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 Democrats Clinton, Kaine Offer 'Very Different Vision' Than Trump

    In a jab at Trump, Clinton says her team wants to 'build bridges, not walls'; Obama Hails Kaine's record; Trump calls Kaine a 'job-killer'

    Turkey Wants Pakistan to Close Down institutions, Businesses Linked to Gulen

    Thousands of Pakistani students are enrolled in Gulen's commercial network of around two dozen institutions operating in Pakistan for over two decades

    AU Passport A Work in Progress

    Who will get the passport and what the benefits are still need to be worked out

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movementi
    X
    July 22, 2016 11:49 AM
    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Poor Residents in Cleveland Not Feeling High Hopes of Republican Convention

    With the Republican Party's National Convention underway in Cleveland, Ohio, delegates and visitors are gathered in the host city's downtown - waiting to hear from the party's presidential candidate, Donald Trump. But a few kilometers from the convention's venue, Cleveland's poorest residents are not convinced Trump or his policies will make a difference in their lives. VOA's Ramon Taylor spoke with some of these residents as well as some of the Republican delegates and filed this report.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video With Yosemite as Backdrop, Obama Praises National Parks

    Last month, President Barack Obama and his family visited some of the most beautiful national parks in the U.S. Using the majestic backdrop of a towering waterfall in California's Yosemite National Park, Obama praised the national park system which celebrates its 100th anniversary this year. He talked about the importance of America’s “national treasures” and the need to protect them from climate change and other threats. VOA’s Julie Taboh reports.
    Video

    Video Counter-Islamic State Coalition Plots Next Steps

    As momentum shifts against Islamic State in Iraq, discussions are taking place about the next steps for driving the terrorist group from its final strongholds. Secretary of State John Kerry is hosting a counter-IS meeting at the State Department, a day after defense ministers from more than 30 countries reviewed and agreed upon a course of action. VOA Pentagon correspondent Carla Babb reports.
    Video

    Video Russia's Participation at Brazil Olympic Games Still In Question

    The International Olympic Committee has delayed a decision on whether to ban all Russian teams from competing in next month's Olympic Games in Brazil over allegations of an elaborate doping scheme. The World Anti-Doping Agency recently released an independent report alleging widespread doping by Russian athletes at the 2014 Winter Olympics in Sochi. So far, only Russian track and field athletes have been barred from the Summer Games in Brazil. VOA's Zlatica Hoke has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.
    Video

    Video Millennials Could Determine Who Wins Race to White House

    With only four months to go until Americans elect a new president, one group of voters is getting a lot more attention these days: those ages 18 to 35, a generation known as millennials. It’s a demographic that some analysts say could have the power to decide the 2016 election. But a lot depends on whether they actually turn out to vote. VOA’s Alexa Lamanna reports.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9079
    JPY
    USD
    106.10
    GBP
    USD
    0.7636
    CAD
    USD
    1.3106
    INR
    USD
    67.076

    Rates may not be current.