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Accommodation in Asia: how did rent levels change in 2018?

ECA’s most recent accommodation survey granted us insight into the movements of rental markets across a number of regions over 2018. In this article we focus on Asian cities, exploring where the fastest rent increases are occurring in China, and why. We also look beyond the price of oil to examine additional factors that have impacted rents in the Gulf states.

China’s coastal megaregions

ECA’s most recent survey shows a varied direction for rental costs in China. Rents in Guangzhou and Shenzhen, which make up the two largest cities of the Pearl River Delta (PRD), increased at an annual rate of 9% and 10% respectively. Sometimes grouped with the neighbouring special administrative regions of Hong Kong and Macau, the PRD is identified as one of China’s three coastal megaregions - along with the Yangtze River Delta, based around Shanghai, and the Jingjinji Metro Region, centred on Beijing.

Rents in the PRD increased at a notably faster pace than in cities in the Yangtze River Delta and Jingjinji Metro Region over 2018. This difference was largely a repeat of 2017, which also saw Shenzhen and Guangzhou outpace other coastal cities. Much of this recent rental growth can be explained by the PRD’s continued economic development, especially in the technology sector.

Shenzhen, located in the south-east of the PRD, is often identified as one of China’s most innovative cities, owing to its successful transition from an economy based on traditional manufacturing to a leading global technology hub. Since 2013, the city has annually invested over 4% of its GDP into research and development, and currently serves as the headquarters of many of China’s biggest technology firms. In late 2018, the economic output of Shenzhen surpassed that of its neighbour, Hong Kong, for the first time.

Guangzhou’s technology industries have shown similar progress over the last few years. The city has seen high levels of growth in a variety of fields including artificial intelligence and biomedicine, and the number of registered tech firms in the city has grown from fewer than 2 000 in 2015 to over 10 000 by the end of last year. This rapid development has led to the megaregion being dubbed the Silicon Delta and has contributed significantly to the increase in rental costs for both cities.

2018 also saw a number of major developments for transport in the region, facilitating greater integration between the cities of the PRD. The Guangshengang XRL, a high-speed railway line linking Guangzhou and Shenzhen with Hong Kong, was launched, as was the Hong Kong-Zhuhai-Macau Bridge, which connects Hong Kong and Macau to the mainland (Macau also saw substantial rent increases over 2018, at a rate of 9%). Though significant economic and administrative differences still exist, many now look to Shenzhen and Guangzhou as affordable alternatives to the much higher rental costs in Hong Kong.

While China’s other coastal megaregions also saw rents increase, the extent was notably more subdued. The Yangtze River Delta saw rental rates slow to a modest increase overall. Costs in Shanghai grew at a rate of 4%, as supply of rental accommodation decreased while demand remained stable. Rents grew more modestly in Suzhou and Nanjing, while prices flatlined in Hangzhou despite a projected escalation of costs following the G20 summit, which was held in the city in 2016. In the Jingjinji Metro Region rents were effectively stable, with Beijing and Tianjin seeing rents increase by less than 1% annually.

Elsewhere in Asia-Pacific

In Japan, the Tokyo rental market proved much more active than other cities in the country, recording an annual increase of 7%. Other Japanese cities saw annual rent increases of below 1% except for Yokohama, where they grew by 3%, and Osaka, which saw rents fall by 2%. Much of Tokyo’s growing rental costs have been tied to increased foreign investment in the build-up to the 2020 summer Olympic Games, which is expected to gather pace over the next year. Demand has remained high throughout the city, prompting little room for negotiation by prospective tenants.

Singapore, which has seen rents continually fall in recent years in part due to restrictions on employing foreign nationals, saw another decline in overall costs. However, the most recent fall in rents, of around 1%, has been the smallest for five years. The slowdown in rent deflation was in part due to both a strong economy and a general decline in the supply of rental properties, indicating that rents may stabilise or increase over the course of 2019.

Rents increased in Hong Kong during 2018. A positive business outlook continued to support demand for residential properties amid tight supply, pushing up rents by nearly 5% overall on an annual basis. Costs showed a slightly stronger increase at the lower end of the market, with renters increasingly looking to outer-lying districts for affordable accommodation.

Rents still falling in the Gulf states

Rents throughout the Gulf states have been in decline over the last year, with ECA’s September survey recording falls in Saudi Arabia, Oman, Qatar, Bahrain and Kuwait. The major cities in this region have all been heavily affected by the volatility of global oil prices seen in recent years. While the price of oil continues to be the prevailing explanation for the drop-in rents, other factors have also had an impact.

 

The governments of Oman, Kuwait and Saudi Arabia have all taken measures to reduce what they see as an overreliance on expatriate workers and improve the employment prospects of nationals in key industries. These measures look to have contributed to an overall decline in demand for expatriate level accommodation, thereby hastening a fall in rents.

In January 2018, Oman’s Ministry of Manpower placed a temporary ban on the issuance of work permits to expatriates in key industries including media, information technology, finance and medicine. This was initially in place for six months and led to a fall in expatriate numbers, as well as a drop in rental costs in Muscat of 8% over the year. The policy was extended, however, and is still in place as of early 2019.

The government of Kuwait, whose expatriate population currently stands at an estimated 3.2 million (around 70% of the total), has a long-term goal of reducing the number of expatriates in the country, with a new target of cutting them by 1.5 million over the next seven years announced in 2018. The plan targets replacement of foreign nationals by Kuwaitis in the state sector at a rate of 10% per year and 5% in the private sector. A number of new policies have been introduced, including a reduction in the age limit for expatriate work permit renewals. Rents in Kuwait City recorded a drop of 2% in 2018.

Saudi Arabia’s expatriate dependant levy, launched in 2017, introduced a flat monthly charge per dependant of expatriates working in the country, which was set to increase yearly up to 2020. The government also announced an increase in visa fees for expatriates entering the country. More recently, amid pushback from the private sector, additional measures have been taken to reduce the financial cost of these policies in some circumstances. Over 2018, a fall in rents were recorded for Jeddah, Riyadh and Al Khobar at a rate of 2%, 5% and 7%, respectively.

Outside of expat employment policies, Doha’s declining rents continue to be exacerbated by Qatar’s ongoing diplomatic crisis. The severing of diplomatic ties with Qatar and trade embargos imposed by several other Arab nations in 2017 continues to impact the rental market, with rents in Doha falling by 5% in 2018. Despite the ongoing crisis, rents in the city are projected to stabilise or increase in the build-up to the 2022 World Cup, though to what extent remains to be seen.

Other regional developments

Rental costs in Erbil, Iraq were stable over 2018, following a period of price increases. Concerns were raised over political instability in the aftermath of the 2017 Iraqi Kurdistan independence referendum, which resulted in market volatility. However, overall rents remained steady for the year as relations between Erbil and Baghdad stabilised, increasing by less than 1%.

In Israel, both Tel Aviv and Jerusalem saw rents effectively flatline over 2018, with demand and supply reaching points of equilibrium in both cities.

Beirut saw rents decline steadily for the third consecutive year, at a rate of around 3%. The presence of economic and political uncertainty in recent years was exacerbated by the Lebanese general election in May 2018. The future projection of rental trends is largely dependent on continued government stability.

The data and statistics used in this article were taken from ECA’s September 2018 Accommodation Survey.

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