Second best

Home prices in second-tier Chinese cities heat up, especially in Xiamen

Xiamen w

Xiamen: the best Chinese city for retirees?

When China lost the Opium War to Britain in 1841, Xiamen was one of the first ports to be forced open for trade with the West. Called Amoy back then, the coastal city boasted lush hills and such beautiful sea views that many foreign merchants chose to build their Victorian-style mansions along the coast of Gulangyu, one of the islands off Xiamen.

Xiamen remains a popular destination for property investors today. Alhough many Chinese cities are plagued with over-inventory, Xiamen has the opposite problem. A recent report by property agent E-House shows that demand persistently outpaces supply in Xiamen. The total amount of new floor space available is 50% less than what has been sold so far this year.

As a result prices have been going up sharply. In April, new home prices in the city went up 5.3% from March. The rate of increase rendered it the second fastest in the country, after Hefei in Anhui province, which topped the table with prices up 5.8% month-on-month (and up 17.6% in one year).

One property agent in Xiamen told 21CN Business Herald that he has never seen the property market in such a frenzy. “When we released a new project at the end of last month, those who queued up didn’t even stand a chance. Everything was sold out before it was released to the public,” he told the newspaper.

Property developers are feeling bullish too. Poly Real Estate recently spent Rmb5.4 billion ($810 million) to acquire a plot of land in the Tong’an district of Xiamen. That’s Rmb25,838 per square metre, a record for the city – indeed the land cost as much as nearby apartments have sold for in the secondary market. “Most locals could not believe how a site in such a remote area could fetch such high prices,” 21CN muses.

Barely a year ago the Guangzhou-based developer Evergrande grabbed headlines for paying Rmb15,000 per square metre for another Xiamen site. When the project was launched for sale recently, its residential units were fetching as much as Rmb24,500 per square metre. “These days even the flour is more expensive than the bread,” one property developer in Xiamen complains. “But what’s surprising is you can still sell it as a cake.”

Xiamen is not the only second-tier city that has seen an uptick in property prices. In fact, the real estate markets in many second and third-tier cities have been heating up, closing in on the big four of Beijing, Shanghai, Guangzhou and Shenzhen. Indeed, Xiamen, Hefei, Nanjing and Suzhou have been dubbed by industry observers the ‘Four Small Dragons’ of the real estate market (the ‘four dragons’ was a term used in the nineties to describe the fastest-growing Asian economies). And there have been calls for local governments to prevent house prices from running away.

“Average prices continue to increase month-on-month but a new trend has emerged: the rate of increase is slowing in first-tier cities and picking up in second and third-tier cities,” says Liu Jianwei, of the National Bureau of Statistics.

For Xiamen, there are a number of drivers for the increase in prices. The city in Fujian is also a technology hub where companies like Dell and Lenovo have offices. In the last few years, Xiamen has been attracting a large number of migrant workers from small towns and villages. When WiC visited the city at the end of last year, a local explained that the buoyant real estate market was also driven by another type of migrant: those who’ve chosen it as a retirement destination (owing to its good environment, climate and appealing food).

If Shenzhen is anything to go by, Xiamen may need to rein in its home prices.

Last week, rumours were rife that ZTE and Huawei were to depart Shenzhen, where they are headquartered. While the city mayor denied that the two telecom giants were relocating (a potential problem for him, as they are two of the biggest taxpayers), he admitted that as many as 15,000 companies have moved out of the city recently because of the surge in real estate prices. (Prospective employees have also been reluctant to move to Shenzhen because of exorbitant increases in home prices.) In the last 12 months, Shenzhen has topped all other Chinese cities in property price appreciation, says the South China Morning Post. New home prices in the city have soared 63% compared to 34% in Shanghai and 18% in Beijing.

But while ZTE and Huawei will keep their headquarters in Shenzhen, they are looking to move parts of their operations elsewhere, says Caijing. ZTE, for instance, is moving its phone production base from the metropolis to Heyuan, starting in October. Similarly, a company insider reveals that Huawei is mulling a separate office in Dongguan, which is only 30 minutes away from Shenzhen on the high-speed train.

“The housing market here is crazy,” says Christopher Balding, an associate professor at Peking University HSBC Business School in Shenzhen – and who is currently renting.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.