases akin to price drops.
A prime illustration of this trend is the transformation of Shanghai’s Dongnanxincun, a school district once synonymous with soaring home values. A 30-square-meter unit that previously fetched 3.8 million yuan now sells for just 2.06 million yuan, translating to a monthly rent of 4,500 yuan. Similarly, a 47-square-meter two-bedroom apartment priced at 2.86 million yuan rents for 6,260 yuan per month. These examples yield rental ratios hovering around 2.6%, surpassing typical savings account rates.
In contrast to the subdued returns on traditional investments, some older properties and apartments have emerged as attractive options, offering rental yields in excess of 3% and up to 4%. For instance, a 22-square-meter loft in Suzhou’s Pingjiangyue area, priced at approximately 400,000 yuan, garners a monthly rent of 2,200 yuan, resulting in a rental yield over 6%.
The downward spiral of bank interest rates, spurred by recent cuts to the loan prime rate (LPR), has further accentuated the appeal of real estate investments. Major banks, including Everbright, Minsheng, SPDB, CITIC, Huaxia, GFB, Industrial Bank, Zheshang, Bohai, and Hengfeng, have all announced reductions in deposit rates, with the most recent adjustment lowering the highest five-year fixed deposit rate to 1.8%. This marks the disappearance of deposit rates beginning with ‘2’, signaling a historic low in interest earnings.
The convergence of high rental yields and low deposit rates is prompting a reevaluation of investment strategies among savers. Authorities are encouraging a shift away from bank deposits towards more productive uses such as investment, consumption, and property acquisition. As rental yields outperform traditional savings, it is anticipated that capital will increasingly gravitate towards properties with favorable rent-to-price ratios.
Historically, a rental yield around 3% is considered healthy internationally, and China is gradually moving closer to this benchmark. The growing preference for renting, particularly among young professionals in first-tier cities, is fueling demand in the rental market. This trend, coupled with the gradual deflation of housing bubbles, suggests that quality properties may regain their luster in the eyes of investors.
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