Upgraders fuel demand in Qingdao

PUBLISHED : Wednesday, 18 November, 2009, 12:00am
UPDATED : Wednesday, 18 November, 2009, 12:00am

Liu Zhigong, an electronics engineer in Qingdao in northeastern China, is searching for a bigger home almost double the size of his existing apartment.

In his case the search has not been prompted by a desire to beat any further clampdowns on credit, which the market expects from the central government, but by a pressing need for more space.

'I plan to live with my parents and therefore I need a bigger flat,' said Liu, who lives with his wife and son in an 80 square metre unit in Shinan district, Qingdao's traditional city centre and one of the oldest residential areas in the province.

He is now looking for a 150 square metre unit and one of his choices is a flat at Silver Carse, a residential project in Shinan.

Prices in the China Overseas Land & Investment development are about 15,000 yuan (HK$17,055) per square metre.

'When my child was young I decided to live in a place close to his school. That's why I picked a smaller unit in the city centre. Now he is a secondary school student so we can move to a bigger unit in the newly developed residential district,' Liu said.

'Also, my parents are getting old and I want to stay with them.'

Upgraders such as Liu are a key source of demand in the Qingdao market, where many of the older apartment blocks were built in the 1980s and have become obsolete.

In line with a surging economy and rising per capita incomes, the city's property market has been flourishing.

With the addition of new upmarket flats, prices have risen to a range of 6,000 yuan to 30,000 yuan per square metre at the top end of the market, from the cheapest units costing just 1,000 yuan to 2,000 yuan per square metre in 2002, according to Yuan Chun, a deputy general manager at China Overseas Land's Qingdao office.

The city's economy grew 16 per cent in 2007 and expanded by a further 13.2 per cent last year.

Sales of flats in the city in the first six months of this year totalled 1.38 million square metres - up nearly 100 per cent on the same period last year.

The development of the Qingdao market is similar to many other mainland cities.

Michael Wu, a director of Fitch Ratings' Asia-Pacific corporate team, said: 'Real demand for homes in China remains on the rise and will continue to support the development of the industry in the long run.'

That view is endorsed by developer China Overseas Land, which says the mainland housing market would not see a peak until 2035.

The conclusion was based on many variables, including a 1 per cent per month increase in the process of urbanisation, said an executive of the company. 'We may see short-term fluctuations but the long-term outlook is good,' he said.

Housing prices in the mainland's 70 biggest cities increased 3.9 per cent last month from October last year, the fastest rate of property inflation since September last year and confirming a solid rebound from a slump that began in the fourth quarter.

During January to September this year, gross residential floor area sold on the mainland totalled 537 million sq metres, a 46 per cent increase year on year and 24 per cent higher than the same period in 2007, according to investment bank UBS.

Prices in the four first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen have risen 20 per cent since the end of last year because of much stronger investment demand, and were up in the high teens in many second-tier cities, UBS said in a recent report.

On Monday the central government's top think tank, the Chinese Academy of Social Sciences, predicted that housing prices would keep rising next year.

'Our view is that property prices will keep rising in 2010, but that there will be some volatility,' researcher Ni Pengfei said.

The traditional rush by banks to lend at the start of the year would be seen early next year. Monetary policy was still relatively loose, providing ample cash for property acquisitions, Ni said.

Rising inflationary expectations would also prompt investors to put more cash into real estate assets that benefit from rising price levels. The mainland's long-term urbanisation trend has underpinned the property market but some analysts are concerned over housing affordability for many ordinary people. Other concerns include the potential tightening of housing policy.

However, analysts said these concerns should not be overstated as housing demand would be largely a function of affordability, liquidity and policy in the near term, and demand would remain strong in the long term.

'Because prices in many cities have gone up [so fast] in such a short time, affordability is worsening and end-user demand will inevitably be affected,' the UBS report said.

As a result, while policy changes might cause some near-term pain to both physical and capital market sentiment, this would be necessary for ensuring healthier and more sustainable growth in the economy as a whole, it added.