Real estate agencies shift focus from selling to leasing
Cao Yaomin, 27, a clerk in Beijing, is thinking of buying an apartment next year after being faced with a rent increase of about 20 percent early this month and having no choice but to accept it.
He lives in a 60-square-meter apartment on the 2nd West Ring Road in Xicheng district. The rent was 4,700 yuan ($688) when he moved in last year after finding the apartment through the Century 21 China real estate agency.
In August, the agency told Cao that the rent was to be raised to 5,600 yuan a month.
"Half, or even 60 percent, of my salary goes on rent, which I think is too much of a burden for me," he said.
"I don't think soaring rents can be stopped in the short term, so I'm considering buying an apartment next year. However, I cannot afford one in the area where I rent. I have to sacrifice the location and buy one much farther away, which means I will have a much longer commute to work every day."
Cao is not alone in this respect, with many tenants in the capital facing rent increases this summer.
Xie Zuopeng, 25, who works for a securities company in Xicheng district, moved twice last year as a result of such increases.
In April, he rented a two-bedroom apartment with a friend in Fengtai district through Ziroom, which is a long-term apartment rental agency owned by the Lianjia Group.
"The rent was 5,386 yuan a month in April and it was raised to around 6,100 yuan a month in June, but I don't want to move anymore," he said.
"It's too troublesome to move. I spend half an hour going to work by bus at present, which I think is enough for me. So, I decided to stay even though the rent is higher."
Both Cao and Xie rent their apartments from agencies instead of from individual landlords.
As the central government has acted to control housing prices in previous years, real estate agencies have shifted their focus from the selling to leasing business, which appears to be more profitable.
Agencies expand
In Chinese cities, agencies buy or rent apartments from individuals or landlords. They then restore the apartments in a similar style to build up a brand and to rent to tenants. The agencies profit from the difference in price and also charge management fees to both sides.
As these agencies, including Ziroom, YOU+ and MoFang Apartment, have gained billions of dollars in investment and grown rapidly in the past two years, they have expanded their market share by buying a large number of apartments. This helps them to monopolize the market and raise rents, China Real Estate Business, a newspaper focusing on the industry, reported last week.
Xia Lei, deputy head of the Evergrande Research Institution, co-established by the Evergrande Real Estate Group and Tsinghua University, said capital has played an important role during the latest round of rent increases.
"Under the pressure of competition, the agencies have kept raising capital to invest in renting apartments to gain pricing power," Xia said. "The investors urgently want to start making money ... which will inevitably lead to soaring rents.
"Housing prices are an economic issue, while rent is a social problem. Increased housing prices may affect economic stability, but rapid rent growth will affect people's living quality and willingness to consume, which will damage a city's competitiveness and attraction."
He said the government should intervene in the rental market and regulate the industry.
Zhang Dawei, chief analyst at Centaline Property Agency, said increased capital has entered the long-term rental market and transformed mid-and low-end apartments into high-end ones, resulting in rent increases.
"In January, Ziroom announced a 4 billion yuan financing plan, with a clear target of gaining more apartment contracts," he said.
On Aug 9 and 17, the Beijing Municipal Commission of Housing and Urban-Rural Development and other related authorities organized meetings with major real estate agencies including Lianjia, Century 21 China and Centaline Property as well as online platforms that publish rental information. It asked them to strictly examine information relating to the apartments and to stop operating if they did not have a business license.
The commission also ordered the agencies not to use bank loans to buy apartments.
"The agencies should not pay a price higher than the market level to landlords in order to gain more apartments for stock, which will drive up rents. Any realtor will be fined or closed if found to have used unreasonably high sums to gain apartment contracts," the commission said.
On Aug 19, a group of Beijing real estate agencies held a meeting with the heads of 10 major long-term apartment rental companies. The companies promised not to drive up rents, and to release more than 120,000 apartments from stock to the market for tenants.
Ziroom promised to provide 80,000 apartments from its stock to the market－the highest number.
