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Feb 18, 2010
China may be at a tipping point – danger signals red!
Last Updated: Feb. 18, 2010
BEIJING- Apartments COST (US$) YIELD (p.a.) PRICE/SQ.M. (US$)
TO BUY MONTHLY RENT TO BUY MONTHLY RENT
55 sq. m. 232,320 603 3.12% 4,224 10.97
85 sq. m. 365,585 887 2.91% 4,301 10.44
120 sq. m. 568,320 1,184 2.50% 4,736 9.87
155 sq. m. 719,665 1,548 2.58% 4,643 9.99
185 sq. m. 860,250 1,928 2.69% 4,650 10.42
250 sq. m. 1,231,250 2,865 2,79% 4,925 11.46
350 sq. m. 2,149,000 4,669 2.61% 6,140 13.34
CHENGDU- Apartments
40 sq. m. 47,360 166 4.21% 1,184 4.15
60 sq. m. 72,840 251 4.14% 1,214 4.19
85 sq. m. 103,615 307 3.55% 1,219 3.61
120 sq. m. 142,200 406 3.42% 1,185 3.38
155 sq. m. 182,280 490 3.22% 1,176 3.16
200 sq. m. 254,600 n.a. n.a. 1,273 n.a.
GUANGZHOU - Apartments
35 sq. m. 93,940 268 3.43% 2,684 7.67
55 sq. m. 134,090 420 3.76% 2,438 7.63
80 sq. m. 168,880 479 3.41% 2,111 5.99
120 sq. m. 279,480 821 3.52% 2,329 6.84
200 sq. m. 487,000 1,628 4.01% 2,435 8.14
SHANGHAI Ordinary apartments
35 sq. m. 106,540 250 2.81% 3,044 7.14
55 sq. m. 150,755 355 2.67% 2,741 6.09
80 sq. m. 196,240 390 2.38% 2,453 4.87
120 sq. m. 330,120 604 2.19% 2,751 5.03
SHANGHAI Luxuriuos apartments
80 sq. m. 496,080 1,368 3.31% 6,201 17.10
120 sq. m. 653,880 1,765 3.24% 5,449 14.71
150 sq. m. 822,000 2,250 3.28% 5,480 15.00
175 sq. m. 919,100 2,681 3.50% 5,252 15.32
225 sq. m. 1,393,875 3,992 3.44% 6,195 17.74
300 sq. m. 1,641,900 5,427 3.97% 5,473 18.09
SHENZHEN - Apartments
30 sq. m. 78,900 270 4.11% 2,630 9.01
50 sq. m. 135,450 440 3.89% 2,709 8.79
80 sq. m. 218,800 567 3.11% 2,735 7.09
120 sq. m. 389,520 922 2.84% 3,246 7.68
200 sq. m. 801,600 1,786 2.67% 4,008 8.93
Districts researched:
Beijing: Chaoyang, Dongcheng, Xicheng
Chengdu: Jinjiang, Jinniu, Qingyang, Wuhou
Guangzhou: Tianhe, Yue Xui
Shanghai: Changning, Jing'an, Pudong, Xuhui
Shenzhen: Futian, Luohu, Nanshan
Source: Global Property Guide Definitions: Data FAQ See also: Update Schedule

What a difference five years makes!  When we first began to gather data on China, gross rental yields in all categories of Beijing condominiums were above 9%, and gross rental yields for villas in Beijing ranged from 9.5% to 13%.  In Shanghai, returns were less stellar, with gross rental yields on apartments ranging from 5.4% to 7%. 

Today, gross rental yields on almost all sizes of apartments in Beijing are below 3%, and  in Shanghai the situation is broadly the same. 

We find the official statistics in China confusing.  And as it happens, our own data-gathering in China has been rather inconsistent. We’ve relied on high-end expat-oriented sites some years, and on lower-end Chinese-language sites in other years.  

But it is hard to escape the fact that prices have been climbing steeply, while rents have not moved much. 

Yields below 3% are a danger signal.  We have been reluctant to join the chorus warning about a bubble in China in previous years, for the good reason that in 2008, apartments in most large cities in China has rental yields above 5%, a level which we generally consider ‘safe’. 

However we believe that yields of less than 3% indicate danger, in China as anywhere else.  We were the first to warn that a crash was likely in the Baltics, and then, our signal was that yields dropped below 3%.  We gave similar warnings in Dubai.  With the market-cooling steps taken by the authorities, we think investment in Chinese property would be very unwise at this stage.






Comments

#1 MARC | May 16, 2010

Your numbers are conservative. The renter has a lot of bargaining power in Shanghai. I would say (from personal experience) that your yields are about 1% too high.

#2 HOWCOME | May 18, 2010

Agree with Marc. Live and rent in Beijing now. 160 SM, asking sales price 4.8 M Yuan, rent 6 K Yuan/month.

#3 THOMAS | June 15, 2010

the ordinary appartment yield in Beijing is lower,an appartment sells 1.6 million yuan will rent only 36 thousands per year(yield 2.25%).
and the high end(in your statistic)have a extreamly high Vacancy rate you can't imagine,about 80% of them are empty as my observation.

#4 STEVE HEMINGWAY | August 03, 2010

Rent is determined by tenants actual earned income, which is roughly constant in real terms. Property prices are largely a function of sentiment and availability of credit. The persistent momentum of prices in real estate markets deludes investors into thinking that "income doesn't matter". Of course it does, and since nobody can be cash flow positive on a yield of 2.5% even with the cheapest financing imaginable, then these figures have to predict that high end property in Shanghai and Beijing is on the point of a huge crash.

Of course it might be ten years before we actually see it, and a lot of rich people will take this as evidence that people like me don't know what we are talking about.

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