Realty: Amid the gloom, some bright spots stand out
projects were in first-tier cities. The Wanda project and another inHefei were the two exceptions.
In 2014, the averagehomeprice in Hefei rose 4.13 percent to 7,423 yuan per square meter. By comparison, the average price in other secondtier cities, whichare similar in size to Hefei, fell 5.53 percent, according to the academy.
And yet even with the gain in 2014, prices in Hefei were far below those of comparable cities. In Hangzhou, a richer second-tier city, theaveragewas16,133yuanper sqm in December, and that was after a 10.63 percent contraction in 2014.
For developers, these gaps signal opportunities.
The emerging market in Hefei, largely untappedcomparedwith cities such as Hangzhou, has drawn major national developers. All of the seven developers with annual sales exceeding 100 billion yuan last year now have projects in the city.
What attracted developers is that Hefei’s “property rush” is inits infan- cy, and oversupply — a pervasive phenomenon that is crushing prices in many second-tier cities— is not a big problem in the city.
According to E-HouseChinaR&D Institute, it would need five to six months for the city’s housing inventories to be cleared, based on December’s sales, the lowest figure among the 35 cities.
Huang Yu, vice-president of the the academy, said that in similar cities last year, every square meter of new housing space led to just 0.6 sq m in sales. In Hefei, the figure was 0.99 sq m. What has driven robust sales is fast economic development and a massive population influx.
The city of 3.85 million people counts 2.4 million with a local hukou( household registration). The remainder are migrants. Compared with first-tier cities, Hefei is more welcoming to such workers: those who have a stable job for three years and make social security payments for two years are eligible for local hukou.
The migrants have been drawnby robust industrial conditions. In recent years, Anhuihas drawnmany manufacturers from neighboring Jiangsu and Shanghai, where labor costs are higher. The electronics, informationandsoftwareindustries have grown frenetically.
Hefei is among a handful of second-tier cities where the property market held up amid the sharp downturn that has swept through urban China. Hangzhou was the first city last year where prices were cut. That triggered a wave of price cuts around the nation. But the city still has a 12-month backlog of unsold housing.
Zhu Yiming, an analyst at China Real Estate Information Corp, said that the traditional viewof first-, secondandthird-tier cities that used to guide developers’ market strategy is not that useful anymore.
Risks in some second-tier
cities have risen so much that the conventional wisdom that “second-tier cities are a safe bet” is outdated. Developers must analyze conditions on a city-by-city basis.
The divergence can be seen in the land sale market as well. While nationwide land sales fell 26 percent by value last year, according to the academy, land prices in first-tier cities actually rallied 41 percent. In second-tier cities, prices slumped 4 percent, and in third-tier cities, they fell 2 percent.
“Land in first-tier cities was auctioned at high premiums, while most land in third- and fourth-tier cities was sold at the floor price, which clearly shows developers’ outlook,” said Andy Chang, a Hong Kong-based realty analyst with global credit ratings agency Fitch Ratings Inc.
“We maintain our forecast that the largest demand will derive from first-tier cities and a fewkey secondtier cities,” Chang said.
He said that in third- and fourthtier cities, most households already own two to four houses, leaving them with little incentive to buy more, especially since housing prices are no longer a one-way bet.
When most cities that had imposed restrictions on multiplehome purchases scrapped them in mid-2014 in an effort to reverse falling transactions, sales in lower-tier cities only rebounded briefly before faltering again.
Huang said that an acute problem faced by many third- and fourth-tier cities is that when rural residents in a province have the opportunity to move to a city and buy a home, they tend to skip cities near their villages and go directly to the provincial capital.
“Meanwhile, local governments in those small cities have sold massive volumes of land. The supply obviously exceeded demand. Local governments prefer to build a new city, which means huge amounts of newland sales, instead of redeveloping old urban areas, which is much more expensive,” Huang said. Contact the writer at firstname.lastname@example.org