(CRI English)
Updated: 2008-03-03 15:44

Real estate developers in China's major cities are shifting their focus to medium-sized cities to cultivate new business. This phenomenon may signal that the mainland property market, which has experienced rapid price increases in recent years, is on the track to a more sustainable development.

Tao Hongbing is chairman of Beijing Sys-Win Real Estate Brokerage.

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He says that Beijing's two major real estate powers last year won the rights to develop a land plot in central Changsha city for more than $1 billion is a typical example of developers turning to smaller cities.

"Limited land resources can hardly sustain big real estate developers. As the land prices surge, the pressure to survive has been driving those developers to smaller cities across the country."

Tao Hongbing says land supply in big cities is sufficient to meet market demands, but an excess of real estate developers in cities ensures each has access to limited resources.

And the pressure increases because the Chinese government has undertaken a series of measures, including housing projects for low-income families, to regulate the frothing real estate market.

Housing prices in big cities like Shanghai and Beijing have soared in the past few years. Some have doubled or even tripled over a 12-month period, leading to dissatisfaction among the public, especially those on low incomes.

Zhu Xingliang, a Chongqing real estate developer who scaled his business back to smaller cities, says he is feeling the sting of the government control measures.

"The economical housing policy has cast a huge shadow on our business. Low income housing has a huge price advantage. For instance, some economical houses are just two miles away from commercial houses, but they are sold at a price about five or six hundred yuan (or $70 to $84) per square metre less than commercial houses."

Yi Xianrong, a consultant specializing in real estate studies, predicts a change.

"The real estate market in China will certainly undergo a fundamental change in 2008. The Chinese government has introduced many regulations since last year to improve housing conditions. When these policies come into effect, it will be time for the real estate market to reorganize itself."

As real estate developers swarm to second- and third-tier cities, Yi Xianrong says that the real estate market is on the way to a more healthy development after the government's interference.