China property

China’s smaller cities set to lead home sales growth

PUBLISHED : Thursday, 23 February, 2017, 7:48pm
UPDATED : Thursday, 23 February, 2017, 10:04pm

While home sales are facing a slump in China’s large, top-tier cities, they are going from strength to strength in some of their lesser known counterparts.

As the government continues to intensify measures designed to curb runaway property prices in large cities like Shanghai and Shenzhen, while reducing a housing glut in many smaller ones, analysts expect some lower-tier cities -- especially those in economically strong provinces -- to lead the country’s home price growth this year.

Long-forgotten Yancheng, for example, a relatively small city of seven million residents in northeastern Jiangsu province, has been experiencing a real estate boom since the second half of last year.

Sales prices and volume have soared as home buyers have rushed to the market. There are even supply constraints in some areas, the state-run news website reported this week.

In the east of the city, some new apartments have shot up in price to over 10,000 yuan per square metre, from last year’s 6,000 yuan market level, according to the report.

“Strict restrictions on home purchases and mortgages in big cities have pushed many migrant workers to go back home to buy a house,” said Luo Hao, research head at agency Centaline Property in Nanjing, the capital city of Jiangsu province, close to Yancheng.

It’s not just Yancheng. Some county-level cities like Jurong, next to Nanjing, have seen rapid price growth, with new supply unable to absorb demand.

China’s housing minister Chen Zhenggao said at a press conference on Thursday that their mission this year is to solve the housing oversupply in third- and fourth- tier cities, and encourage migrant workers and farmers to inhabit these cities.

Why the cities you’ve never heard of are poised to lead China’s economic growth

The tier system is used to classify the country’s 660 cities, according to GDP, political administration and population. Traditionally, Beijing, Shanghai, Guangzhou and Shenzhen are considered to be tier-one, with provincial capitals usually in the second tier and prefecture level capitals in the third.

Driven by spill-over demand, small cities in economically strong regions such as Guangdong province and the Yangtze River Delta are likely to lead price gains in the housing sector this year, said Philip Tse, a property analyst at Bocom International.

Measures introduced by Beijing to stimulate the property sector since late 2014 caused speculative capital to flood first- and second- tier cities, while a massive housing glut emerged and remains a serious problem in many remote, smaller cities.

The government has ordered more than 20 so-called ‘hot’ cities to roll out stricter home buying restrictions since late September in a bid to ensure prices plateau. Various measures have also been implemented to encourage people to move outside the main cities.

For instance Nanjing, where home prices surged 50 per cent in 2016, plans to cancel a policy granting permanent residence to non-locals who buy a house there in order to control the influx of new residents. The policy will no longer be valid from March.

Meanwhile, the government is speeding up construction of infrastructure such as intercity subways and making other general improvements to small cities to attract people to stay, Luo said.

Official data shows January home price growth was flat in leading cities including Beijing and Shanghai. It was third-tier city Sanya in Hainan province that led the gains, rising 1.7 per cent on the month, followed by Jiujiang city in Jiangxi province.

Still, overcoming the oversupply issue is no easy task.

Carol Wu, a property analyst with DBS Vickers, believes the weak market sentiment that has hit big cities will spread to lower-tier cities, and transaction volumes will drop across the nation.

David Hong, head of research at consultancy China Real Estate Information, said the housing glut in some cities with a net population outflow is likely to be far higher than official estimates and will not go away any time soon.