This article comes from the WeChat public account:National Economic Strategy (ID: guominjinglve), author: Kay wind head of FIG source: IC photo
House prices are stabilizing, but rents have fallen.
Which city rents are falling?
According to Zhuge’s data, in May 2020, the average rental price of large and medium-sized cities across the country was 43.57 yuan/square meter/month, -0.95% month-on-month, and -1.56% year-on-year.
National data also proves this.
Price data released recently shows that CPI growth in March and April 2020 was above 3%, while rent CPI fell by -0.2% and -0.3% year-on-year, the lowest level since data was available.
Even during the 2008 financial crisis, there was no negative year-on-year growth in national rents.
Specifically to the core cities, among the 20 large and medium-sized cities monitored, rents fell in 17 cities.
Compared with a year ago, the five cities with the largest drop in rents: Sanya (-13.98%), Hangzhou (-6.56%), Shenzhen (-5.94%), Zhengzhou (-5.21%), Wuhan (-4.19%).
Among them, not only has Shenzhen’s rents weakened, but Grade A office rents have also declined significantly, and the vacancy rate has increased.
Know that house prices in first- and second-tier cities are stabilizing, while Shenzhen and Hangzhou are hotStay high.
Not long ago, Shenzhen has just attracted national attention for operating loans flowing into the property market, which triggered the “First Shot of Property Market Regulation in 2020”, while Hangzhou saw the grand occasion of “60,000 people snatching more than 900 suites.”
What signals are released when house prices rise and rents fall?
Why is this happening?
House prices and rents have always been out of sync and often diverge. It is not uncommon for prices to rise and rents to fall. The fundamental reason is that the two have different decision mechanisms.
The price depends on the rich, and the rent depends on the average person. House prices can be infinitely high, but rents are hard to keep rising.
House prices are susceptible to the impact of credit levels, and they will go on the road with leveraged support. The rent is always restricted by the relationship between supply and demand, and even by the actual income level of the residents.
In other words, house prices have little to do with the income level of residents. The rental market is subject to employment and income. As long as income does not rise, there is no room for rent to rise.
Unless there is a monopolistic institution such as a long-term rental agency, the rental market is generally difficult to rise and fall.
If we take a step back, even if there is an imbalance between supply and demand and there are monopolistic intermediaries, once employment and income are affected, the room for rising rents will inevitably be limited, and once the credit is loosened, house prices will be like a retreat.
What is the signal that the rent has fallen?
First, rent is subject to income constraints. Falling rents can be regarded as a leading indicator of the real economy.
Recently, the central government proposed “six stability” and “six guarantees”, and put “stable employment and protection of people’s livelihood” at the top of the list for no reason.
Second, Rental rents have fallen, and housing prices have stabilized or even increased, which will inevitably drive rental returns further downward.
At present, the rental return rates of Beijing, Guangzhou and Shenzhen are less than 2%, and Xiamen is only 1.2%, which is far from the international average of 4-5%.
If house prices can rise all the way, no matter how low the rate of return on rent is, it’s not a problem. Many people simply leave the house vacant and don’t care about the rental income at all.
However, as long as the property market is trading sideways, house prices either fall or fall. According to Li Xunlei’s research, the capital cost and depreciation cost of a house exceed 5%, plus the real estate tax that is about to land in the future, the cost of holding far exceeds the rental return rate.
Under this pattern, if the growth rate of house prices cannot be synchronized with GDP growth, you will face a situation where you are actually losing money every day.
Third, House prices may continue to rise, but in the face of an uncertain future, we must consider the rate of return on rent.
An area where you can’t even rent out a house is naturally not suitable for self-occupation. The rents are much lower than those in the surrounding area, so there must be some problems.
In the future, regions that do not generate rents are not only not suitable for rigid needs, but also not suitable for investment.
This article comes from the WeChat public account: national economic strategy (ID: guominjinglve) , author: Kay wind