(Yicai) Aug. 6 -- Rental yields, which is the income generated by a rental property relative to the property’s value, are rising above bank deposit interest rates in China and this might encourage investors to purchase properties in order to get a stable return and at the same time bolster the country’s housing prices, an economist said.

Deposit yields in China have sunk below 2 percent and are now in the ‘1 percent era.’ Six state-owned banks trimmed their deposit rates on July 25 to 1.75 percent for three-year fixed deposits and 1.8 percent for five-year fixed deposits.

Both rental and housing prices have been sliding in 50 key Chinese cities in the past few years, according to the Zhuge Real Estate Data Research Center. And the drop in property prices has been much greater than that in rental prices. As a result, the average annual rental yield in these major cities climbed to 2.03 percent in the first half, a new high since 2019.

"Overall, rental yields outperforming deposit interest rates should have a positive impact on the real estate market,“ Bo Wenxi, chief economist for IPG China, told Yicai.

Rental yields are not only outperforming deposit rates, but also the yields on one-year treasury bonds and the average returns in the fund market, the research center said.

But the cities’ rental yields are still far below the level considered to be worthy of investment. In general, across the globe, only properties with a rental yield above 5 percent are considered to generate a good return through renting out. Cities with rental yields below 3 percent have high property prices making it hard to recoup costs through leasing.

In addition, China’s rent-to-price ratio, which is the ratio of home prices to annual rent and is used as an indicator of whether the housing market is fairly valued, is still high compared with other parts of the world at 1:590, according to the research center’s poll of the 50 cities. International standards suggest that a healthy real estate market should have a rent-to-price ratio ranging from 1:200 to 1:300.

Property in major cities is generally expensive, which suppresses rental yields, the center said. The rental yield in China’s four first-tier cities, namely Beijing, Shanghai, Shenzhen and Guangzhou, was 1.79 percent in the first half, while that in small and medium-sized municipalities was 2.46 percent.

Of the cities polled, the city with the lowest rental yield was Xiamen in southeastern Fujian province at just 1.32 percent.

“Investors should take into account various factors, including market risks, personal investment goals, and risk tolerance, before making an investment. Whether the property truly holds investment value requires in-depth analysis of the specific situation," Bo said.

Editor: Kim Taylor