Urban demand fuels property sector's high-quality development in China

Editor's note: Bruce Pang is chief economist and head of research at JLL Greater China. The article reflects the author's opinions and not necessarily the views of CGTN.

On July 31, the State Council’s "Five-Year Action Plan" to promote urbanization was released, setting a goal of boosting the country's urbanization rate to nearly "nearly 70 percent" in five years' time. The pledge will help to further promote residential migration into urban areas, shifting policy focus more to benefiting people's livelihoods, and to provide structural opportunities for China's real estate sector and housing market.

China has stepped into the middle and late stages of rapid urbanization, with the urbanization rate of the resident population reaching 65.22 percent in 2022, ahead of schedule to achieve the target of 65 percent during the 14th Five-Year Plan period. It increased to 66.16 percent at year end-2023, while the urbanization rate calculated on the basis of the actual population density may have already exceeded 70 percent, quickly approaching that of developed countries, which stands at around 80 percent.

Therefore, room for expanding China's real estate market remains, although the previous method of extensive development is no longer seen as either sustainable or desirable. 

Accordingly, the real estate sector will move from the "incremental era" to the "inventory era", as property developers' business model of "high turnover, high leverage, high return" – in other words, an expansion-oriented development model – will also have to transform into a refinement-focused development model with structural optimization and quality enhancement. However, the demand from people buying their first homes or improving their housing situation continues, with no signs of slowing down.

In terms of structural change, while indicators such as urban housing stock, the average area of housing units, the urban homeownership rate, and the ratio of housing units to households have all steadily increased, it is also important to see that a certain degree of structural disparity and localized tightness still exists behind the overall balance of China's housing supply-demand dynamics. Rigid housing demand in cities and towns - especially in high-tier cities - is still large in scale and has greater potential, considering the urban-rural differences and differences in spatial and geographic distribution across regions, property policies, residents' income and wealth, housing price burden and affordability, etc.

In terms of the urbanization process, according to the historical and cross-country experiences of the world's urban spatial evolution as well as specific characteristics of China's economic and social development, all kinds of resources, factor endowments and idiosyncratic productivity are expected to continue to agglomerate and concentrate to major cities and key city clusters, at an accelerated pace. In particular, China's five major city clusters, driven by both policy and market factors, has become an important spatial carrier to promote China's urbanization, steadily developing from world-class cities to world-class city clusters. There is every reason to believe that in the coming decades, the trend of rural population movings to towns and cities, generating long-term, stable, and predictable housing demand for high-tier cities and core city cluster.

To achieve such goal, restrictions on the local household registration system, or "Hukou", should be relaxed, social security coverage for rural workers moving to cities should be expanded, housing needs and guarantee education to their children should be secured, as pleaded by State Council's Action Plan. Official data shows that only 48 percent of the Chinese population is recognized and classified as urban residents, leaving a gap of 18 percentage points below the country's aggregated urbanization rate. This figure implies that about 250 million rural migrant workers are yet to enjoy Hukou-public services in the places they reside.

Academic research papers show that housing affordability has a negative correlation with the intention to stay of the mobile population during their household formation period, and that the level of public services has a positive correlation with the intention to stay of floating population during their household expansion period. We think that the number and level of basic public service items enjoyed by the non-registered resident population will be steadily increased, and the transformation of the urban development mode will be accelerated in order to build livable, resilient, innovative, intelligent, green, and humanistic cities, as vowed by the "Implementation Plan for New Urbanization in the 14th Five-Year Plan" issued by the National Development and Reform Commission in 2022.

We believe that on the back of continuous urbanization, an emerging number of registered residents will witness public services with more supply, inclusiveness and convenience. We expect housing issues faced by new urban residents, young people, and other groups in major cities will be tackled, as the supply of government-subsidized rental houses will increase, and the offering of fiscal support to cities, all in the hopes of welcoming more talents from elsewhere.