Lease is the word
Rents are holding firm thanks to rising expatriate numbers, but concerns are also growing about whether expectations are realistic
Despite the economic boom and rising prices for new homes, Beijing?s rental market is not yet taking off. This is good news for those looking to rent but less good for those wanting to invest.
The market is steady, and demand looks much stronger at the very top among a few elite serviced apartments, but overall, the medium-term outlook is clouded by a surge in building.
'Some people overestimated the number of incoming expatriates. If you look at rental trends you will see they are steady now but in the next few years we will have a lot of supply coming on,' says Dick Kwan, managing director for China of ING Real Estate.
No two developments are exactly alike, of course, and clear differentiation does appear to be holding up between the better-developed homes run by internationally respected companies and those put up in haste by less experienced developers.
Leasing a villa in Maple Place, part of Beijing Riviera out in the suburban Shunyi district, costs around US$20-26 per square metre, with the most expensive running at around US$12,000 rental for a 400 sq m villa. The smallest is 240 sq m at around US$5,000 per month.
'Most of the people renting here are from multinational corporations where the firm is paying the rent,' says resident manager Rita Seck. 'We are in the 90s when it comes to percentage occupancy; there is a waiting list for certain kinds of houses.'
Indeed, it seems hard to convince anyone coming in right now of the cautious medium-term outlook. In the past quarter, rents have firmed along with lower vacancy rates, according to Angela Shew, residential department director of DTZ Beijing.
'Very few new projects were launched in Beijing in the last quarter. As a result, average residential rents rose 1.1 per cent from the previous quarter. In turn, the vacancy rate fell 2.2 percentage points, to 18.4 per cent,? she says.
'Given China's booming economy, multinational companies are sending more senior managers to China. That has increased demand for high-end, serviced apartments,' Ms Shew says.
The average rent for high-end, serviced apartments in Beijing rose in the past quarter from a monthly US$26.60 per sq m to US$27.30 per sq m.
Tom Cheung, general manager of the Tower Apartments at the gigantic Oriental Plaza, sees strong demand. 'The market is oval-shaped,' he says. 'At the top, there is little supply, in the middle there is plenty, and at the bottom, there is less. Where we stand, rents have been steadily rising, and we expect them to rise further in the next few years.'
A big reason beside WTO for this, Mr Cheung explains, is obviously the Olympics. But another is the Closer Economic Partnership Arrangement (Cepa) with Hong Kong.
'Hong Kong-based companies have an advantage coming into Beijing. We are on the frontline, and we can see this demand, as companies are flying in people to explore business opportunities.'
The Tower Apartments, which belong to the largest integrated shopping-hotel-office-residential complex in Asia, have been putting batches of their final of four blocks onto the market since August this year. The latest 80 units of Centennial Heights have just been released. Rents range from US$1,200 to US$10,000 on apartments from 25 sq m to 300 sq m in size.
The number of residential leases is on the rise, with the number of landlords willing to accept shorter leases averaging 77.5 per cent, up 1.7 per cent on the first quarter of the year.
On the supply side, 50,688 units of high-end apartments have come on the market, which has put rents under downward pressure since early 2003.
Current average rent for a high-end apartment is US$14.50 per square metre per month, not including management fees, which is a drop of two percent on the first quarter of the year.
High-end villas in Beijing lease for US$17.51 per square metre per month net of management fees, which is a 0.8 per cent drop on Q1 2004.
Over the next three years 139,817 high-end apartments will come on to the market, which will generate more competition in the sector and put rents under downward pressure for some time to come.
Serviced apartment rents have stabilised at US$20.08 per square metre per month, not including management fees, which is a 1.1 per cent drop year-on-year.
Source: FPD Savills Beijing