News / Economy

Property Sales in Small Cities Pivotal to China's Growth

A worker walks with a hammer past a residential construction site during sunset in Nantong, Jiangsu province, China, Aug. 6, 2013.
A worker walks with a hammer past a residential construction site during sunset in Nantong, Jiangsu province, China, Aug. 6, 2013.
Reuters
A property glut in some smaller cities raises questions over how far China's decade-long housing boom can last at a time when the fragile economy is more vulnerable than ever to a possible retreat in the red-hot property market.
 
A flurry of housing investment over the past several years, fueled in part by herd-like speculative buying, resulted in some developers building more housing than could be sold once the market began to slow.
 
Now, the concern is that the market could be cooling too quickly, and risk stalling one of the few engines in the economy that are still firing.
 
While new home prices in Beijing rose 14.1 percent in July from a year earlier and Shanghai prices were up 13.7 percent, smaller cities are lagging the major centers. The National Bureau of Statistics data showed average new home prices in China's top 70 cities up 7.5 percent on the year.
 
“Dozens and dozens of small cities -- still home to the majority of China's urban population -- have more housing than they need,” wrote Rosealea Yao, a principal analyst at GaveKal Dragonomics, a Beijing consultancy, in a report. “This excessive supply will put a serious drag on national construction growth for several years.”
 
'Steady and Healthy Development'
 
House prices have fallen for nearly two years in Wenzhou, a prosperous eastern city that had suffered fevered speculation before stringent controls on the property market took hold. In July prices in Wenzhou were down by an annual 2.4 percent in July.
 
While Wenzhou's falling prices remain an exception, the city's plight and its move earlier this month to relax some the toughest property market curbs are emblematic of the growing concerns about China's slackening economic growth and the risks of cracking down too hard on the housing market.
 
China's leadership, acutely aware of housing's importance to the economy, appears to have set aside concerns that a property boom was pricing millions of families out of the market.
 
That is how industry executives and analysts took a July 30 pledge to maintain “steady and healthy development of the property sector” by the Politburo, the top decision-making body.
 
“It was a clear signal that there won't be any new restrictions on home buying in order to temper price increases for a while,” said Andy Rothman, Chief China Strategist at CLSA Asia Pacific Markets.
 
But leaving the market alone may not be enough. With stock markets volatile and caps on bank deposits, property remains the only game in town for millions of Chinese savers.
 
Total property investment accounted for 14.8 percent of gross domestic product in the first half of 2013, up from 13.5 percent a year earlier. Residential property accounts for 70 percent of that total.
 
And in a market where most apartment and houses are paid for in cash, mortgage lending has been on the rise with new mortgage loans reaching a record 963 billion yuan ($157 billion) in the first half.
 
Wenzhou's two years of falling prices is the exception, but price rises in smaller cities are lagging the major centers. Average new home prices in 70 major cities rose 7.5 percent in July, the NBS data showed.
 
Most economists believe incomes will keep growing enough to sustain relatively healthy demand for at least a year, and the government does plan to encourage urbanization.
 
“We expect a stable property sector policy in the coming year and see a modest property recovery to continue,” said UBS chief China economist Tao Wang.
 
Industry executives say there is now a tide of new investment coming to top cities and provincial capitals, because demand remains strong. Over time, economists say, that could ease housing price inflation in China's biggest cities.
 
They also argue Beijing may have no choice but to scale back its ambition to spur more development in lower-tier cities.
 
That, said Dragonomics' Yao, could help China avoid what otherwise could be “a brutal construction crash.”
 
Scaling Back
 
The stakes for Beijing are high. A slowdown in exports and fixed investment means the economy is more reliant on the residential property market than it was even a year ago.
 
In the second quarter, employment in the property sector rose by 8,000, while manufacturing lost 164,000 jobs.
 
Tax income from the property sector rose 45.7 percent in the first half from a year earlier, while growth in the overall tax revenue slowed to 7.9 percent.
 
Housing, moreover, props up at least 40 other sectors, from cement to steel to furniture and home appliances. Local governments also depend heavily on revenues from land sales to developers to help service a debt pile worth trillions of yuan.
 
Still, some developers are scaling back.
 
Last month, Yu Liang, chief executive of China Vanke, the biggest listed developer by sales, said the company was pulling back from Yixing city in prosperous Zhejiang province.
 
And Yi Xiaodi, the president of Sunshine 100, a mid-sized residential developer based in Beijing, has put off plans to expand in Zhuzhou, a city with 3.9 million residents in Hunan.
 
“We changed our mind because of oversupply risk,” Yi said. “We will avoid investing in cities where industrial competitiveness is fading and the market is plagued with over-supply. That will be very dangerous.”

