The 2007 real estate blue paper released by the China Academy of Social Sciences (CASS) states the price-to-rent ratios for second-hand houses in some of China’s big cities have gone over the international warning line.
Shan Jingjing, who is with the research center of urban development and environment protection of CASS, explained that the price-to-rent ratio, or the rent for one square meter of floor space divided by its sales price, is an indicator of real estate market movement — the lower the ratio, the better the housing market.
Shan Jingjing said that a rapid increase of house prices combined with a flat renting market can signal the onset of a bubble. The report shows that the price of secondhand houses in most large cities including Beijing, Shenzhen (illustrated here), Shanghai and Hangzhou soared in 2006 while the renting price were stable.
According to the report in the downtown areas of these cities, the ratio reached from 1:270 to 1:400
‘The international warning line is 1:200. Once the ratio goes over the line, the market is in danger of a bubble,’ said Shan Jingjing.
The researcher believes that driven by strong demand and high land and new house prices, China’s second-hand house price will continue to rise with a slower growth rate for rent which will push the ratio even higher.
Source: China Daily