Tag Archives: construction

In rush to build, property stumbles

Last month, the New York Times published an article written by Bettina Wassener on China’s real estate sector. This article, entitled “ In Rush to Build, Property stumbles ”, points out the issues that China may face as a result of the “construction rush” and the fragility of the real estate sector; but unlike in her usual articles, this time the author has not adopted a dramatic note; she has put this real estate boom into perspective, and has formulated long term hypotheses.

According to Wassener, construction projects have been mushrooming all over China for the last five years, not only in great metropolises, but also in second tier cities. Construction and real estate have become major sectors of the Chinese economy. In order to avoid real estate speculation and bubble bursts, the central government launched several measures to cool down the market in 2010; consequently, real estate prices tended to slow down.  Although, these control measures were necessary, they may have had side effects on the overall economy. Wassener has noticed that the property sector varies greatly from one city to another: whereas demand for housing and office space is still high in large cities such as Beijing and Shanghai, with no drop in prices, some of the smaller cities have begun to suffer from oversupply, causing real estate prices to decrease. All too often, construction projects in second tier cities fail to match the demand: priority has been given to eye-catching properties (described by Wassener as vainglorious projects) instead of affordable housing units. Because of housing restrictions, investment in construction projects has moved from top cities to provincial cities: but demand for luxurious housing units and CBDs is much lower there. Developers and local governments that have invested in such projects may shortly face financial weaknesses. Wassener stresses that for 2012 developers may suffer “ record-high debt maturing ”.

For the author, Beijing is trying to achieve equilibrium between developers who need to secure their investments, and the local population who can hardly afford to purchase property, due to high prices. Thus, real estate also influences social issues.

Construction in Kunming (China), Gipouloux François

Wassener has, however, raised an interesting issue by pointing out that China is a country undergoing a strong urbanisation movement. China is not Spain: there may be an oversupply in the housing market, especially in second tiers cities, but China’s  urbanisation process has not yet ended. More and more rural migrants will become urban dwellers in the next decades, and Beijing will “ undoubtedly implement measures to develop central China’s cities” .  For the author, the housing market may also benefit from the cultural trend in China that favors real estate ownership – the desire for home ownership seems to be more widespread in China than in Europe.The author has also succeeded in demonstrating that China is not undergoing a uniform urbanisation process:  differences still remain among Chinese cities and the construction market is not as mature in central China as it is in coastal China. This is also why it is important not to stereotype Chinese cities, a rule which we, at UrbaChina, must strictly follow.

We regret that the author has not examined the shady connections between real estate developers and local governments. Many large real estate projects have been ordered by local governments, who in turn may have to face financial issues in case of oversupply.  This may ignite social protests among the locals. When local governments own housing developments, we may well wonder if conflicts of interests are not involved.

The phenomenon of oversupply in housing described in this article may also result from bad planning on the part of the local authorities.  They may not have been able to foresee the urban trends in their cities, or they may have favoured construction as an important short term financial resource. In some cities, construction oversupply may partly result from the fiscal policy adopted by Chinese local governments.



Sebastien Goulard

Ph.D. in political science (EHESS, Paris); M.A. in social sciences (EHESS, Paris); M.A. in international relations (IRIS, Paris), B.A. (Hons) in international political studies (ESE - Nottingham Trent University)

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CHENGDU, China – With more than 100 tall cranes on the skyline, this metropolis in western China looks vibrant at first glance despite the country’s sharp economic slowdown.