Investment expected in Chinese second-tier cities

Investment expected in Chinese second-tier cities

Research from Savills suggests that property investment in China’s second largest cities is likely to increase this year.

Property prices in China’s four biggest cities (Beijing, Shanghai, Guangzhou, and Shenzhen) have been dramatically increasing in price for the past two years. Such rapid rises have prompted local governments to roll out austerity measures, including limiting purchases of apartments and increasing mortgage deposits, in order to restrict the growth to more manageable levels.

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However, research from Savills is warning that second-tier Chinese cities may still attract investors before local authorities are able to effectively manage surging prices.

“Some investors may be looking to buy properties at discount prices in some second-tier cities, expecting prices to rise in a very short period of time,” said James Macdonald, director of China research at Savills. “But the government is equally expected to react quickly this year if they see increasing volumes.”

Experts are predicting that property price growth will slow in most of China’s well-developed cities in 2017, but they are also forecasting that speculators will be taking the plunge in many of the smaller cities.

“Some investors will be happy to invest in second-tier cities such as Suzhou, Nanjing or Hangzhou as they know the markets well,” Macdonald continued.

Others may be looking at cities such as Chongqing because they believe there is little risk involved.”

The property sector has been instrumental in the growth of the Chinese economy over the past 20 years, contributing heavily to maintaining double-digit growth. The government has intervened on numerous occasions in a bid to slow down prices when they were rising at an unsustainable rate.

2017 House Price Predictions

According to Savills, house prices in Shanghai have more than doubled since the middle of 2015, with the average transaction price of an apartment hitting 100,000 yuan (£11,850) per square metre in the fourth quarter of 2016.

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