Developers' big dreams for smaller mainland China cities falling apart

Developers, which went on a land buying spree in smaller mainland cities in recent years, are seeing some of those investments turn into nightmares.

Underdeveloped second and third-tier cities became a magnet for some of the mainland's biggest developers after 2009, when the authorities started imposing austerity measures in a bid to rein in runaway home prices, particularly in first-tier cities where home-ownership was getting beyond the reach of a growing middle class.

The developers were betting that lower land prices and the huge growth potential in such cities could generate attractive returns, but the influx of property investment led to chronic oversupply problems.

As a result, developers have been forced to cut prices, some by more than a third in Changzhou, Hangzhou, Nanjing, Ningbo and Qinhuangdao.

The South China Morning Post recently visited the two cities where the first price cuts were seen this year: Changzhou in Jiangsu province, and Hangzhou in Zhejiang.

The huge unsold housing inventories in the two cities could take 22 months to unload, according to industry observers, compared with the normal 12 to 15 months.