Report result, demand for real estate in Tier 3

Report

In an attempt to
transform from an export oriented economy to a services-based, capital
investment focused economy, China is implementing a urbanisation plan to the
lower tier cities. With the market saturation of T1 cities accelerating, the
central government has tried to ease urban density and moving swathes of people
to lower tier cities. As a result, demand for real estate in Tier 3 and 4
cities has surged. The attraction of buyers can also be attributed to local
governments imposing cheap credit and removing any restrictions on property
purchase. A trend of reverse migration and population growth has led to a net
population outflow back to lower tier cities. Residents of these cities have
seen the income gap close compared to larger cities and their purchasing power
has risen, attracting investors and developers. This creates a cycle of rapid
expansion in T3 and T4 Chinese cities, with the government continuing to
implement policies to regulate this growth and ensure sustainability.

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Hukou

China operates a hukou
system, a legal registration system identifying residential area and personal
identification information. Typically separated into either urban and rural,
this system has provoked economic and social inequality and has hindered the
goal of establishing a urbanised consumer-driven society. Migrant workers
working remotely in cities are treated unfairly in the labour markets, denied
home loans and cannot gain access to social benefits or a good education for
their children. This has prompted many to return to their rural hometowns
despite the more challenging living conditions.

To support and sustain
the rapid growth in lower tier cities, the central government has abolished
migrant restrictions on small cities while maintaining tight controls on the
largest cities in China. The government has implemented a points based grading
system based on the applicant’s education level, tax payments and work
experience, reducing the supply of migrant workers from rural towns. However,
Tier 3 and 4 cities have significantly more relaxed regulations, which remains
in line with the government’s aim of congregating workers in these cities to
spur labour supply and economic growth.

The ultimate goal is to
expand urban hukou permits to 100 million migrant workers by 2020 in an effort
to rebalance the economy (Spencer Sheehan).  

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