Chinese yields still very low

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%.

Last year, we found that rental yields on almost all sizes of apartments in Beijing were below 2.5%, and in Shanghai below 3.2%. It is hard to escape the fact that prices have been climbing steeply, while rents have not moved much.

This year, we´ve found it difficult to collect data, hence the rather disappointing table above. But we have no reason to believe that yields have changed 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 the year before last 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 that year we gave the same warning about China – and we believe we were right. It’s not been a exactly a crash, but for sure the period of market ebullience is over. The authorities are in a very difficult situation, and it is hard to know what they will do. But many Chinese property investors are voting with their wallets, and buying properties elsewhere.