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China experiences major property boom

Written by: Staff
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Chongqing (China), Apr 10: The billboards that line the road from the airport to the centre 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 neighbour 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 downpayment 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 centre, 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 22 million sq metres of residential and commercial floor space in its urban areas last year. That was nearly 40 per cent 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 dollar) per square metre, while average disposable incomes grew 11 per cent 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 favourable 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 per cent 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 sq m, 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 centre, 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 barbeques 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 centre, 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 centres, she and her husband and daughter occupy 20 sq m in a neighbourhood 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.''

REUTERS

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