Realty glut not a major concern for big cities

The more than 300 third-tier cities and 2,000 fourth-tier cities or counties, characterized by less advanced industrial development, limited inflow of non-local people and relatively weak demand for commercial housing, need not worry too much about their housing inventory. The supply glut that has plagued many of them is only temporary, because the actual demand has been rising(about 5 to 8 percent) in recent years, not the other way round.

What drove a slew of property developers to invest in the less-developed cities has a lot to do with the real estate policies aimed at lowering the prices of high-end housing in major cities, and some local governments' generosity in offering land for real estate development. The oversupply should not last too long with more suburban residents moving into bigger cities-mostly third- and fourth-tier cities-considering their afford ability and other factors.

The real dangers are in major cities, where land is becoming increasingly scarce, property prices are escalating, demand for low-cost housing is high and real estate financing remains unregulated.

Of the four first-tier cities, Guangzhou has seen the mildest change in housing prices, while Shenzhen, although known for a drastic increase in prices of new homes, actually lags behind many smaller cities in terms of the amounts involved in transactions. Local residents have long been subjected to certain restrictions on buying homes, leading even to negative growth in terms of traded areas for some years.

Indeed, the average transaction amount is consistently increasing, which is basically normal with the total net increase of people reaching 5 million in Beijing and Shanghai during the first decade of the 21st century. And as the local land supply shrinks on a yearly basis, it costs more to buy an apartment in these cities.

Therefore, destocking housing inventory will not be a major concern for big cities, which should improve the local transportation systems to encourage more people to live in neighboring areas and further optimize land use.

The author is a researcher at the Shanghai-based E-house China Research and Development Institute.