Along with motorycyles, the apartment rents in Shanghai can be thought of as a long-term depreciating asset because they are expensive to begin with, and continally creeping up. A useful website shows that the increase in rents is not uniform and it varies greatly depending on a whole host of factors, but yes, the average rents are going up indeed.
By the way, this is a good rental website in general and is very useful if you can read Chinese
One could wrongly conclude that the Shanghai rental situation is a win/lose situation. That is, a win for the filthy rich landlords and a loss for the tenants. While the landlords are certainly rich, they are actually making their money off the house selling price increases. The rent is a very small fraction of the house price, which means the landlords are not being compensated much in this way.
Taking into consideration this fact, and the law of opportunity costs (see last post), you could say that the rental situation is lose/lose.
For example: the landlords are not selling the house for the duration of the 1-year rental lease as they are forbidden to so. If they sell, they could make a ton of money, but they are instead collecting rent. As a very rough calculation, a year's worth of rent in the neighorhood I live might bring in 50,000 RMB, but the landlord could sell the house at 1.5 million RMB right now. Assuming that the house appreciates at 10% during the year, then he basically lost 100,000 RMB worth money for the year. I got this by roughly taking 10% of the house price and minusing off the meagre 50,000 RMB in rent that he chose to collect instead.
Of course, the landlord could sell later on, make heaps of money, and then re-rent it out, but the fact remains is that he lost a considerable money *for this year* that he wasn't selling it when he could have been selling. Since it is a well-establised fact that people make economic decisions at the magin, then the landlord lost in the margin (this year).
It's not much better for the tenant as 50,000 RMB is a lot of cash from a renter's point of view. The problem the tenant faces in Shanghai and elsewhere is being locked into these one-year rental leases. For that matter, shopping around for apartments becomes critical, yet landlords and agents discourage this greatly, and want to rush the the tenant into signing the lease asap.
The reason why the landlords want to rush a lease is that they think they are losing money if the house remains empty without collecting rent. However, that is somewhat of a bullshit argument because we established above that they are actually losing a LOT MORE money by choosing not to sell the house.
My guess is that the landlords conisider the house investment to be extremely long-term, given how expensive it is to enter this market in the first place and the complex nature of how money gets pooled together from relatives and their work unit to buy the house, etc. It's not like they can just sell at the drop of a hat, even if the market makes it profitable to do so. They may very well see the meagre rental income as what happens to them at the margin, and so the "can't leave the place empty" argument becomes more real to them.
Having crunched the numbers in detail on my own rent payments and compensation from my school, it looks like I will actually break dead-even by February and then will turn a consideable profit by the end of May when my current lease ends. With that profit, I am going to splurge on a much nicer apartment in the same general neighorhood which kicks butt, and sign a new lease in May next year. The only catch is I need to stay the course of my current lease.
This isn't terribly easy as a number of things have gone wrong at my current place incuding: busted plumbing, busted electricity, and lazy repair people who don't come as promised when I call them and have pre-arranged the times. As typical in China you have to be pushy and rude to get things done and I haven't. In addtion, there are rampant construction and renovation projects going on upstaris, in a new building that can't be more than 5 years old. There is the ongoing problem of trains running outside, which has ben solved with earlplugs and a computer-generated white noise program ... see posts a long way back for details on that. Finding a quiet place to live this city is like finding a needle in a haystack but I'm holding out that it CAN be done!
Meanwhile it's not the end of the world and these problems can be dealt with ... but it's sure tempting in situations lke this to cut the lease and run to another place. Economically though that'd be a loss (you don't get your 2 months deposit back if you cut the lease)
They are really strict about these leases and they don't have flexible leases where you can check out a place for 3 months to see if you like it, etc. etc. Unfortunately not, you have to sign for a year for most cases, pay 2 months deposit, then pay 2 or 3 months rent up front. It's not just Shanghai ... I had to negotiate my friends out of jams in Wuhan last year as they didn't know how the system works.
On the other hand, it's not really fair to complain about the lease situation because the landlords count on a reliable source of rental income if they forego selling the house ... and that's what the majority choose. Meanwhile, it is not difficult to enter into a lease, in fact the registration process is actually easier for foreigers than staying in a Chinese hotel for example!! Given a guaranteed place to sleep, and for privacy, and for minimal police hassles, all of which are EXTREMELY VALUABLE in China, then the tradeoff of dealing with strict lease timelines and other annoyanes can be accepted.
Meanwhile, not wanting to repeat past mistakes over and over again I'm now going to the other extreme and will start looking at potential new places to live 6 months in advance and scout out dozens and dozens of options to assess a whole host of variables. An agent once told me there is no such thing as a pefect apartment, before he screwed me over with a shitty lease. My friends tell me the contrary, that there is a perfect apartment.
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