Realty: Amid the gloom, some bright spots stand out

China Daily (Canada) - - FRONT PAGE -

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 zhengyang­peng@chi­nadaily.com.cn

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