Third- and Fourth-Tier Cities Take Lead in Buying Restrictions

Eventually China will pass enough price control and buying restriction and selling restriction policies to end price appreciation. Looks like later this year as the restrictions hit all cities now.

iFeng: 楼市调控重点转向三四线城市 释放什么信号?
Yichang issued a restrictive sales policy, but it was only one of the cities that recently announced its control policy. According to statistics, from January to May this year, the real estate control policies introduced throughout the country reached 159 times. In May alone, there were more than 40 cities in the country that issued up to 50 control policies, setting a record for the most frequent regulation in a single month. At the same time, the control of cities has clearly spread from the first and second tier of hot spots to the surrounding third and fourth tiers. This is mainly due to the fluctuation of housing prices in some third and fourth tier cities.

According to the National Bureau of Statistics's index of sales of new-built commercial housing in 70 large and medium-sized cities in April this year, of the 16 cities that have gained more than 1% month-to-month, there are as many as 10 cities in the third and fourth tier cities, of which Dandong has the fastest increase, which is 2% higher than the previous month.

What are the reasons for the price fluctuations in the third and fourth-tier cities? What are the impacts of rising housing prices on the real estate market? Look at the interpretation of financial expert Wang Yahong.
CCTV interpretation

In recent months, the overheating of the property market has started to take off in the third and fourth tier cities, and the control stick has fallen.

Low prices, control of loose money flow to third and fourth-tier cities

The “strike point” of property market regulation has been moving downwards: Initially, the first-tier cities have introduced strict policies; in the past two years, Nanjing, Hefei and other second-tier cities have gradually joined the regulation and control camp; now, the regulation and control are concentrated in the third and fourth tier cities.

This shift reflects on the one hand that the previous regulation and control policies are indeed effective. As reflected in the data on the sales prices of commercial housing released by the National Bureau of Statistics, the sales prices of commercial housing in first-tier cities have decreased year-on-year, and the year-on-year growth of second-tier cities has declined. On the other hand, with the tightening of house prices in big cities, the third- and fourth-tier cities with relatively low prices and loose control have become the “squeaks” for the flow of hot money, and new problems are gradually sinking into third and fourth-tier cities.

The “heat sinking” has caused many third- and fourth-tier cities to experience property revelry. The excessively high prices have brought a heavy burden on local people. Because housing prices that exceed RMB 10,000 are out of touch with local consumption levels, home buyers feel overwhelming. In addition, high housing prices also have a serious impact on the adjustment of the real estate and other industries in these cities. Compared with the first and second tier cities, the economic fundamentals of the third and fourth tier cities are more fragile. The pressure on de-stocking of real estate is greater and the market risk is higher. High housing prices will slow down the pace of resource optimization and market rebalancing.

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