(Note: $1 = 6.1229 Chinese yuan)

You May Like

Photogallery South Africa Bans Travelers From Ebola-stricken Countries

South Africans returning from affected West African countries will be thoroughly screened, required to fill out medical questionnaire, health minister says More

Multimedia UN Launches ‘Biggest Aid Operation in 30 Years’ in Iraq

Move aims to help thousands of Iraqi religious minorities who fled their homes as Kurdish, Iraqi government forces battle Sunni insurgents More

Video African Media Tries to Educate Public About Ebola

IT specialists, together with radio and TV reporters, are battling misinformation and prejudice about disease More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Gaza Conflict, Hamas Popularity Challenge Abbasi
X
Scott Stearns
August 21, 2014 9:20 PM
The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Gaza Conflict, Hamas Popularity Challenge Abbas

The Palestinian unity government of Mahmoud Abbas has failed to convince Hamas to agree to Egyptian-negotiated terms with Israel on a Gaza cease-fire. VOA State Department Correspondent Scott Stearns reports on what the Gaza conflict means for President Abbas, with whom U.S. officials have worked for years on a two-state solution to the Israeli-Palestinian conflict.
Video

Video Nigeria's 'Nollywood' Movie Industry Rolls in High Gear

Twenty years after its birth in a video shop in Lagos, Nigeria's "Nollywood" is one of the most prolific film industries on earth. Despite low budgets and whirlwind production schedules, Nigerian films are wildly popular in Africa and industry professionals say they hope, in the future, their films will be as great in quality as they are in quantity. Heather Murdock has more for VOA from Lagos.
Video

Video UN Launches 'Biggest Aid Operation in 30 Years' in Iraq

The United Nations has launched what it describes as one of the biggest aid operations in 30 years in northern Iraq, as hundreds of thousands of refugees flee the extremist Sunni militant group calling itself the Islamic State. As Kurdish and Iraqi forces battle the Sunni insurgents, the fighting has forced more people to flee their homes. Kurdish authorities say the international community must act now to avert a humanitarian catastrophe. Henry Ridgwell reports for VOA from London.
Video

Video Cambodian American Hip Hop Artist Sings of Personal Struggles

A growing underground movement of Cambodian American hip hop artists is rapping about the struggles of living in urban America. Most, if not all of them, are refugees or children of refugees who came to the United States from Cambodia to escape the Khmer Rouge genocide of the 1970s. Through their music, the artists hope to give voice to immigrants who have been struggling quietly for years. Elizabeth Lee reports from Long Beach, California.
Video

Video African Media Tries to Educate Public About Ebola

While the Ebola epidemic continues to claim lives in West Africa, information technology specialists, together with radio and TV reporters, are battling misinformation and prejudice about the disease - using social media to educate the public about the deadly virus. VOA’s George Putic has more.
Video

Video Ferguson Calls for Justice as Anger, Violence Grips Community

Violence, anger and frustration continue to grip the small St. Louis suburb of Ferguson, Missouri. Protests broke out after a white police officer fatally shot an unarmed black teenager on August 9. The case has sparked outrage around the nation and prompted the White House to send U.S. Attorney Eric Holder to the small community of just over 20,000 people. VOA’s Mary Alice Salinas has more from Ferguson.
Video

Video Beheading Of US Journalist Breeds Outrage

U.S. and British authorities have launched an investigation into an Islamic State video showing the beheading of kidnapped American journalist James Foley by a militant with a British accent. The extremist group, which posted the video on the Internet Tuesday, said the murder was revenge for U.S. airstrikes on militant positions in Iraq - and has threatened to execute another American journalist it is holding. Henry Ridgwell has more from London.
Video

Video Family Robots - The Next Big Thing?

Robots that can help us with daily chores like cooking and cleaning are a long way off, but automatons that serve as family companions may be much closer. Researchers in the United States, France, Japan and other countries are racing to build robots that can entertain and perform some simpler tasks for us. VOA’s George Putic reports.
Video

Video In Ukraine, Fear and Distrust Remain Where Fighting has Stopped

As the Ukrainian military reclaims control of eastern cities from pro-Russian separatists, residents are getting a chance to rebuild their lives. VOA's Gabe Joselow reports from the town of Kramatorsk in Donetsk province, where a sense of fear is still in the air, and distrust of the government in Kyiv still runs deep.
Video

Video Five Patients Given Experimental Ebola Drug Said to Be Improving

The World Health Organization has approved the use of experimental treatments for Ebola patients in West Africa. The Ebola outbreak there is unprecedented, the disease deadly. The number of people who have died from Ebola has surpassed 1,200. VOA's Carol Pearson reports on the ethical considerations of allowing experimental drugs to be used.
Video

Video China Targets Overseas Assets of Corrupt Officials

As China presses forward with its anti-graft effort, authorities are targeting corrupt officials who have sent family members and assets overseas. The efforts have stirred up a debate at home on exactly how many officials take that route and how likely it is they will be caught. Rebecca Valli has this report.
Video

Video Leading The Fight Against Islamic State, Kurds Question Iraqi Future

Western countries including the United States have begun arming the Kurdish Peshmerga forces in northern Iraq to aid their battle against extremist Sunni militants from the Islamic State. But there are concerns that a heavily-armed Kurdistan Regional Government, or KRG, might seek to declare independence and cause the break-up of the Iraqi state. As Henry Ridgwell reports from London, the KRG says it will only seek greater autonomy from Baghdad.
Video

Video In Rural Kenya, Pressure Builds Against Female Circumcision

In some Kenyan communities, female genital mutilation remains a rite of passage. But activists are pushing back, with education for girls and with threats of punishment those who perform the circumcision. Mohammed Yusuf looks at the practice in the rural eastern community of Tharaka-Nithi.

AppleAndroid

World Currencies

EUR
USD
0.7492
JPY
USD
102.27
GBP
USD
0.5960
CAD
USD
1.0950
INR
USD
61.300

Rates may not be current.