China's government tells us it's economy will recover quickly from the global trade slump. Maybe it will, but sadly it's property market will not. Prices are down across China's 70 biggest cities and recovery is some way off the Global Property Guide says. It points to the low rental yields in its major cities as an indicator of market ill-health.
A rental yield is rather like a P/E ratio for shares. It is the value of the property divided by its annual rental earnings. The Guide says a housing market is fairly valued if rental yields are around 6 – 7 per cent.
In China's biggest cities – Beijing, Shanghai, Guangzhou, Shenzhen and Chengdu - yields are only 4.4 per cent, pushed down by falling prices. When yields are low, people prefer renting to buying and are less likely to invest in property the Guide's researchers reveal. “Conclusion – no turnaround in China's residential prices soon” it says.
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