1/8
China plans to set up real estate funds to purchase and complete unfinished home projects, and then rent them to individuals as part of the government's drive to boost rental housing.
reuters.com
China plans to set up real estate funds to purchase and complete unfinished home projects, and then rent them to individuals as part of the government's drive to boost rental housing.
reuters.com
2/8
This is certainly better than leaving them unfinished, but it creates a different problem. Chinese rental yields are already among the lowest in the world. For homebuyers, these low yields didn't matter as long property prices went inexorably up.
This is certainly better than leaving them unfinished, but it creates a different problem. Chinese rental yields are already among the lowest in the world. For homebuyers, these low yields didn't matter as long property prices went inexorably up.
3/8
Low yields also helps explain why such a huge share of apartments remained empty. Rental yields are part of the opportunity cost of an empty apartment, and if rents are low, property taxes non-existent, and prices rising, there's no urgent need to rent out an empty apartment.
Low yields also helps explain why such a huge share of apartments remained empty. Rental yields are part of the opportunity cost of an empty apartment, and if rents are low, property taxes non-existent, and prices rising, there's no urgent need to rent out an empty apartment.
4/8
If a lot of these property projects are completed and then forced into the rental markets, this could cause rents to drop. If declining prices also force owners of the roughly 20-25% of empty apartments to rent, that would drive rents even further.
If a lot of these property projects are completed and then forced into the rental markets, this could cause rents to drop. If declining prices also force owners of the roughly 20-25% of empty apartments to rent, that would drive rents even further.
5/8
That would be a good thing overall for the economy, all other things being equal, but will all other things be equal? Given the incredibly low rental yields, If property owners now expect a return on their property, either rents must surge or real estate prices must drop.
That would be a good thing overall for the economy, all other things being equal, but will all other things be equal? Given the incredibly low rental yields, If property owners now expect a return on their property, either rents must surge or real estate prices must drop.
6/8
The rental yield would have to rise, in other words, but if in fact rents decline with all the new apartments coming onto the rental market, it seems to me that this will just put even more downward pressure on real estate prices.
The rental yield would have to rise, in other words, but if in fact rents decline with all the new apartments coming onto the rental market, it seems to me that this will just put even more downward pressure on real estate prices.
7/8
The trick, I guess, is whether or not lower rents increase demand by more than the wealth effect of falling property prices reduce it. It might also matter to the banks behind these real-estate funds, who will have to absorb part of the decline in property prices.
The trick, I guess, is whether or not lower rents increase demand by more than the wealth effect of falling property prices reduce it. It might also matter to the banks behind these real-estate funds, who will have to absorb part of the decline in property prices.
8/8
These funds are probably a good idea, but the point is that while there are better and worse ways to manage the pain of the enormous real estate adjustment through which China must inevitably go, there is no way to avoid it. All Beijing can do is distribute it efficiently.
These funds are probably a good idea, but the point is that while there are better and worse ways to manage the pain of the enormous real estate adjustment through which China must inevitably go, there is no way to avoid it. All Beijing can do is distribute it efficiently.
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