In a rapidly evolving real estate landscape, individuals are finding ways to navigate the complexities of homeownership and rental markets in major cities like ShenzhenOne such individual is Chen Hao, a recent homeowner in the Shajing area of Shenzhen, who opted to rent out his newly acquired property despite being in a prime locationHis decision stems from a desire to maximize returns in a fluctuating market where rental income presents a more appealing gain than current bank interest rates.

Following the completion of the year 2024, shifts in government policies and a softening in home prices have led to a noticeable decrease in the barriers to homebuying across the countryAs larger units become more sought after, properties labeled as “old and shabby,” along with smaller, more affordable housing options, continue to attract attention from both investors and first-time buyers

These budget-friendly units are celebrated not just for their price but also for the potential they hold in terms of high rental yields.

Indeed, Chen’s reasoning is backed by data that supports the trend of rising rental returns surpassing conventional savings ratesFor example, many new apartment complexes in urban regions like Futian are advertising rental yields of up to 5%. Upon visiting one such business-oriented project in the Bagua Ling area, it was revealed that initial offerings of these smaller apartments have completely sold outEach unit, typically measuring between 40 and 50 square meters, holds a starting price of approximately 1.7 million yuanTo entice more investors looking for stability, these properties also offer a 'buy-back' scheme, signifying a well-structured rental management initiative.

As an indicator of a healthy rental market, the rental yield is essential in determining the attractiveness of a real estate investment

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According to the Shenzhen Beike Research Institute, the annual rental yield in Shenzhen escalated from 1.5% in 2013 to 1.6% in 2024. Furthermore, smaller apartments in core districts are now witnessing rental returns exceeding 2.4%, thus making them an enticing option compared to current bank savings account ratesObservations reflect a significant transformation: while home prices dipped significantly—12% year-over-year for existing homes and 10% for new builds—rental prices have remained relatively stable with a modest increase of 3%. This contradiction in price movements has catalyzed interest from buyers seeking sustainable investment.

However, the question looms: how long could this upward trend in rental returns continue? The answer might lie in market dynamics where the average rental rate across 50 major cities in China stands at 35.4 yuan per square meter, which has seen a decrease of 3.25% from the previous year

Despite this overall decline in rent, the yield on rental investments has improved, driven by a disparity between property depreciation and steady rental pricesCurrently, the average ratio of rent to home prices in these cities has reached 2.12%, which is notably higher than the five-year fixed-term deposit interest rates.

Nonetheless, one cannot ignore the caution highlighted by leading research analysts in the sectorHe Qianru, the director at the National Research Center of Property Services, suggests that while the appeal of smaller, lower-cost apartments may be high due to their lucrative rental returns, they are not necessarily essential for the average familySuch properties are often seen as speculative instruments, primarily circulating among investors rather than fulfilling the housing needs of operational households.

The general sentiment among seasoned real estate agents underscores a critical observation regarding rental yields: the revival in yields is chiefly attributed to the significant drop in property values, while rent levels have decreased at a slower pace

This juxtaposition indicates that the recovery of rental prices may take considerable time, influenced by various external economic factorsFindings from tenant surveys reveal that a major reason for tenants switching residences is primarily the availability of cheaper rental options due to overall market price drops, which complicates the retention of current tenantsThis trend has created a scenario where tenants enjoy greater selection and negotiation leverage, further adding to the challenges of sustaining rental occupancy.

Realistically, while emerging trends signal an upswing in rental returns, the overall rental landscape is still marked by modest declines in major urban marketsHe Qianru emphasizes that the stabilization of rental pricing is closely tied to broader economic conditionsIn a first-tier city like Shenzhen, the prevailing economic climate is projected to remain in a preliminary recovery phase through 2025. The lack of substantial growth in migrant populations and the gradual influx of new residential properties and affordable housing schemes are prompting tenants to relocate to more budget-friendly regions, thus leading to persistent downward pressure on overall rental rates.

This multifaceted scenario illustrates the complex balance between rental yields, property ownership, and tenant satisfaction within the real estate market of Shenzhen and beyond