Haiku for the week

All ruthless, greedy;

Everyone's a landlord now!

Perhaps Mao was right...

My pal The Weeble made the same observation to me a year or so ago when he was suffering similar apartment-hunting tribulations. Mao felt that the 'landlord mentality' was in the blood, and that anyone who came from a family which had owned property - even a few generations back - should be exterminated. It was a harsh position. But the more dealings one has with contemporary Chinese landlords, the more one starts to appreciate how wise and just Mao's policy may have been.

Prices for new property have levelled off, even begun to drop a bit in most places. It seems certain we are on the brink of a major downward 'readjustment', and panicky developers and speculative investors are dumping more and more rental property on to already over-supplied urban markets. I've heard vacancy rates being quoted as high as 28% for apartments in Beijing - and I suspect that's seriously under-reported.

So, you'd think that rental prices ought to be crashing, but... it seems to be quite the reverse.

I'm sure they will crash soon, but at the moment desperate landlords seem to be indulging in a final orgy of rapacious greed - trying to bump up prices by 15, 20 or even 25% (or, in my landlord's case, 35%!). This is a difficult time to be looking for a move.

I think one of the problems is that - as I observed in the frivolous little pome above - everyone is a landlord now. The banks here are crap, interests rates are paltry (far, far behind the currently galloping inflation rate), the stock market is too volatile for most people, and overseas investment options are not available to many, so.... buying property and/or renting out property has been the only way most people here can put their money to work for them. Many of them were able to get their start on the property ladder at a massive discount. I think my present landlord rents my place rather than owns it outright, but he got it through his danwei - 'work unit' - and so pays only a very nominal amount for it. Others were able to get huge low-interest loans when the government was first pushing the shift to private ownership a decade or so ago - and, in many cases, haven't been put under that much pressure to pay them all back (China doesn't like to acknowledge the concept of non-performing loans; but it has an awful lot of under-performing loans).

So, a lot of these first-time home owners were able to trade up almost immediately, moving into much larger new apartments, and more than covering their rent or their mortgage repayments by letting out their older city centre apartments that had cost them little or nothing. Many people, seeing opportunities for quick returns from investing in property, moved back into renting themselves rather than living in the apartments they had bought.  But now, landlords have started asking huge rent increases on these swank new apartments; and their Chinese tenants are used to thinking that they should be making an overall profit from their older, smaller homes, and so begin to demand increases that are even higher. There's an unfortunate domino effect that creates a distorted market, quite divorced from the realities of supply and demand - a cycle of greed.

Also, nominal vacancy rates really mean nothing here, because so many people have bought property purely as an investment. Many owners are only interested in selling on to take a profit after a few years, and view tenants as a potential impediment to that - more hassle than they are worth.  They are quite happy to let properties lie empty for years.

Prices have been rising so quickly over the past few years that property had indeed seemed like a very sound investment: people who bought in the first half of the Noughties and sold on after 5 or 6 years made a killing. But I think those days are over now. Yet the Chinese have developed this stubborn expectation that buying property will enable them to get rich quick, that they will double, treble, or quadruple their money within a few years. This deranged fantasy is about to implode, with potentially very messy consequences for 'social harmony'.

I think this is not a time to be signing a long lease.