Property

An urbanised property market

Shanghai

Urbanisation is one of the factors affecting China’s housing market. With more people moving to urban areas, demand for houses in those areas subsequently increases. Thus, for cities with larger population inflow, more home supply is needed. However, some cities with significant population inflow do not increase their residential property supply according to population growth, which may push up the future housing price.

>> The arrival of aggressive developers from the PRC

China’s economic reform was put in place in the 1970s which lead to rapid industralisation. Township enterprises moved to big cities to lower costs of logistics and electricity, which in turn created jobs in the area and attracted people to move in. The gradual progress of urbanisation persisted over the past few decades, with the total population living in urban areas surging from 26% in 1990 to 56% by the end of 2015. The Chinese government has aimed at lifting the urbanisation rate to 60% by 2020, meaning that nearly 100 million people will leave the countryside over the next three years. 

Although some large cities control migrant population to maintain their living standard, their population continued to rise. Tianjin, Chengdu, Beijing, Shenzhen and Guangzhou were some of the cities with high migration population during 2012-2016. Tianjin was at the top of the list with over two million people moving there during the past five years; while the other four cities also recorded over one million of population inflow. Some cities with continuous population inflow increased their pace of housing supply to cater to the demand.

The construction of residential floor space in Tianjin, Chengdu and Beijing was over 100 million sqm in each city during 2010-2016, with Chengdu at the highest with 165 million sqm. Guangzhou was slightly less than the above mentioned cities with 89 million sqm of residential construction that began during the same period.

Although Shenzhen received substantial migrant population, its residential space construction was merely 40 million sqm in the past seven years. Housing supply of a city should be planned according to its population growth. Yet, Shenzhen did not do so which lead to the imbalance of supply and demand as well as an even higher housing price in the future. At the same time, Shanghai’s migrant population was not as high as other first-tier cities, with just around 720,000 population inflow during the past five years. However, the start of the residential construction was around 123 million sqm during 2010-2016, which is the highest among the four first-tier cities. Housing prices of Shanghai has shown signs of cooling this year, probably benefitting from the abundant supply.

The unaffordable housing price is likely to deter people in rural areas from moving to urban neighbouhoods, which will be an obstacle of achieving the urbanisation target. The government has to plan housing supply according to the anticipated population in order to maintain a healthy housing market and a consistent process of urbanisation. 

>> Previous issue: Heightened control on the real estate industry

>> Next issue: Challenges and opportunities of retail property