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"If I can't sell this house next month, I will probably sell it and rent it out. Collecting rent may be more suitable than putting it in the bank for financial management." Ms. Zhang, a resident of Chaoyang District, Beijing, has a large three-bedroom apartment for sale. After reading the "China Monetary Policy Implementation Report for the Second Quarter of 2024" recently released by the central bank, she came up with this idea. A column article in the report proposed: In the long run, rents are still expected to rise steadily; the total yield of rental housing is expected to increase to more than 3% based on the static rent-to-sale ratio, which will be higher than the return rate of most assets.

Should I become a landlord and collect rent, or take the money to a bank for financial management? People who own a house or have some spare money may have to think seriously about this question.

The rental-to-sale ratio in first-tier cities is close to 2%

The central bank article proposed that rent is the core variable affecting housing value. Assets are valuable because they will bring future cash flow income. In theory, the value of housing is mainly affected by the future rent discount. The residential attributes of the house and the overall stable rent discount determine the base price and foundation of the property. It will also be affected by the expectation of future house price rise and fall.

The central bank also mentioned that housing price expectations have changed significantly in recent years, and market interest rates and discount rates have also tended to decline. The "rental-to-sale ratio", which is the ratio between rent and selling price, is a simplified indicator for measuring housing value. It has generally rebounded in recent years. Market institutions have calculated that the current rent-to-sale ratio in first-tier cities is close to 2%, and in second- and third-tier cities it has risen to around 3%.

Beijing Youth Daily reporter learned from market observers that the two data mentioned in the central bank's article are basically in line with market reality. However, various factors such as the location of the house, the quality of decoration, and market demand will affect the rental level, and the rental-to-sale ratio of different houses varies greatly.

Bank deposit rates rarely exceed 2.5%

While the rental-to-sale ratio has increased, the deposit interest rates of domestic banks have continued to decline visibly. Since the establishment of the deposit interest rate market-oriented adjustment mechanism in April 2022, five rounds of deposit interest rate cuts have been carried out, led by large banks. After the latest round of deposit interest rate cuts in July, the highest deposit interest rate of state-owned banks and joint-stock banks does not exceed 1.85%, and the actual interest rate implemented by banks is basically below 2.5%.

Like deposit rates, the yield of bank wealth management products has also been declining in recent years. The weekly report on the bank wealth management market (August 5, 2024 - August 11, 2024) released by Puyi Standard shows that the average annualized return on matured open-ended fixed-income wealth management products of wealth management companies was 2.96%, down 0.14 percentage points from the previous month.

Industry insiders generally believe that there is still room for further reduction in deposit rates. Wang Qing, chief macro analyst at Orient Securities, said that it is expected that the policy interest rate (7-day reverse repurchase rate) in the fourth quarter will still have room for reduction, which will then drive the LPR quotes of the two term varieties to follow up and adjust.

Rents are expected to rise steadily in the long run

As the numerator of the rent-to-sale ratio, when the house price is constant, the higher the rent, the higher the rent-to-sale ratio. The Beijing Youth Daily reporter noted that the central bank clearly stated in the article that the rent-to-sale ratio indicators for first-tier cities and second- and third-tier cities currently calculated by market institutions are static, assuming that future rents will remain unchanged. In fact, for long-term housing assets, the growth rate of rents is also very important, which will increase the return on rental housing. In the long run, rents are still expected to rise steadily.

The article states, "If we assume that such a rental growth rate can be maintained in the long term in the future, compared with the given purchase cost, the total yield of rental housing is expected to increase to more than 3% based on the static rental-to-sale ratio, which will be higher than the return rate of most assets."

The central bank said that under the new situation of profound changes in the supply and demand relationship of the real estate market, the scale of my country's stock of housing is already very large, and the housing rental industry is an important direction for the new development model of real estate in the future. From the demand side, in recent years, not only low-income groups, but also new citizens or young people who have just graduated and joined the workforce have also increased their demand for "good houses" for rental; from the supply side, more and more housing rental companies have entered the market, and large-scale and intensive operations will help provide better quality and stable rental housing services.

analyze

Consumers should downplay the investment attribute of houses

Zhang Dawei, chief analyst of Centaline Property, believes that cash should still be king at this stage, because the real estate market has not yet fully stabilized and is still in the process of adjustment. Everyone can pay more attention to changes in market prices and rents. The rent-to-sale ratio is not only related to rents, but also to house prices. Rents mainly correspond to the current market income level, especially the income of young people; house prices represent investment expectations. Overall, changes in rents and house prices are related to changes in population and income levels in the market. Generally, when rents rise, house prices will also rise; when house prices fall, rents will also fall, but the magnitude of the changes in the two may be different, and there will also be regional differences. Therefore, how the rent-to-sale ratio of a city or a community will change requires specific analysis of specific circumstances.

Zhang Dawei believes that as the market adjusts, if the rental-to-sale ratio exceeds the three-year fixed deposit rate, fewer people will sell their homes, and more people will be willing to buy homes for rent. He also suggested that people should view homes more as consumer goods and downplay their investment attributes.

Some people in the financial field also reminded that the central bank's article is mainly aimed at housing rental companies. When calculating the rental-to-sale ratio, individuals who buy houses for rent are different from companies. There are many detailed factors that need to be considered, such as the rental loss caused by the vacancy period, the communication costs with tenants, and various repair and aftermath matters after renting. From a practical point of view, collecting rent is very different from financial investments such as deposits and financial management. Investors need to consider carefully and cannot make decisions based on numbers alone. This group of articles/Reporter Cheng Jie