Residential Property Prices Increasing in China

Developers in China are looking toward smaller cities for growth as residential property prices have increased as of late. While larger cities such as Beijing and Shanghai feel …

Developers in China are looking toward smaller cities for growth as residential property prices have increased as of late. While larger cities such as Beijing and Shanghai feel the effects from new property taxes, developers are choosing to focus more on first time buyers in the smaller cities. See the following article from Property Wire for more on this.

Residential property prices in China increased 0.95% in January from a month earlier, according to private data provider China Real Estate Index System which is believed to reflect real estate trends better than official government figures.

CREIS said home prices stood at an average 8,645 yuan ($1,677) per square meter in the 100 cities it covers in its survey. It tracks only residential property, while the National Bureau of Statistics data, whose latest index is due out this week, includes the non-residential sector.

The price increase comes despite a rash of steps to contain property inflation since late 2009, including a trial of a long debated property tax in Shanghai and Chongqing that began last month.

Another index from SouFun Holidays indicates a similar rise. It says prices increased 1% in January, the biggest month on month gain. Residential prices in all 100 cities tracked by SouFun climbed from December, with average values increasing to 8,645 yuan ($1,312) a square meter. The gain followed a 0.9% rise in December’s home prices, according to the nation’s biggest property website owner.

‘The market hasn’t really responded to the government’s policies yet. Let’s focus on February’s data to see if the strong government curbs really work,’ said Sylvia Wong, a Hong Kong based property analyst for UOB Kay Hian.

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Changzhou, a mid-sized city in eastern China saw a 2.6% gain from December, the biggest advance in the country, according to the SouFun index. Prices in Guangzhou, the nation’s southern business hub, increased 2.5% and were up 1.6% in Chongqing and 0.7% in Shanghai, it said.

The measures are, however, changing the locations where Chinese developers are building more homes. They are moving away from cities like Shanghai and Beijing which are expected to be hardest hit by new property taxes.

China Vanke, the country’s biggest developer by market value, said an expansion into central and western Chinese cities, including Wuhan and Chengdu, helped 2010 revenue exceed 100 billion yuan ($15 billion), a target it had set for 2014.

Cheaper land and rising incomes in inland cities are luring developers as the government targets speculators, focused on Shanghai and Beijing, with stricter mortgage requirements and property taxes. Land investment in less affluent cities jumped 35.4% in the past year, according to data from the China Real Estate Information Corporation.

‘Policy is a driver of this, both because the policy’s footing in more developed cities is stricter and also because there is tremendous unmet demand for modern housing in these second-tier cities where incomes are rising quickly,’ said Michael Klibaner, head of China research at Jones Lang LaSalle in Shanghai.

‘Everyone agrees that opportunities lie in second and third tier cities, including us. There are more cities in that category and their home prices have more room to rise,’ said Yang Haisong, a Hong Kong based spokesman for China Overseas Land and Investment.

It started expanding in the country’s interior five years ago, posted its biggest increase in sales volume in northern China in December. It sold 1.5 million square meters (16 million square feet), a 67% jump from the same period a year earlier.

‘Top cities are increasingly mature: people are actually going to be second, third or fourth time buyers. If you go to these lower-tier cities, a lot of them are first time buyers. You are tapping into fundamental demand, with no restrictions,’ said Wee Liat Lee, a Hong Kong based property analyst at Samsung Securities.

This article has been republished with permission by Property Wire.

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