Landlords in China. Will wonders never cease!
For Many Chinese, Real Estate
Is Best Place to Invest
By KATHY CHEN
Staff Reporter of THE WALL STREET JOURNAL
November 3, 2004; Page B1
BEIJING -- Taxi driver Ning Long trolls the city for passengers each day, but not out of necessity. The 42-year-old cabbie owns five apartments and rents out three of them, netting him a monthly rental income roughly equivalent to $700.
"I could totally give up cab driving," he says. "Investing in property has been very worthwhile."
From piano teachers to government workers to cabbies, individual Chinese are flocking to invest in real estate. Many are then renting out their properties, resurrecting China's landlord class after a four-decade ban by the Communist Party on private-property ownership, and giving birth to a lively rental market. Rentals are catering to a nation on the move -- companies expanding operations to other provinces, migrants flocking to work in the cities, students attending university far from home.
The trend is also benefiting foreign companies. Britain's top home-improvement chain, Kingfisher PLC's B&Q, says its 21 stores in China enjoy annual revenue growth of between 15% and 30%, thanks in part to individual investors' growing penchant for owning property. "Now a lot of people with money buy more than one property. A lot of them come to us [to help them renovate] two or three different properties," says Wen Dong, B&Q's regional manager for North China. U.S. real-estate agency CB Richard Ellis says booming rental markets in Beijing and Shanghai are expanding choices and lowering prices for multinational clients seeking housing for expatriate staff.
The expanding rental market naturally is a boon to the local real-estate industry. Stanford Realty Service Co., a Beijing-based agency that represents landlords and tenants, says its revenue has doubled this year compared with 2003. Hu Jinghui, Stanford's vice general manager, estimates that more than 6,000 legal and illegal agencies currently operate in the capital, "In Beijing, there are three million people searching for rental houses every year, half of which will come to realty agencies," says Mr. Hu.
But the flood of investors into the property market also has some industry executives worried about a property bubble in some areas. In the eastern city of Hangzhou, about one-third of newly built properties stand empty, as investors wait for prices to rise enough so they can sell profitably, says Jia Shenghua, head of Zhejiang University's Center of Real Estate Study.
Last month, the China Construction Bank and Cinda Assets Management Co. jointly ran a 22-page ad in a Beijing newspaper listing more than 5,000 bad-loan cases -- including 1,500 house-loan defaults -- in an apparent bid to embarrass the borrowers into paying back the loans. The Industrial and Commercial Bank of China says its bad-debt rate for individual home loans rose to 1.12% last year from 1.05% the previous year.
Before the Communist takeover in 1949, many Chinese preferred to plough their money into property investments. The latest proliferation of landlords -- many of whom are from the new middle class -- is partly due to an anomaly from China's Communist past, when state workers received paltry salaries but lived in cheap, state-subsidized housing. When Beijing abolished such perks and commercialized housing in the late 1990s as part of its transition to a market economy, it allowed many residents to purchase their homes from the state for a pittance.
As the Chinese accumulate more savings and banks offer mortgage loans, many residents are upgrading to nicer apartments and renting out their older, smaller places. Zhou Jiang, a researcher at the Ministry of Construction's policy research center, estimates that as much as 25% of all housing purchases in Beijing are for investment purposes.
Piano teacher Zhang Yuchong spotted the potential in the property market early. He and his wife started snapping up units at bargain prices in 1999. "Every two months, we'd take our earnings and scour the property market," says Mr. Zhang, 42. With the help of bank loans and investments from friends, the couple has purchased four-dozen apartments, some of which are rented out, some of which have sold and others he hopes to resell at a minimum 50% profit.
A booming rental market in China is catering to workers moving to cities.
Broader social trends also are propelling the rental boom. Extended families used to live under one roof, but now many Chinese prefer to live separately from their parents. Those who can afford it are buying property to house their parents or to put aside for their children's future use.
Ms. Jin, who asked to be identified only by her surname, is a 30-year-old executive of a Chinese equipment manufacturer. She and her husband own a three-bedroom apartment and live with his parents and their one-year-old daughter. Last year they paid the equivalent of $96,618 for a second apartment nearby. "Now my husband's parents live with us but eventually, our daughter will want her own room," says Ms. Jin, "so we bought an apartment" for the in-laws.
Still, the flood of investors into the property market has a downside. In cities like Harbin, a glut in supply is causing rental prices -- especially for more remotely located units and luxury units -- to begin to soften. China last week raised interest rates, in part to cool property prices.
Shu Kexin, a 46-year-old former teacher, and his friends own a dozen properties in Beijing, purchased with the help of loans. "Now we feel like we bought too many," he says, adding that they have rented out only half of their units because they can't get the desired type of renter or level of rent. "Before, we'd make returns of 15% or so, now the average rate of return is 7% or 8%," he grumbles.
Beijing Great Wall International Auction Co., which has been entrusted by banks and courts to sell seized properties, auctioned off more than 50 units last year, from just two or three units annually a few years ago. It handled 16 properties in the first half of 2004, with another major auction scheduled for later this month.
None of this fazes cabbie Mr. Ning. He recouped his investment on his three rental units "a long time ago," he says. "Before the 2008 Olympics [in Beijing], the property market will soar," Mr. Ning predicts.
--Qiu Haixu contributed to this article.
Write to Kathy Chen at kathy.chen@wsj.com1
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