Home prices in first-tier Chinese cities may rise another 10 to 15 percent this year due to prolonged tight supply and robust demand, according to global real estate consultancy Savills.
“The limited supply in first-tier cities is unlikely to change anytime soon. Therefore, home prices in these cities would continue to hover at a high level,” Albert Lau, Head of Savills China, told the Hong Kong Economic Journal’s EJ Insight in an interview.
The nation’s biggest metros — Beijing, Shanghai, Guangzhou and Shenzhen — are still a big draw for millions of migrants who seek access to better incomes and lifestyle, as well as good social infrastructure, he noted.
In Shanghai, the migrant population has already exceeded 9.6 million, accounting for 40 percent of the city’s total population by the end of 2012, according to a survey by the local statistics bureau.
In addition, Lau pointed out that property investment is the top choice of most Chinese who aim to protect the value of their wealth amid consistently high inflation. Limited alternative investment option is another reason why people will continue to flock to real estate, he said.
China’s real interest rate (nominal interest rate minus the level of the consumer price index) has been staying at a near negligible level or even in the negative zone in recent years. That has prompted avid Chinese savers to put their money into the more profitable property market.
Nevertheless, the property market in the country has been witnessing some divergence between big cities, where prices are rising rapidly, and the smaller places, where prices are under some correction pressure due to oversupply, Lau said.
“Smaller places like third and fourth-tier cities usually have single-product economy, and local residents there buy properties mostly for self use. As the overall economic growth is moderating, these cities might be the first to be affected,” the Savills executive said, citing the example of a ghost town in Inner Mongolia’s Ordos, where as many as 90 percent of housing units constructed in the city’s Kangbashi New Area lie vacant.
Lau, however, said that there is little chance of a massive meltdown of the property market in the smaller cities in 2014 as some cities have already increased the down-payment requirements and interest rates for second mortgages in a bid to rein in the home prices.
China’s 50 riskiest property markets are in the smaller provincial cities, where rapid-fire, debt-fueled housing construction over the last five years has outpaced actual demand, according to a recent report published by the China Real Estate Information Corporation.
Meanwhile, property developers would exercise more restraint in acquiring land plots next year after a wave of furious land purchases in 2013, Lau said.
After staying away from the land market since second half of 2012, developers “have replenished their land banks in recent months. Therefore, they may take a break this year,” he said.
The top 10 Chinese developers spent more than 256 billion yuan (US$42.3 billion) on land banking in 2013, more than double the 101 billion yuan they spent in the previous year, according to data from real estate services firm E-House China.
China’s land market has made a comeback after hitting lows in 2012, with the land transaction value in the nation’s four largest cities topping 500 billion yuan last year, marking a surge of 150 percent over the 2012 level, according to data from Centaline Group.
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