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Chongqing property boom a test for China’s economy

April 12, 2006

By Jason Subler

CHONGQING, China (Reuters) – The billboards that line the
road from the airport to the center of this metropolis in
China’s southwest proclaim as soon as you arrive that the
country’s property boom has spread firmly to the interior.

Touting housing developments like “Venice Impression” and
“Dream Town,” they are as ubiquitous as the cranes and frames
of high-rises covering the hills on the outskirts of this
gateway to the west, which not long ago were only dotted with
villages.

Once a scene reserved for eastern cities like Beijing and
Shanghai, they testify to a transformation overtaking China’s
second-tier cities, as investment in factories and
infrastructure brings in jobs and raises incomes.

“Chongqing’s property market right now is a lot like
Hangzhou’s five or six years ago, only without the same kind of
bubble Hangzhou went through,” said Lian J H Ye from the
Chongqing office of property consultants DTZ Debenham Tie
Leung.

Hangzhou, and its close neighbor Shanghai, came under the
spotlight for rampant property speculation that sent prices
soaring. Beijing responded with a raft of cooling steps,
including levying capital gains taxes on homes resold within a
short period and higher down payment requirements.

Ye thinks Chongqing will be spared a similar fate because
its market took off after the lessons from Shanghai had been
learned.

A lot is riding for the world economy on whether he is
right.

The property market holds up a mirror to China’s
investment-driven economy, and pessimists fret about a
boom-bust cycle that will saddle banks with a new crop of bad
loans and sap the demand that has sent metal and materials
prices soaring.

BOOMING ON THE RIVER

Chongqing, a transport hub on the Yangtze river where an
army of porters known as “bangbang” carry their loads up a maze
of steep slopes, is growing into a major industrial and
financial center, buoyed by investments by foreign firms such
as Ford and ABB.

The Three Gorges Dam downstream has also been a boon for
Chongqing. Home to 30 million people, one third of whom live in
the city proper, the municipality added more than 237 million
square feet of residential and commercial floor space in its
urban areas last year.

That was nearly 40 percent more than in 2004, but Ye says
there is plenty of demand to soak up the supply. Three-quarters
of the new space was housing.

For one thing, prices are growing more slowly than incomes.

In Chongqing’s urban districts, house prices rose 8.5
percent in 2005 to an average 2,600 yuan ($324) per square
yard, while average disposable incomes grew 11 percent to about
10,200 yuan.

After a recent tour of inland cities, including Chongqing
and Wuhan, Thomas Deng, China strategist with Goldman Sachs in
Hong Kong, said he was encouraged by what he sees as favorable

affordability ratios and reasonably balanced supply and
demand.

“Demand in the second-tier cities is largely local. There
is not much international money flowing around in the property
market in such cities, in contrast to Shanghai,” Deng said.

“That means the demand is genuine and more sustainable.”

In Chongqing, where DTZ’s Ye says 94 percent of housing is
bought by locals, the man on the street is generally upbeat
about the housing market.

Liu Yi, a 26-year-old bookstore manager who studied in
Beijing, knows he makes significantly less than fellow
graduates who stayed in first-tier cities, but he’s not
complaining.

“I wouldn’t say housing is cheap here, but I know my
classmates in Beijing and Shanghai feel a lot more financial
pressure when buying a place,” he said.

Housing in Beijing now costs an average 6,776 yuan per
square yard, according to state media, while disposable incomes
in the capital averaged nearly 17,700 yuan at the end of 2005.

LEFT BEHIND

In a new residential district being built north of
Chongqing’s city center, one upscale villa complex after
another sells out nearly as soon as they can be built, offering
the growing middle class a life of backyard barbecues and
two-car garages.

“I like the feeling of open space it offers. It really
feels fresh and new,” Dong Xiao, a 30-year-old businesswoman,
said of one development of adobe-style townhouses.

But back in the city center, Yi Yi, a laid-off factory
worker, illustrates that no matter how robust the property
market might appear, wide income disparities mean a large swath
of people are inevitably left by the wayside.

In the shadows of glittering offices, hotels and shopping
centers, she and her husband and daughter occupy 20 square
yards in a neighborhood of rickety wooden buildings where many
of the leaky roofs are patched up with tin and canvas.

She would like to get out but says they just cannot afford
to, even with government subsidies.

“Even the cheapest places cost more than 40,000 yuan, and I
need that money to pay my daughter’s university fees,” Yi said.

“Maybe after she’s gone to school and found a decent job,
she can get a place of her own.”

($1 = 8.0172 yuan)


Source: reuters



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