Chinese property developers turn to small cities

World
Europe

The cooling property markets in China's metropolitans are making a knock-on effect nationwide, pushing property developers to seek opportunities in smaller cities.

The National Bureau of Statistics data showed average new home prices in China's 70 major cities rose 0.2 percent in August, lower than the previous month's reading of 0.4 percent.

The data also showed that 46 cities’ new home prices rose month by month while 18 cities’ price fell in August. The rest 6 cities of the major 70 cities kept the same price as in last month.

A landscape of Beijing. / VCG Photo

New residential property prices in third-tier cities in August reported 0.4 percent growth from July, compared with 0.3 percent month-on-month drop in first-tier cities and 0.2 percent month-on-month growth in second-tier cities.

Analysts say policies have started to take some heat out of the market as sales growth has slowed from peak levels, but buyers’ demand appeared to be more resilient than expected.

Guilin, a city in south China’s Guangxi Zhuang Autonomous Region, for example, saw the largest home price jump among the 70 cities surveyed, 1.1 percent increase compared with the previous month.

Smaller cities, including Mudanjiang in northeastern China’s Heilongjiang Province, Ji’ning in eastern China’s Shandong Province and Zunyi in southwestern China’s Guizhou Province all saw month-on-month rises around one percent.

The comparatively warm property market in third and fourth-tier cities is attracting many property developers, including Country Garden, Poly, Evergrande and Greenland, all of which are most profitable property developers in China.

“We have projects in third, fourth and fifth-tier cities, quite a few. Their area is relatively small. For first and second-tier cities, we would do residential towns in the suburban areas, and they would be comparatively large,” said Jeff Lin, Vice President of Country Garden Holdings.

Large capital inflows to smaller cities usually boost property prices but experts believe that for the third and fourth-tier cities, it is not an easy job to reduce the housing inventory they already have.

Over the past month, several third and fourth-tier cities have issued policies preventing overheating property markets, including increasing the down payments for second residential property purchase, reducing the capital from social security funds available for property purchase, and setting higher thresholds for buyers who are not local residents.

Therefore, experts forecast the housing price in smaller cities would not boom in the short-term, even China’s major property developers are all stepping into the market.

“Over the medium to short-term, I don't think the developers will drive the price up. I would believe over the long term, it will give the support to the local residential market,” noted Joe Zhou, Research Director at Jones Lang Lasalle (JLL) China.