China Housing Slump Deepens as Rents Hit 4-Year Low Amidst Oversupply

China's housing market continues to struggle, with average rents across 100 major cities plummeting to a four-year low in November, as reported by Nikkei Asia. This trend, driven by oversupply and a weak job market, threatens to further exacerbate the country's prolonged property slump.

Research firm Wind's data reveals that average rents in November reached 2,636 yuan ($361) per 100 square meters, marking the lowest point since the same month in 2020. This downward pressure is particularly evident in Qidong, Jiangsu province, where a furnished 51-square-meter apartment, built by the troubled China Evergrande Group, rents for a mere 600 yuan a month. This is significantly cheaper than a single night's stay at a hotel within the same complex.

The unit, originally priced at 400,000 yuan when new, is now available for just 200,000 yuan, according to a real estate agency representative. However, even with this drastic price reduction, it would take nearly 30 years of rent payments to recoup the initial investment.

Oversupply is a major contributor to the nationwide rental decline. Evergrande's housing projects in Qidong alone reportedly encompass over 40,000 units, many purchased as investments in anticipation of a market rebound. Owners are now resorting to low-rate rentals in a desperate attempt to salvage some of their investment.

Beyond Qidong, major cities like Shanghai and Beijing are also experiencing rent reductions as economic growth slows and youth unemployment rises, putting downward pressure on incomes. Shanghai rents have fallen 12% from their June peak, while Beijing has seen a 14% drop since December 2022.

The widening gap between rental yields and mortgage interest rates further compounds the problem. Rental yields in Shanghai dipped from 1.81% in September to 1.77% in November, while nationwide mortgage rates averaged 3.31% in September, according to the People's Bank of China. This disparity makes it increasingly difficult for homeowners to recoup their investments.

Following the recent annual Central Economic Work Conference, a senior official from the Central Financial and Economic Affairs Commission stated that the government would implement policy measures "as soon as possible" to stabilize the real estate market. However, the effectiveness of these measures remains uncertain. Despite a 300 billion yuan ($41 billion) program launched in May to support unsold housing purchases, only 16.2 billion yuan has been utilized so far.

The sheer scale of China's housing inventory presents a significant challenge. Purchasing the entire inventory, including existing listings and future units, would require an estimated 14.9 trillion yuan, equivalent to roughly 12% of China's 2023 nominal GDP, according to Ping An Securities.

The government's ability to stabilize the market through direct purchases seems unrealistic given the astronomical costs involved. Instead, experts suggest that fostering demand by addressing youth economic insecurity and implementing more aggressive mortgage rate cuts is crucial to resolving the ongoing real estate crisis.