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House prices of big cities strictly under control of policies, the next wave of soaring house prices may occur in class B and C cities

  Recently, a real estate professional said, “the house price of big cities is extremely high and all the real estate developers are going to invest the secondary cities, meanwhile the local governments of third-level cities are desperately merchant and bring investment in order to make the house price higher.”

  In these years, faced with the soaring house price and the rising cost of living, many white collars have to leave the metropolis such as Beijing, Shanghai and Guangzhou and settle down in some small cities. And then, how do these people and the residents of small cities deal with the coming rising house price in their new home and home original.

  The house price of big cities strictly under control

  the liberal policy performed in secondary cities and third-level cities

  After the two sessions, the big cities are still the focus of housing price control. Compared with the big cities, the house price of small cities suffered less pressure. This is also the detonating fuse of the house price rising in secondary cities.

  Not long ago, Minister of Land and Natural Resources Xu shaoshi said, the approval of land in the future will tend to secondary and third tier cities. In the context of this reality, more investors and real estate developers will flock to second and third-level cities.

  According to statistics, in late 2009 along with the obviously rising of house price in big cities, the price increases of some parts of secondary and third level cities even out of big cities. Take Lanzhou for example, the house price rose about twice as compared to 5 years ago. The house price of the cities such as Wuhan, Hefei, Changsha, Xian and Jinan also reached or created a highest point in history.

  Just in view of the price earnings ratio, the house prices in secondary and third level cities seem to have a wider space for increasing.  According to the statistics showed: in view of the price earnings ratio, the middle part, west part and north-east district are lower than that of the average of the whole country and east part. The specific statistics as followed: middle part (6.1), west part (6.3)and north-east (8.1)district,the whole country (8.4)and east part(10.8). Compared with 2008, in 2009 the price earnings ratio of east part is increased by 0.9; that of the whole country increased by 0.8; that of the middle part and west part increased by 0.2 and 0.3; the north-east district remained.

  Currently, not much of the secondary cities’ housing price reached 10,000 Yuan/square meters. Average selling price of commercial housing in most cities is still about 5,000 Yuan/ square meters, but prices still are around to keep up momentum.

  Large developers take both metropolis and small cities into consideration and flock into secondary and third level cities to buy lands

  If merely with the ability of purchasing in the secondary and third level cities of their own developers, the house price is not enough to form such a crazy situation. Just with the influx of large developers, boosting the house price increases.  “That is not to say we are going to give up metropolis, but we are going to expand the distribution in other smaller cities, because the land price is relatively reasonable there,” said by the vice president of Vanke Group.

  For another real estate giant—Shanghai Greenland Group, has also entered 36 cities and benefited quite good in secondary cities. In the next two or three years, Green is going to extend to more than 50 cities.

  In Shijiazhuang, Hebei Province, EVERGRANDE and WANDA have already performed their projects, Vanke is stepping up their pace of entry. It is an indisputable fact that the developers increase the land reserve substantially in secondary and third level cities. Because of the rising cost of land in big cities, the trend that developers marched in small cities is much clear right now. The Yangtze River Delta, Pearl River Delta and Bohai Rim region are key areas.

  Adequate supply of secondary urban land

  Expected to dampen down the estate market through new policy

  Policy of strict regulation, tightening land supply, the base price of real estate has been too much high. The issues mentioned above are the general state of real estate market in many cities. Since 2008, many secondary and third level cities in varying degrees to start construction of metro such as Tianjin, Shijiazhuang, Kunming, Xiamen and Hangzhou. Adequate supply of land provides plenty of opportunities to developers with huge appetite.

  According to a report, in 2009 the top 10 of housing enterprises have 41 million square meters of land reserves on total in first-class cities. The land reserves reached 174.79 million square meters in other cities, which accounted for 81% the proportion of their total land reserves.

  The large influx of developers directly pulled up land prices in these cities.

  Faced with a new round of price increases in second and third level cities, experts believe that the institutional factors are the main reasons. If the land transfer method does not improve, the housing security system is still incomplete, the tax structure can not be changed, then other policies to address the high housing price will be no avail.

  On March 22, the Department of Land and Natural Resources make a decision in a video conference. The decision is that from March to July, they are going to perform special actions to clean up unused land, land speculation in store to villa and other illegal sites. Whether this new deal can give some solutions to the indication of market fever or not, still takes some time to be tested by the market.

  Market links

  Property stocks of small cities took actions and got eye-catching performance

  Recently, the stock market performed very well, we can tell that from some property stocks’ performance. Among all the regional real estate companies, Zhongtianchengtou, Suning global, Mingyun estate, Yunnanchengtou, Rongsheng development and Hefeichengjian rose more than 10%. Take “Yuntian planet” for example, it is a representative of property stocks from secondary and third level cities and its PNAV discount rate goes further reduce. As of March 30, the rates are: 21%,-25%,-6.5% and 4%, and many companies have emerged premium. From the recent market performance, the small property shares rebound quickly.

  Agencies were initially involved in real estate stocks

  The statistics delivered by Great Wisdom shows that since last week, real estate index rose more than 5%. Related stocks rose astonishing: Riverside Group was up 18%; Xinda real estate rose 14%; Jia Kai City rose 13%, etc.

  It is worth noticing that, on April 1 Riverside Group rose 8%, volume 1700,000 hand, turnover of 247 million Yuan. The first five seats were all occupied by agencies and the total bid is over 136 million. The biggest buyer spend 75.17 million Yuan which accounting for one third of the total transactions of the day. Compared to the huge amount of buying, the amount of sold is not worth mentioning. The total of the five agencies sold around 25 million Yuan. It is clearly that agencies begin to concern about the estate stocks.

  Property stocks of small cities worthy of attention

  View of the current developing trends of real estate, major property developers turning to second and third level cities. Meanwhile, the real estate sector experienced a sustained decline in early months of this year, for it is highly unlikely to deep down again.

  Short review

  Developers need to calm down in the crazy market of secondary and third level cities

  It has become a new trend in real estate sector that layout of secondary and third level cities. Not only locates in Yangtze River Delta but also has a lower land price, the south part of Jiangsu Province is becoming a new battlement for real estate developers.

  It is not surprising that the developers targeting the secondary and third level cities. Along with the introduction of macro-control policy intensive, the “soaring price” of big cities is expected to ease. Coupled with the profits of private real estate enterprises getting lower because of the marching in of state-owned enterprises in big cities, it is inevitable for the crazy developers turn into real estate market of secondary and third level cities instead. However, in the condition of irrational behavior made by capital and developers only for the profits, it is particularly necessary for the governors of secondary and third level cities to calm down.

  It is a “double-edged sword” for capital poured into the secondary and third level cities. Because in the same time of promoting local economic development, it can also bring with the risk of driving up prices bubble. On the one hand it can bring to local governments the opportunity to sell high land price, but on the other hand will give the city the bane for long-term development. Eventually, it is still the local governments and local people who swallow the bitter pill, especially in the case of such a rush influx of developers.

  Therefore, the secondary and third level cities need to maintain a rational sufficiently for the rush coming of real estate developers. It is necessary to introduce appropriate policies and initiatives to make the profit impulse of developers under control.