Photo: Wikimedia Commons
Government tightening measures to prevent a property bubble in larger cities like Shanghai has pushed hot money to lower-tier cities driving up property costs there, according to ChinaDaily.A lack of premium land in bigger cities has also added to the problem.
While a crop of newly rich Chinese are fine with conspicuous consumption, rising property prices have driven up costs in third-tier industrial cities like Urumqui which have poorer communities.
In Yiwu, a second-tier city with a thriving commodities market a premium piece of land was priced at 37,000 yuan (about $5,700) a square meter.
Residential property built on land sold at record prices can be priced anywhere between 60,000 – 100,000 yuan a square meter. That’s about $9,300 – $15,500 a square meter, only $3,000 shy of property rates at Moscow’s Ostozhenka street, which was ranked the 10th most expensive street in the world.
Lack of investment options often turn Chinese investors to the property market. Bloomberg reports:
“Purchase restrictions in the major cities drove speculators to second- and third-tier cities,” said Liu Li-Gang, who formerly worked for the World Bank and is chief China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “China should raise interest rates and basically use monetary policies to curb demand, otherwise negative interest rates and few appealing options will send more speculation into the property market.”
The Chinese government hasn’t imposed a nationwide tax because prices are inflated in some, not all, cities but its clear tightening measures have created a new beast they’ll have to contend with.
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