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

Video Claims to Show Shia Forces in Iraq Executing Sunni Boy

While not yet independently confirmed, brutal killing already has gotten attention of Islamic State followers on social media More

After Six Years, Little Change for Niger Delta's Former Militants

Nigerians who laid down arms in exchange for government amnesty subsidies fear program may end with upcoming presidential elections More

Vietnam Pushes for More Educated Drivers to Curb Road Deaths

Transportation officials hope that making a greater effort to get drivers to learn the rules of the road will reduce fatal crashes More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
NASA Spacecraft Approaches a Dwarf Planeti
X
George Putic
March 04, 2015 8:51 PM
NASA’s Dawn spacecraft will make history on Friday, March 6, when it becomes the first man-made object to orbit a dwarf planet named Ceres. It is located in the asteroid belt between Mars and Jupiter, almost 500 million kilometers from Earth. Among other objectives, Dawn will try to examine two mysterious bright white spots detected on the planet’s surface. VOA’s George Putic has more.
Video

Video NASA Spacecraft Approaches a Dwarf Planet

NASA’s Dawn spacecraft will make history on Friday, March 6, when it becomes the first man-made object to orbit a dwarf planet named Ceres. It is located in the asteroid belt between Mars and Jupiter, almost 500 million kilometers from Earth. Among other objectives, Dawn will try to examine two mysterious bright white spots detected on the planet’s surface. VOA’s George Putic has more.
Video

Video Young Muslims Radicalized Online

Young Muslims are being radicalized ‘in their bedrooms’ through direct contact with Islamic State or ISIL fighters via the Internet, according to terror experts. There are growing concerns that authorities and Internet providers are not doing enough to counter online extremism - which analysts say is spread by a prolific network of online supporters around the world. Henry Ridgwell reports from London.
Video

Video African Americans Recall 1960's Fight For Voting Rights

U.S. President Barack Obama and thousands of people will gather in the small southern U.S. city of Selma, Alabama, Saturday, March 7th to commemorate the 50th anniversary of a historic voting rights march that became known as “Bloody Sunday." VOA’s Chris Simkins traveled to Alabama and introduces us to some of the foot soldiers of the voting rights struggles of the 1960’s.
Video

Video Positive Messaging Transforms Ethiopia's Image

Ethiopia was once known for famine and droughts. Now, headlines more often point to its fast-growing economy and its emergence as a regional peacemaker. How has Addis Ababa changed the narrative? VOA's Marthe van der Wolf reports.
Video

Video Cyber War Rages Between Iran, US

A newly published report indicates Iran and the United States have increased their cyber attacks on each other, even as their top diplomats are working toward an agreement to guarantee Iran does not develop a nuclear weapon and to free Iran from international sanctions. The development is part of a growing global trend. VOA’s Al Pessin reports from London.
Video

Video Answers Elude Families of MH370 Passengers

For the families on board Malaysia Airlines flight MH370, an airline official’s statement nearly one year ago that the plane had lost contact with air traffic control at 2:40 AM is the only thing that remains confirmed. William Ide reports.
Video

Video Land Disputes Arise Amid Uganda Oil Boom

Ugandan police say there has been a sharp increase in land disputes, with 10 new cases being reported each day. The claims come amid an oil boom as investors appear to be cashing in by selling parcels of land to multiple buyers. Meanwhile, the people who have been living on the land for decades are chased away, sometimes with a heavy hand. VOA's Serginho Roosblad reports.
Video

Video In Russia, Many Doubt Opposition Leader's Killer Will Be Found

The funeral has been held in Moscow for Boris Nemtsov, the opposition leader who was assassinated late Friday just meters from the Kremlin. Nemtsov joins a growing list of outspoken critics of Russia under the leadership of President Vladimir Putin who are believed to have been murdered for their work. VOA’s Daniel Schearf reports from Moscow.
Video

Video Simulated Astronauts Get Taste of Mars, in Hawaii

For generations, people have dreamed of traveling to Mars to explore Earth's closest planetary neighbor. VOA's Mike O'Sullivan reports that while space agencies like NASA are planning manned missions to the planet, some volunteers in Hawaii are learning how humans will cope with months in isolation on a Mars base.
Video

Video Destruction of Iraq Artifacts Shocks Archaeologists

The city of Mosul was once one of the most culturally rich and religiously diverse cities in Iraq. That tradition is under attack by members of the Islamic State who have made Mosul their capital city. The Mosul Museum is the latest target of the group’s campaign of terror and destruction, and is of grave concern to archaeologists around the world. VOA’s Kane Farabaugh reports.
Video

Video Smartphones May Help in Diagnosing HIV

Diagnosing infections such as HIV requires expensive clinical tests, making the procedure too costly for many poor patients or those living in remote areas. But a new technology called lab-on-a-chip may make the tests more accessible to many. VOA’s George Putic reports.
Video

Video Afghan Refugees Complain of Harassment in Pakistan

Afghan officials have expressed concern over reports of a crackdown on Afghan refugees in Pakistan following the Peshawar school attack in December. Reports of mass arrests and police harassment coupled with fear of an uncertain future are making life difficult for a population that fled its homeland to escape war. VOA’s Ayesha Tanzeem reports from Islamabad.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.8954
JPY
USD
119.75
GBP
USD
0.6515
CAD
USD
1.2518
INR
USD
61.921

Rates may not be current.