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Economy

Shanghai rents plateau for 1st time in 8 years

China's appetite to curb housing bubble taking bite out of rental market

People walk across a bridge near the financial district of Pudong in Shanghai. Rents in the city have leveled off for the first time in eight years.   © Reuters

SHANGHAI -- The Chinese government's restrictions on home sales and mortgage rate hikes, put in place to deflate the housing bubble, have resulted in Shanghai property rents finally leveling out, at least for the time being.

The property rent index for August remained largely unchanged, standing at 1,933 compared to the March reading of 1,939, according to research company ehomeday.com. The index has remained broadly flat over six months for the first time since 2008-2009 after the global financial crisis.

A shift in the current supply and demand for homes could affect consumer spending, which has been partially driven by rising property prices and rents.

Some market watchers initially cited China's new work permit system for foreigners as the main reason for stagnant rents. Cumbersome procedures prevented many foreign workers from entering the country. A real estate brokerage said some property owners grew impatient and lowered rents.

While conceivable that the new system may have choked rents owing to Shanghai's large number of foreign workers, rents likely would not have risen even after a June-July influx of workers.

Rather, a growing number of market experts believe that Beijing's measures to curb property prices have had a larger impact on property rents.

Rising rates

According to a survey covering 35 large Chinese cities by research company Rong360.com, mortgage rates for first-time homebuyers hit 5.12% in August.

Rates have trended higher since the start of the year, up nearly 0.7 of a percentage point. Even in Shanghai, known for relatively low rates, mortgages are hovering at around 5%.

In addition to higher mortgage rates, the Shanghai municipal government is imposing other regulations to check rising home prices, such as requiring payment of taxes and social security premiums for a certain period before allowing purchases of second homes.

These measures have gradually had their desired effect, causing both property prices and used-home transactions to plateau.

Homes may rent out for longer periods as liquidity declines. Many investors are taking a wait-and-see attitude, betting that the current sales restrictions and higher interest rates are temporary.

Many local governments are not keen on declining property prices, since profit from land sales is their primary source of income. With the drive to introduce a fixed-asset tax losing steam, many market watchers expect Shanghai rents to remain broadly flat for some time.

That said, rising home prices have helped push consumer spending along at double-digit rates. But slowing growth in disposable income along with falling property prices could dampen consumption.

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