19 November 2018

Two roads diverge in an urban push

Chinese developers, big and small, have faced the same key question since Beijing called on them to help drive the country’s urbanization push: should they stay in just a handful of key cities or boldly go beyond the fringe into lower-tier centres? 

Some of the bigger names are taking the well-trodden path to consolidate their positions in major urban centers. The thinking is reflected in comments by Ren Zhiqiang {任志強}, the outspoken president of Huayuan Property Co., Ltd. (600743.CN).

Ren told the 21st Century Business Herald that more than a few developers came unstuck after they flocked to second- and lower-tier cities in 2011 as Beijing clamped down on runaway housing prices in major centers. Ghost towns in places like Wenzhou and Ordos show just how oversupplied that market became and why there was a noticeable pull-out at the end of 2012.

Ren is a firm advocate of the view that, despite Beijing’s insistence that townships and small cities will absorb the bulk of the migrants from rural areas, people will continue to stream into Beijing, Shanghai, Guangzhou and Shenzhen because of better career opportunities and social welfare. And that’s why it’s “a sure thing” that housing demand will grow in these areas, he said.

A senior Vanke (00002.CN, 20002.CN) executive echoed Ren’s remarks, saying that virtually all of the country’s best universities and hospitals and major businesses are clustered in the four top-tier cities, giving them natural appeal to migrants.

But not everybody is buying that line; other developers are sticking to regional markets. 

Shimao Property Holdings Ltd. (00813.HK) is charting new territory to capture housing demand in the country’s smaller cities. Media reports said that in one day the firm booked 4.3 billion yuan (US$711 million) in sales from a housing development in Jinjiang {晉江}, a county-level city in Fujian province, and 2 billion yuan from another project in the neighboring county of Shishi {石獅}.

Shimao’s “go rural” effort will move into top gear this year. A sales executive told the Herald that the company will expand in some Zhejiang and Jiangsu counties where disposable per capita income is on par with that in Shanghai and Shenzhen.

Country Garden Holdings Co. Ltd. (02007.HK), which also concentrates on the lower end of the market, has comfortably ridden the property wave to new sales highs, reaping nearly 50 billion yuan in revenue in 2012.

Observers say Wenzhou and Ordos may just be exceptions because Wenzhou is the only one of 70 cities monitored by the National Bureau of Statistics where home prices have fallen on annualized basis since May.

Now, as the urbanization drive gets going, cadres will lose no time launching more new town projects. The key for developers will be knowing whether it unleashes speculation or genuine demand to improve housing conditions.

– Contact the writer at [email protected]



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