China

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 2.5%, and in Shanghai below 3.2%.

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 were 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 had rental yields above 5%, a level which we generally consider ‘safe’.

However last year we declared that, with that yields of less than 3%, the danger signals were flashing red.  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.

So last year we gave the same warning about China – and we were right.  It’s not been a exactly a crash, but for sure the period of market ebullience is over. Prices have risen so high that it is inconceivable that they will continue to rise.

Chengdu is an exception. Yields appear healthy here.  We’re not sure if this is some kind of statistical fluke, and it certainly seems somewhat odd that yields on large apartments, according to our research, are above those on smaller apartments.  But that’s the picture we get. Chengdu looks a little like Beijing and Shanghai used to look like, in terms of return on investment.

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