In the current financial landscape, where both deposit and loan interest rates are declining, rental returns have emerged as an attractive alternative for investors. For instance, in Longgang District, Shenzhen, a business apartment priced at 660,000 yuan can fetch a monthly rent of over 2,500 yuan, translating to a rental return rate of over 4%. This rate is significantly more cost-effective than traditional savings, making real estate investment with stable cash flow an appealing option once again.
Financial Market Adjustments and Real Estate Investment
The recent adjustments in the financial market, with the LPR for terms over five years dropping to 3.5% and commercial bank deposit interest rates generally entering the “1 era,” have narrowed the returns of traditional wealth management products. In this context, real estate investment has regained market attention. Developers in areas like Longgang District, Shenzhen, have keenly captured this trend, highlighting the concept of “rent to support loans” in their marketing. Several apartment projects emphasize that a rental return rate of over 4% significantly surpasses the returns on fixed deposits.
Rental Returns vs. Savings and Loans
The comparison between deposit and loan interest rates and rental return rates has become a hot topic in the market. For example, in Shenzhen, the rental return rate of some business apartments has exceeded the commercial loan interest rate for first-time homebuyers. This means that in the current environment of interest rate cuts, rental income from some business apartments is sufficient to achieve the goal of “paying off loans through rent.” Additionally, the rental return rates of many residential communities in Shenzhen have surpassed the latest five-year deposit interest rates of major state-owned banks.
Market Trends and Investment Choices
The trend has led many business apartments, which were previously difficult to sell, to increase their promotional efforts. In Shenzhen, small-sized apartments with low total prices and good locations have attracted many investors seeking rental returns or diversifying their investments. According to He Qianru, Director of the National Research Center of Midland Realestate, the current rental return rate of ordinary residential properties in Shenzhen is higher than the one-year fixed deposit interest rate of major state-owned banks. Some shops and office buildings even offer higher rental returns. This makes purchasing a property for rent more “profitable” than depositing funds in a bank.
Hong Kong Property Market Transactions
Journalists have also observed an increase in transactions of low-priced properties in Hong Kong. Since Hong Kong adjusted the transaction taxes and fees for related properties, the transaction volume of properties under 4 million Hong Kong dollars has seen a significant rise. Many Shenzhen homebuyers are now considering properties in Hong Kong, attracted by their relatively high rental return rates. For example, a Shenzhen homebuyer planning to purchase a property in North Point, Hong Kong, cited the annual rental return rate of close to 4% as a key factor.
Rental Return Rates and Market Stability
Rental return rates are a key indicator for determining whether a property is worth investing in. Data from the China Index Academy shows that in April, the rental returns in Beijing, Shanghai, Guangzhou, and Shenzhen were 1.49%, 1.68%, 1.63%, and 1.49%, respectively. The rental return rate in some cities has exceeded the deposit and loan interest rates, signaling a potential stabilization of the real estate market in first-tier cities and core second-tier cities.
Considerations for Homebuyers
While rental returns offer an attractive alternative, homebuyers should also consider factors such as rent replacement and property vacancy periods. Li Yujia, Chief Researcher of the Guangdong Provincial Housing Policy Research Center, noted that the decline in medium and long-term deposit interest rates has narrowed the gap with rental returns, making some properties more attractive. However, the decline in rents is a continuous process, and rental returns can change. Additionally, the acceptance of high rents by some residents is declining.
Long-Term Effects and Market Optimization
Historically, interest rate cuts have often provided short-term transaction benefits to the real estate market but have had insufficient long-term effects on home purchases. For the positive effects of interest rate cuts to be sustained in the long term, factors such as the supply and demand relationship in the real estate market, housing price trends, and the policy environment need to be optimized simultaneously. The debate over rental return rates also highlights the issue of overcapacity in the industry. If the deposit interest rate, as a risk-free rate, has dropped significantly, it indicates that the overall social investment return rate is also declining, including in the real estate sector.
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