New township projects in China may cause bubble to burst

November 5, 2013 Leave a comment

New township projects in China may cause bubble to burst

Staff Reporter

2013-11-05

Under the auspices of urbanization, many municipal governments in China have jumped onto the bandwagon of “new township” projects in recent years, fueling realty speculation and adding to concerns regarding the country’s property bubble, according to the news portal NetEase. Authorities in Guangzhou in southern China’s Guangdong province broke ground on construction of its New Knowledge City on Oct. 29. The project in Luogang district will encompass 75 billion yuan (US$12.3 million) of investment, and will spearhead the implementation of a further 10 new township projects in the city.Peng Peng, a senior fellow at the Guangzhou Academy of Social Sciences, supports the new township projects, saying they can alleviate the population pressure on first-tier cities, such as Beijing, Shanghai, and Guangzhou, caused by the influx of migrant workers.

The new township fever has also spread to second- and third-tier cities, such as Chengdu, Tianjin, and Nanchang, in recent years. Earlier this year, the Chengdu city government in southwestern China’s Sichuan province approved an internationalized new township project. However, many of these large scale projects may fail to find buyers, the report said, adding that there will be a lack of adequate living facilities to attract residents.

Peng said that industrial development is critical for new township projects in order to attract potential buyers, otherwise such projects may add to the growing number of vacant ghost cities across the country, Peng added, using Ordos in northern China’s Inner Mongolia and Guiyang in southwestern China’s Guizhou province as examples.

Meanwhile, occupancy rates for buildings in new townships in second- and third-tier cities have remained low, with the vacancy rate of office buildings in Zhujiang New Town in Guangzhou, for instance, staying at 13% in the third quarter — the highest in the city.

Liu Yuan, an executive at realty consulting firm Centaline Group, said that new township projects run the risk of oversupply, which may result from erroneous planning. Liu said that a new township in Nanchang, in southeastern province of Jiangxi, remains sparsely populated 10 years after its completion due to inadequate educational and medical facilities.

The Tianfu new area in Chengdu has also only attracted 2 million residents, a far cry from the target of 6.8 million, after years of development. It virtually turns into an empty city at night, dotted by numerous dark office buildings and residential buildings, Liu said.

At a recent public forum in Beijing, Li Wei, director of the Research Development Center of the State Council, said that housing prices in Wenzhou in eastern China’s Zhejiang province and Ordos have begun to stumble, showing possible signs of a bursting property bubble.

Filed under Macro Trends

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