The coastal city of Yantai, in Shandong province, is suffering a housing glut like many other third-tier cities on the mainland. But it is less speculative and the city's improving infrastructure is likely to cap any downside risk on its home prices amid the mainland's still unfolding real estate market downturn. Although regarded as a third-tier city, Yantai's economy is bigger than that of the provincial capital Jinan, a second-tier city. Its gross domestic product grew 10.2 per cent last year to 561.3 billion yuan (HK$701.2 billion), exceeding Jinan's 523 billion yuan and second only to Qingdao's 800.7 billion yuan in the prosperous province. Yantai's housing market has been predominantly driven by local end-user demand in the past few years and price gains in the past decade have been much milder than in top-tier cities. It is thus widely considered less bubbly than peers such as Ordos and Wenzhou - the mainland's two most notorious ghost cities. "Home prices rose at the pace of several hundred yuan per square metre per year in the past golden decade here, while they gained several thousand yuan per square metre per year in Beijing," said Zhao Long, a salesman at the Own the World City property project in Yantai's Laishan district. Bucking the general downturn, Zhao said the project would probably increase prices in the next few weeks, by 30,000 yuan per unit, as its sales performance had turned out to be better than expected. Currently, an 85 square metre, two-bedroom flat is priced around 700,000 yuan. Property transactions across the city have been slowing, particularly in its less developed suburban areas. Data from mainland consultancy Upgroup shows Yantai has 7.9 million square metres of unsold housing inventory, which, at the current pace of sales, will take about three years to sell down. However, local industry participants said the planned opening of a high-speed train service between Qingdao and Yantai at the end of this year, cutting travelling time between the two cities to one hour from more than 31/2 hours at present, would give the property market a shot in the arm. Meanwhile, Yantai is planning several other railway lines to connect with the neighbouring cities of Weifang, Weihai and Longkou, and it also aims to expand the local airport and add more flights. The city is also discussing the construction of metro lines, even though traffic jams are rare. A young couple with a nine-month-old baby visited the semi-finished Own the World City project one recent morning to seal their contract. "This is our second home. With the baby, we need a bigger flat," the wife, Li Nan, said. They bought a three-bedroom unit of more than 140 square metres and needed to pay a 60 per cent down payment. Non-local residents need to pay cash in full. But analysts expect Yantai and many other third-tier cities will soon remove such home purchase restrictions. Last month, Hohhot, in Inner Mongolia, became the first city to relax such controls, and several others, including Jinan, Wuhan and Changsha, have reportedly relaxed the measures, although there have been no official announcements so far. For taxi driver Liu Jun, current home prices in Yantai are too expensive. He earns 3,800 yuan a month, above the city's average salary, but is the only member of his family who is working. Official data showed Yantai's urban disposable income per capita rose 9.6 per cent last year to 32,930 yuan. Yantai's average home price rose to 6,506 yuan per square metre last year from 2,229 yuan per square metre in 2003, according to mainland property consultancy CRIC, a unit of E-House China. Yantai's population is expanding more slowly than the national average, partly because its railway system is not well connected with other parts of the country and young workers often prefer the neighbouring city of Qingdao. "Due to income and population constraints, Yantai's home prices have a ceiling and cannot compete against Qingdao," said Chen Zhe, general manager of local consultancy Golden Stone. "But the decline will also be limited as the market is not bubbly."