The investment formula is changing in China's real estate market. Unlike in the past when people bought dwellings expecting home prices to rise, investors now are focusing on older apartments in city centers that can generate stable rental revenue. With the prolonged real estate slump making it hard to expect capital gains and with a low interest rate environment, analysts say demand is increasing to secure steady monthly rent income rather than waiting for home prices to climb.
On the 15th, according to Chinese business outlet 21st Century Business Herald, major cities such as Beijing, Shanghai, Guangzhou and Shenzhen have recently seen a rise in transactions of "lao po xiao" (old, small apartments in the urban core) priced under 3 million yuan (about 671.4 million won). As of May, used dwelling transactions in 20 major cities increased 19.3% from a year earlier, and in Shanghai in particular they were up 30.9%.
In the past, older apartments were seen as dwellings with diminished investment value due to aging, but lately they are being reappraised as an asset that can deliver stable rental revenue. This is because, after a prolonged property slump, it has become difficult to expect capital gains from rising home prices. China's dwelling prices have been weak for years since the 2021 real estate liquidity crisis, and even recently, except for a few major cities, there have been no clear signs of a rebound.
Against this backdrop, as the low interest rate stance continues, investors' interest is shifting to rental revenue from dwellings. After the COVID-19 pandemic and the onset of the property crisis, China has been cutting rates steadily since around 2022 to stimulate the economy. According to the report, the 5-year bank time-deposit rate and the 10-year Government Bonds yield fell to about 1.3% and 1.8%, respectively. By contrast, the rental yield on older apartments in major cities averages 2.67%, and some areas such as Chengdu and Wuhan top 3%.
With capital gains from rising home prices hard to expect and bank deposit rates falling, analysts say older apartments that can secure stable cash flow are emerging as a new investment alternative among investors seeking a place to park large sums.
A large-scale urban regeneration program pushed by the government is also boosting expectations for older apartments. According to state-run China Central Television (CCTV), at least 15 trillion yuan (about 3,357 trillion won) will be invested in urban regeneration during the 15th Five-Year Plan period (2026–2030). The plan is to renovate a total of 115,000 aging residential complexes and refurbish 500,000 old dwellings. The market expects this initiative to help energize transactions of older apartments.
Interest in owner-occupancy is also high. Most older apartments in the urban core are located in areas with established living infrastructure such as subways, commercial districts, hospitals and school districts, offering greater convenience than newly built apartments in outlying new towns. 21st Century Business Herald said, "The bubble in small older apartments in major cities has burst, and current prices have returned to 2015–2016 levels. The mortgage loan rate is also at an all-time low," adding, "As a result, the barriers for young people and newlyweds to settle in big cities are likely to drop significantly."