While cutting the country’s mounting housing oversupply remains the top priority for most small city authorities in China, a few second-tier sites are now managing to offload inventories at an unprecedented pace, in some cases leaving supply even tighter than that in first-tier cities. By the end of July four second-tier cities were running inventories that are expected to require less than five months to clear, according to China Real Estate Information Corporation(CRIC). In Nanjing and Hefei, inventories should be depleted in 1.3 and 2.3 months respectively, if homes are sold at their current pace. In comparison, the available homes in Beijing would require 6.8 months to digest and in Guangzhou 6 months. A common feature of these hotspot second-tier cities is new supply can’t catch up with the rapid sales in recent months. And that supply is not going to catch up anytime soon Liu Yuan, research head of Centaline Group “A common feature of these hotspot second-tier cities is new supply can’t catch up with the rapid sales in recent months. And that supply is not going to catch up anytime soon,” said Liu Yuan, research head of Centaline Group. The central government’s desire to shed the nation’s oversupply of property, and efforts aimed at monetary easing, particularly borrowing requirements, have slashed inventories in some cities at an unprecedented pace. In the first six months of the year, clearing times have been cut in half in Nanjing, Hefei, Hangzhou, Wuxi, and Kunshan, according to E-House China R&D Institute, whose latest data for June covers a wider range of cities, mostly in the Yangtze River Delta region. Huizhou, near Shenzhen, has had its cut to just 2.9 months. While in Dachang, Yanjiao and Xianghe — less-well known cities between Beijing and Tianjin — inventories are declining fast after becoming secondary choice for Beijingers, priced out of the capital’s inflated market. According to Liu, the extremely low inventories in cities such as Nanjing are chiefly down to tighter new supplies of properties. Prior to the most-recent round of overheating in China’s property market, which began around the middle of last year, prime land was in short supply in many cities. As more homebuyers flocked to snap up homes, inventories were quickly worn out and new supply was unable to keep pace. In Nanjing, Liu says, even after this level of sales frenzy and the resultant rise in prices, developers are still to release new properties, because their land banks remain so low. The situation is similar, although less severe, in other Yangzi River Delta cities too. Local governments across the delta started squeezing land supply between 2014 and 2015, but even though many pledged to ramp up land supply in the face of surging prices, the effect has been limited. “Although the authorities in cities including Xiamen, Nanjing and Suzhou all said they would boost land supply, the impact there has made very little impact,” said Yang Kewei, an analyst with CRIC. “Either the amount of land is not sufficient or the land that did become available was too far away from the best areas. “Boosting land supply also runs counter to local governments’ own interests,” Yang added, as land banks are often their largest and most valuable asset. The situation is slightly different in Hefei, although the main problem remains tight supply. After researching that market, Yang says supply there during 2014-15 was “not small”. But this time it was the developers delaying their developments, as prices stagnated due to local property restrictions. Now, in the face of surging prices, developers are likely to rush to turn their land into sellable units, resulting in the opposite situation of a glut in supply. “I’m not optimistic on the durability of Hefei’s rally,” as a result, Yang said. What has becoming increasingly clear, too, is that opportunities exist only in regions with robust industries and large population inflow, such as the Yangzi River Delta. Developers are expected to continue pursuing prime land in those regions and in first-tier cities, despite the fierce competition and skyrocketing prices, and even though there might be better chance in smaller markets for opportunistic investment, said Yang. Centaline’s Liu Yuan, adds that in small cities like Huizhou and Zhongshan with lower inventories, turnover is also small. As a result, he remains especially upbeat on markets in Hangzhou, Wuxi and Wuhan, which combine size with low inventory and solid economic fundamentals, especially demand.