Ever wondered why rents in Shanghai suddenly sky rocket out of the blue? Been forced to move apartment after a change in landlord? Or thinking about buying property? Read on!
Most folk just say “agent”, and don’t really distinguish the difference between “purchasing agents” and “rental agents” – whilst both of whom can be found on the real estate market scene, they handle their business in separate parts of it.
In a Nutshell
Those who prefer rentals are not necessarily good at selling properties (I’m talking those Jane’s and Andy’s instead of the more traditional Zhang san or Li si), proudly spitting out their rough English and haunting the local coffee shops and bars.
Those who prefer to sell properties aren’t as willing to deal with the small amounts involved in rentals (think more traditional shop fronts like Centaline or Lianjia). With a large jumble of China’s many variations of Mandarin, we can often spot them suited up and garrisoned at some of the gates of Shanghai’s nicer complexes. You know the type
Today we’re going to vent about those…
…damn purchase agents.
A 3-floor flat in a lane house on Yanqing road with a little garden; originally the rental price has always floated around the 35,000 mark. Two years ago we raised the price to 37,000, with the landlord so delighted he quickly signed and the new tenant contently moved in. Both parties happy, everybody wins – this is the kind of smooth deal we like to see.
6 Months ago, the old landlord decided to sell this Yanqing road property for the fair (and market) price of 18 million. What happened afterwards was something we certainly didn’t see coming…
With the new landlord ready to rent his new property, we quickly got in touch with him, expressing our willingness to continue finding new tenants for the house. This is how that conversation went down:
HC: “So, what’s the rental price this time?”
New Landlord: “60,000”
HC: “What?? 60,000? But last time we rented it out for under 40,000!”
New Landlord: “Right, the agent who helped me buy the property said the rental price of street-facing properties are between 80-90,000. Mine isn’t street-facing so it’s a tad cheaper”
HC: “So you’ve completely renovated the house? Completely re-done the kitchen and bathroom?”
New Landlord: “Huh? Na, we’ll probably just give it a splash of new paint”
And so we have another sucker taken in by a convincing purchase agent. We know Shanghai is full of people with plenty of money and no sense – but surely everyone knows you should compare before you buy?
Today’s market could see a lane house like this rent for 40,000 – 50,000. However, even though he has a great location, the stairs are pretty steep and the bathroom and kitchen haven’t had a touch-up in over 10 years! Asking for 60,000 is a challenge to say the least… We still wanted to get the landlord’s price range in the right track
HC: “This is a tough price to find a tenant at, could you go cheaper?”
New Landlord: “First see how it goes, I’m not in a rush. I’ll be China whilst I deal with this house stuff, next month I’m heading back”
HC: “You don’t stay in Shanghai?”
New Landlord: “No, we live in Vancouver”
Six months later and the house is still empty. There are realistic ranges for rental amounts. Let’s work this out bank-style. Right now a fixed term deposit has an interest of 1.75%. You stick 18 million in the bank, you’re going to get 315,000, with a monthly average of 26,000RMB a month. As a company involved in the real estate market for many years, we can confidently (and responsibly) tell you that unless you purchased a property in Shanghai before 2008, if your intention is to use the rent to pay the mortgage or offset yearly inflation, then this is a bad decision.
“Sometimes a year’s rent is only a tiny bit more than a whole fixed year deposit”
– wise man
A duplex penthouse in a prime part of the Former French Concession with a huge terrace, a property which we have rented out countless times and has never spent much time empty. Every tenant has enjoyed their time there and each one has kept it in great condition. The rent has held steady at about 40,000.
This year, the identically laid-out duplex next door was sold at around 20 million. The new owner immediately shot the rental price up to 55,000. Why did the price suddenly increase by 30-40%? Who told the landlord this would be feasible? Is it the mystical purchase agent again? Maybe this angel of real estate can find you a tenant willing to pay 55,000!
If the new landlord wants to rent his duplex for 55k, so be it. Nothing can convey the message of inflated rental prices like the harsh reality of an empty property. But after getting word of this new price, next door’s landlord decided the following:
Next Door Landlord: “It’s no longer 40,000. Next-door is renting it out for 55,000! I wanna get more too, at least 50,000.”
A lot of landlords can be suddenly swayed like this – “Next door raised their rent, I gotta’ get a piece of the action!” Watch out for those ‘number fudgers’!
What are ‘number fudgers’? They are these shady agents who can’t sell properties without fudging numbers, cooking up unrealistic rental amounts to give you high hopes of a high return on your investment. After the new landlord has let their property lie empty for months on end, they end up renting it out for the realistic market value anyway.