Xi's 'go rental' message could alter China housing dynamics

October 23, 2017 08:16
China's housing rental market remains underdeveloped, a situation that authorities are now trying to address.  Photo: China Daily

Chinese President Xi Jinping shed light on his housing policy with less than 50 words during his address on Oct. 18 at the opening session of the Communist Party's 19th congress.

"Houses are built to be inhabited, not for speculation," Xi said. "China will accelerate establishing a system with supply from multiple parties, affordability from different channels, and make rental housing as important as home purchasing."

China has one of the highest home ownership rates in the world, with the ratio coming close to 90 percent.

The high ownership ratio, among other things, reflects the fact that the nation's housing rental market remains underdeveloped.

Currently, over 90 percent of housing supply comes from private market or self-built rural houses. By contrast, in Hong Kong nearly half of homes are built by the government. Amid this situation, China needs to boost the role of government and semi-governmental organizations.

There is also a lack of accommodation alternatives such as government subsidized homes. Xi's policy suggests China will introduce more types of public housing, such as homes built on collective land, youth hostels, employee rental homes, etc.

Currently, only 11.6 percent of Chinese live in rental homes, far below that in US (36.3 percent) and Japan (35.5 percent). That means nearly 88.4 percent of Chinese live in properties purchased by themselves or their family.

Interestingly, in his wording, Xi put rental housing ahead of home purchasing. The wording order carries subtle implications as to how much the president cares about boosting the housing rental market.

There are several reasons why the rental market is underdeveloped in China.

Almost all urban residents in China used to live in government-subsidized homes until 1980s, when China started to open up the housing market for private sector.

Over the past three decades, most city dwellers could only accumulate enough wealth to afford one or two homes, so most people simply didn't have an extra flat to let.

Meanwhile, many of the nation's public welfare policies tip in favor of homeowners. For example, only homeowners in so-called elite school districts are entitled for enrolling their children in those schools. As a result, most Chinese would try their best to buy a home.

In addition, China has limited protection for landlords from rogue tenants. By contrast, Hong Kong has a relatively sound legal infrastructure, which consists of the Landlord and Tenant Ordinance, Small Claims Tribunal and bailiff.

Rogue tenants are a big headache for mainland Chinese landlords, who also worry that tenants may use the property for illegal purposes. Amid such fears, many landlords carry out detailed background check of tenants, as well as request up to six months of rent as deposit. That has pushed up the transaction costs considerably.

Yet all these issues can be gradually solved.

For instance, authorities have already introduced a pilot program in 12 major cities, where tenants of rental properties will enjoy the same access to public services as property owners.

New technology can also help deal with the trust issue between landlords and tenants.

For example, Ant Financial, the payment affiliate of Alibaba Group, has officially launched a home rental service last week, offering over one million listings on its platform.

For those tenants that get a high enough credit score based on Ant Financial’s rating system, they can rent an apartment deposit free.

Other leading players like Tencent, Vanke and Lianjia are all reportedly planning to launch similar services in the future.

This article appeared in the Hong Kong Economic Journal on Oct 20

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist