Small cities pivotal to property’s support for China’s growth

A property glut in some smaller cities raises questions over how far China’s decade-long housing boom can last at a time when the fragile economy is more vulnerable than ever to a possible retreat in the red-hot property market.

A flurry of housing investment over the past several years, fuelled in part by herd-like speculative buying, resulted in some developers building more housing than could be sold once the market began to slow.

Now, the concern is that the market could be cooling too quickly, and risk stalling one of the few engines in the economy that are still firing.

While new home prices in Beijing rose 14.1 per cent in July from a year earlier and Shanghai prices were up 13.7 per cent, smaller cities are lagging the major centres. The National Bureau of Statistics data showed average new home prices in China’s top 70 cities up 7.5 per cent on the year.

“Dozens and dozens of small cities -- still home to the majority of China’s urban population -- have more housing than they need,” wrote Rosealea Yao, a principal analyst at GaveKal Dragonomics, a Beijing consultancy, in a report.

“This excessive supply will put a serious drag on national construction growth for several years.”