March 13 (Bloomberg) -- Beijing’s strictest-in-the-nation property curbs are forcing up rents for about 7.7 million residents originally from outside of the city who are blocked from buying a home.
The Chinese capital requires new arrivals to wait five years before purchasing a house, while cities including Shanghai permit ownership after one year of residency. Beijing introduced restrictions on non-locals in 2011, followed by about 40 other cities, part of a three-year, largely unsuccessful campaign by the central government to contain the growth of property prices.
Average rents in the capital have jumped 23 percent since 2010, while demand for rentals surged 82 percent as migrant workers and graduates poured into the city, according to data from broker Bacic & 5i5j Group. Beijing’s home prices climbed 4.9 percent in the same period, according to real estate website owner SouFun Holdings Ltd. Increasingly unaffordable rents are frustrating residents like Adam Wang, 27, who moved to Beijing four years ago and won’t be allowed to buy a home until November.
“Many friends of mine are in the same situation like me, but what else can we do?” said Wang, a manager at a technology company who relocated from Xinjiang province in western China. “We can’t really leave Beijing, because after all, there are more opportunities in big cities where we’ve already established some networks.”
Rent on Wang’s one-bedroom apartment near the east end of the central business district surged almost 20 percent to 5,000 yuan ($802) a month in the past two years.
There were almost 21 million people in Beijing as of the end of last year, of whom 37 percent were non-local residents, the latest data from the local statistics bureau show. That compared with 25 percent in 2006.
As many as 30 percent of tenants living in rented apartments in Beijing and Shanghai, the nation’s financial hub, can’t buy a home due to government restrictions, according to Centaline Property Agency Ltd., China’s biggest real estate brokerage.
The rules are unfair and will deepen xenophobia toward non-locals, said Wang Zhenyu, a Beijing-based lawyer and deputy director of a policy research center at China University of Political Science and Law.
“A good government should advocate equality and correct the concept of privilege,” said Wang, who has written two open letters to China’s cabinet suggesting the removal of purchase restrictions based on birth origin. “But now it divides citizens into locals, non-locals and different classes by residency, so people will think in the same way. This is bad policy and demonstrates a problematic ideology.”
Outgoing Premier Wen Jiabao, who will be replaced on March 15, has since April 2010 tried to cool the property market after existing-home prices almost doubled from 2006 to 2010, according to Centaline data. The central government raised down-payment and mortgage requirements, and imposed a property tax for the first time in Shanghai and Chongqing.
On March 1, China’s leaders imposed their toughest curbs in a year. The State Council, the cabinet, ordered the central bank to raise down-payment requirements and interest rates for second mortgages in cities with excessive price gains, enforced the payment of a 20 percent tax on property sales, and told local governments to tighten home-purchase limits.
The southern business city of Shenzhen banned developers from raising prices of residential properties, news portal Sina.com reported today, citing unidentified officials with developers including China Vanke Co., the country’s biggest homebuilder listed on mainland exchanges.
A gauge tracking property shares on the Shanghai Composite Index fell 2.5 percent to the lowest in three months at the local close. It was the biggest decline among the five industry groups on the benchmark. Vanke dropped 2.4 percent to 10.95 yuan in Shenzhen trading, while Gemdale Corp. lost 4.6 percent to 6.05 yuan, the lowest since Dec. 21.
Beijing in 2011 limited local residents to owning two homes, while non-locals may buy one after meeting the residency requirements. Still, the market is rising, with Beijing home prices up 1.6 percent in January from December, the bureau of statistics said Feb. 22.
“Home purchase restrictions have accelerated gains in rents,” said Qu Anxin, a Shanghai-based senior manager at Centaline. “Rents will keep climbing, and probably at a faster pace this year than in 2012, especially after the government’s new curbs.”
In Shanghai, rents jumped 6.5 percent last year, after an 8.4 percent gain in 2011, according to Centaline. The government doesn’t publish data on rents, and neither Centaline nor Bacic & 5i5j, Beijing’s biggest agency for rental homes, have nationwide figures on the rental market.
The resulting squeeze on non-local’s rental costs has prompted some to skirt the law with fake divorces or marriages, and forged documents to get around the purchase restrictions.
“This has sent a very good reminder to the government to rethink its property policy: home prices have barely been curbed, and the real demand for housing can’t be constrained,” said Shen Jian-guang, a Hong Kong-based economist at Mizuho Securities Asia Ltd. “The government should increase the supply of public rental homes and establish a long-term rental system in the private market.”
The government announced in 2011 that it planned to build 36 million units of social housing by next year, with a large number of these homes rented out based on income limits.
About 230 million people moved to cities from 2000 to 2011, the biggest urbanization in history, according to the Chinese Academy of Social Sciences.
The rent surge isn’t fully reflected in China’s inflation data. Rental costs are underweighted in the official consumer prices basket, which is based on mortgage costs rather than actual rents, wrote Standard Chartered Plc economists led by Wei Li in a Jan. 11 report.
China’s consumer price index rose 3.2 percent in February, the highest in 10 months, from a year earlier, with living costs up 2.8 percent, including a 2.7 percent increase in rents, data from the National Bureau of Statistics showed.
College graduates and migrant workers are suffering the most from the rising rents, according to Bacic & 5i5j.
“The rent increases for the past few years are mainly concentrated in lower-end apartments because of the huge demand,” said Kong Dan, a Beijing-based manager at the broker.
Still, returns on rental homes, as measured by the annual rent divided by the property’s selling price, remain below the 3 percent deposit rate benchmark in the biggest cities such as Beijing, Shanghai and Shenzhen, Centaline’s Qu said. That restricts investment and supply in rental homes, he added.
“When I was allowed to buy properties, I didn’t really have the money back then. But now when I’m ready, I don’t have the eligibility,” said Wang, the technology company manager. “How ironic is that!”
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