Sticker shock in Beijing and Shanghai shows no sign of subsiding anytime soon

BEIJING - Twenty-nine-year-old Wang Qiang, an IT company executive in Beijing, plans to purchase a new home this year, but not in the capital. Instead he has set his sights on Xi'an in Shaanxi province - his hometown.

After working at the company for five years Wang has saved 230,000 yuan ($33,685) - an amount that affords him a 60 square meter apartment in Xi'an, but merely a single bedroom unit in Beijing.

High property prices in the country's main cities such as Beijing, Shanghai and Shenzhen have driven away many white-collar workers like Wang, and are fueling an up tick in more rural buying.

Property prices in China's 70 major cities climbed 9.5 percent in January, reaching a 21-month high, according to the National Bureau of Statistics.

But in big cities, the growth rate was above 50 percent, leaving home ownership out of reach for millions of people.

"You can hardly find an apartment for sale that is priced below 1 million yuan in Beijing ... and I really don't want to destroy my life by paying rent for an apartment here," Wang said. "I hope to buy a new apartment in my home town for my wedding."

Even more worrisome for Wang is the fear he will be priced out of the market and not be able to afford a home in Xi'an later.

Statistics show that the average selling price of a property in Xi'an went up 800 yuan last year, up from 4,393 yuan per square meter in early 2009 to 5,194 yuan late last year.

"The price of my parents' residence in Xi'an rose only 600 yuan from 2004 to 2008," said Wang.

Guo Ni, a Beijing-based business reporter in her 30s, is also considering a home purchase in her hometown Guiyang in Southwest China's Guizhou province. But her concern is a bit different from Wang's.

"With nearly 500,000 yuan on hand, I plan to buy an apartment in Guiyang's core business area for investment," Guo said. "I am sure that the investment return must be much higher than bank deposits, especially with inflation pressure expected to grow next year."

Guo said she believes that, sooner or later, property prices in Guiyang will spike just like they did in Beijing and Shanghai last year.

"Considering the quickening pace of urbanization, properties in China's second- and third-tier cities show more growth potential," said Qin Xiaomei, chief researcher with property firm Jones Lang LaSalle Beijing.

For Liu Xiangning, a senior researcher with United Securities, increasing government investments into second- and third-tier cities will also increase area incomes, thus leaving more room for price increases in smaller cities.

Meanwhile, as soaring land prices in first-tier cities put more risks on property developers, they are more willing to tap the potential of second- and third-tier cities.

Vanke, the country's largest property developer by market value, bolstered its exploration into smaller cities in 2009. Among the 44 newly added projects last year, 37 are located in more rural areas.

"We believe we can obtain land parcels at a more rational price in those smaller cities," said Mao Daqing, Vanke's vice-president.

CHINA DAILY

(China Daily 03/11/2010 page15)