Photo taken on Nov. 27, 2015 shows the Baiyulan Plaza (L) of Puxi and buildings in Lujiazui of Pudong in Shanghai.
An increasing number of homeowners in Shanghai are leasing out their properties rather than selling them, as the preowned homes segment has turned sluggish, analysts said.
The market has been affected by the recent limits on purchases and tighter norms for home loans.
Prospective homebuyers also seem to prefer the option of renting, as supply has increased in the form of affordable rental projects and serviced apartments. Such projects have been launched by big developers, they said.
Home rental prices in Shanghai have also slipped 0.3 percent between January and May, the first downward trend observed in the past 90 months, reflecting fast-growing supplies, according to the Shanghai Rental Index Office.
The SRIO is an unofficial alliance of dozens of real estate agents in Shanghai that share their data and research.
In non-central districts, some rentals declined more than 3 percent in the past two months. That's because homeowners who had hitherto sought to sell their properties, shifted to the rental market due to fewer homebuyers in the market, according to the SRIO.
The Shanghai rental market had experienced fast price growth in the past seven years, according to data from Centaline Properties.
Average rent grew 82 percent in Shanghai between January 2010 and December 2016, while the corresponding figure was 51 percent in Beijing, 54 percent in Shenzhen and 55 percent in Guangzhou.
"Rents grew fast when supplies were declining. When home prices rose quickly, more homeowners tended to sell instead of leasing. Now, the trend is reversing," said a research note by Chen Shen, an analyst with China Securities Co.
Savills Research said that in various segments of the Shanghai rental market, occupancy rates have been rising, showing rising demand from tenants.
In the first quarter of 2017, serviced apartments in Shanghai recorded an occupancy rate of 85.1 percent. The figure for normal apartments was 88 percent, and 96.6 percent for villas.
During the same period, the average rental for serviced apartments dropped 0.2 percent to 230 yuan (.49) per square meter per month. The rental for apartments rose 1 percent to 182.8 yuan per sq m, and 0.2 percent for villas to 154.6 yuan per sq m.
"The rental market is consolidating and rentals slipped slightly in some segments. And investors and operators are also joining the rental market, increasing supplies. At the same time, homeowners are also shifting from selling to leasing, bringing fiercer competition to the rental market," said James McDonald, head of Savills China Research.