China hits property policy jam as regional market gap widens

While property prices in top- tier Chinese cities are booming, prices in smaller cities, where most of China's urban population lives, are still sinking, complicating government efforts to spread wealth more evenly and arrest slowing economic growth.

Property has a special place in the psyche of Chinese investors, far outstripping stocks and bonds as a vehicle for their savings, so sliding property prices have a big impact on individual wealth and domestic consumption. "As the real estate market is tied to many comprehensive industry lines and consumption, it is one of the key industries to support the Chinese economy," said Albert Lau, CEO of property firm Savills China. The weakness in property and related sectors, accounting for an estimated 20 percent of GDP, has been a big drag on Chinese growth, which hit a 25-year low in 2015 and is set to slow again this year.

A property revival could also play an important role in China's recent pledge to lift 50 million people out of poverty by 2020.

The regional variations in the market are stark. In top-tier cities, prices rose at their fastest pace in almost two years in February, with Shenzhen, Shanghai and Beijing prices surging 56.9 percent, 20.6 percent and 12.9 percent from a year earlier, prompting policies to try and cool the market in some cities. But further down the pecking order, many places are still grappling with the excesses of the last debt-fuelled property frenzy, which began in around 2005 and finally ran into the sand in 2014, leaving a huge backlog of unsold and unfinished developments.

In the port city of Tangshan, a big steelproducing city in the northern province of Hebei, developers built frenetically in the boom years, creating a surplus of properties that analysts estimate could take up to 13 years to unwind.

For the 18th consecutive month, home prices in Tangshan fell in February from a year earlier, official data showed.

It is littered with unfinished buildings - Reuters counted at least 10 such housing projects there last week - and each one rep- resents countless individual misfortunes, as developers abandon projects and run off with downpayments.

On one ghost development called "Youth Zone", a lifeless block set in withered grass, graffiti on a steel door into the site reads: "Give me back my home".

A 50-year-old investor who gave her surname as Ma said four years ago she made a downpayment of 120,000 yuan ($18,400), several years of savings, for a new apartment on another project. Soon after, it ground to a halt and the developer went missing, along with her money.

"There aren't many people around in Tangshan who haven't been caught in a property trap in recent years," she said.

Her sister paid nearly 600,000 yuan for an apartment in Youth Zone, but the cashstrapped developer stopped work last year.

Mo Bin, president of Country Garden Holdings (2007.HK), the 7th-largest property developer by sales in China, is optimistic, however, that government tax and stimulus policies will reinvigorate housing investment in the smaller cities.