Home-price gap between first-tier and provincial cities widens further

Hongkonger Lucy Wong has run her own property investment firm in Shanghai for the past 11 years and speaks with awe about the yawning gap she has seen opening up over this period between home prices in the major cities and in the provinces.

Two years ago, she said, she paid 500,000 yuan (HK$630,000) or 4,500 yuan per square metre for a 120 square metre flat in downtown Fuzhou, a fourth-tier city in Jiangxi province. At the time, average prices in downtown Shanghai were more than six times higher, at about 30,000 yuan per square metre.

The Fuzhou flats' value has since risen by 20 per cent to about 600,000 yuan, or about 5,000 yuan per square metre, offering her a handsome return on her investment. But over the same period prices in downtown Shanghai surged to more than 60,000 yuan per square metre, with top-priced apartments fetching as much as 200,000 yuan per square metre.

"Shanghai prices just seem to keep going up on any new development and still there are buyers," Wong said. "Sellers raised their asking prices by 5 to 10 per cent just on the news that a free- trade zone would be set up in the city."

The sharp rise in Shanghai prices was driven by the rapid economic development in the city, said David Hong, head of research for data provider China Real Estate Information. That skewed pace of economic expansion also explained the polarisation between home prices in first- and lower-tier mainland cities, he added.

"Developers were overly aggressive in buying land sites in big and small cities two to three years ago in an anticipation of a property boom in real estate markets nationwide," Hong said. Those projects were now coming onto the market, resulting in a glut of new-home supply at a time when the economy was slowing.