Jul 18, 2013 06:02 PM

Property Markets in Smaller Cities 'Troubled by Oversupply'

(Beijing) – The property markets in China's smaller cities are increasingly troubled by oversupply, the CEO of a real estate services company says.

On July 16, the real estate research institution CRIC Group released a ranking of 288 cities in the country according to the risks they faced. About 200 cities on the list were smaller, or third tier, cities.

Of the 50 cities that faced the most risk, all but one were these tier-three cities. The top five cities whose property markets faced the most risk were in Gansu and Inner Mongolia. Lhasa, the capital of Tibet, was the only medium-sized city. Its property market was considered the 12th riskiest.

Property market analysts in China tend to divide the country's cities into four tiers. The four first-tier cities are Beijing, Shanghai, Shenzhen and Guangzhou. The second tier comprises mainly provincial capitals and the larger cities in each region. Most cities in the west are put in the third and fourth tier.

Ding Zuyu, CEO of E-House (China) Holdings Ltd., said many smaller cities lacked clear development strategies and drivers of economic growth. Many residents of these cities want to move to big cities, and many rural residents of the country's western regions preferred moving to newly urbanized townships and county seats.

This meant a lack of demand and local governments' continued reliance on revenue from land sold to developers will lead to distortions in property markets, Ding said.  "The oversupply problem will be difficult to solve given the origin of supply," he said.

CRIC also listed the top 50 cities whose property markets had better prospects.  The top four all went to the country's first-tier cities. No. 5 was second-tier Chongqing.

The highest performing tier three cities were near the coast. Yantai, in Shandong Province, was 19th; Wuxi, Jiangsu Province, was 20th; and Foshan, Guangdong Province, finished 21st.

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