• Mon
  • Oct 20, 2014
  • Updated: 12:38pm
PropertyHong Kong & China

Alarm grows over housing supply glut in inner mainland China cities

PUBLISHED : Tuesday, 25 March, 2014, 1:34am
UPDATED : Tuesday, 25 March, 2014, 1:48am
 

The textile town of Changzhou in Jiangsu province was little known to outsiders until it acquired the label of "ghost city", the second one on the mainland after Erdos in Inner Mongolia.

The road leading to Feilong district in the outskirts hardly has any traffic. But it is lined by billboards promoting mega-sized residential projects, building materials and construction equipment.

Together with Wujin district, these two newly developed areas could have a stockpile of 60,000 unsold flats that would take nearly two years to sell.

"Three years ago, this was all still a vast swathe of farmland, but it is now dotted with mega-sized luxury and mass residential projects," said Zhang Bin, who is looking to buy a flat in the area before he gets married later this year.

The 26-year-old bank employee had budgeted about 500,000 yuan (HK$630,000) for something in the vicinity of 80 square metres, but has decided to hold his horses after visiting four projects.

"There are lots of choices now. Before, we didn't have big developers like China Vanke and Longfor. We didn't even know how a villa looks like. But now we have high-rises, low-rises, housing estates and nice landscaped villas," he said.

There are more than 10 such large projects selling units in a wide price range, including the 4,727-unit Great Town, built by Fujian-based Dong Fu Ming Cheng Property, which has a gross floor area of 927,950 square metres.

Across the street is the 2,448-unit Star River, which is still under construction. The project, developed by Agile Property, has a site area of 223,906 sqmetres and will generate a buildable area of 719,941 sqmetres.

Hangzhou, about two hours by high-speed train from Changzhou, faces similar oversupply problems. Last year, it had 120,000 unsold units but still pulled in a record 84.5 billion yuan in land sales - almost double the value in 2012.

The glut in such cities has raised an alarm in Beijing. "The government will take a differentiated approach in setting property policies," Vice-Minister of Housing and Urban-Rural Development Qi Ji said earlier this month.

For major cities that had seen strong price increases, more supply would be encouraged, especially that of small and medium-sized apartments, he said.

Restrictions on purchases for investment will persist, including limits on the number of homes one family can buy.

"For cities with large housing stock, measures will be taken to overhaul the land supply structure," Qi said, adding stock in a city that could be cleared in 12 to 15 months would be considered at a reasonable level.

Whether Changzhou will be the next target under the new austerity measures remains uncertain. But one common reason behind the oversupply problem in some second- and third-tier cities is local governments' heavy reliance on land sales.

The mainland's land sales revenue hit a record 4.1 trillion yuan last year, up 44.6 per cent from 2012 and 195 per cent higher than in 2009.

In Changzhou, sales of development sites with residential purposes reached 27.6 billion yuan in 2010 as most big developers began to enter the city. By 2013, the average land cost had been driven up to a record 1,955 yuan per square metre, according to Centaline (China).

But Andy Chang, associate director at Fitch Ratings, expects the mainland's property market to soften this year. "Sales may register only 5 to 10 per cent growth this year, compared with 12 per cent last year," he said.

Cities that did not provide sufficient job opportunities or have well-developed infrastructure would face oversupply, he said.

However, Vanke's president Yu Liang remains upbeat about the market's long-term prospects.

"You can find a lot of evidence for a negative outlook. For example, some projects have cut prices, others can't sell and then there are these ghost towns," he said. "Many cities have unsold properties that will take over a year to clear. That is alarming. But it will give competitive developers room to buy land parcels as some will leave the market."

He said Vanke would not open any new pipelines of projects this year because of oversupply fears. "But the oversupply can be absorbed over time. There shouldn't be any big problems," he said.

Another local developer, who requested not to be named, said it usually took Changzhou residents about two to three years to move in after they got the keys.

"Owners usually take one or two years for decoration and leave the newly painted flat empty for a year until all the chemical smell is gone, especially buyers with children. We disagree that Changzhou is a ghost town. Outsiders just don't understand Changzhou residents' lifestyle," said the developer.

This is the second in a series on mainland property trends. Part 3 will appear in tomorrow's paper

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