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Real Estate Growth to Slow over Next 15 Years
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Speaking at a forum in Xi'an on October 29, Huang Yu, executive vice president of China Index Research Institute, said that with the recent macroeconomic adjustments and controls made by the government, the annual growth rate of the country's real estate industry will be no less than 10 percent over the next 15 years.


Huang said this at a forum focusing on the future of the Chinese economy held in Xi'an in Shaanxi Province.


According to her, China's real estate industry will pass through three stages of development before 2020: the first phase (1993-2000) saw the industry growing at an annual rate of 13 percent; the second phase (2000-2010) is experencing an annual growth rate of 14 percent; and the third phase (2010-2020) should see an annual growth rate of about 10 percent.


Huang made her presentation in the light of the central government's 11th Five-Year Plan (2006-2010), and based her forecast on the following six aspects:


Land and labor


The average price of residential land in major cities in 2004 was 1,166 yuan per square meter, an increase of 8.94 percent as compared to 2003, 6.08 percent higher than that of land for multi-purpose use, and 6.67 percent higher than that of land for commercial use. It is estimated that the price of residential land will continue to rise until 2010. At the same time, labor prices will also go up because of an increasing labor shortage and aging population. By virtue of government controls, these cost increases will have to be borne by real estate developers.


Real estate demand


It is estimated that by 2010, the average land area allocated for residential construction will reach 28 square meters per capita, and total residential demand will be as high as 535 million to 927 million square meters, which equates to an enormous development potential for the industry.


Industry newcomers


Newcomers to the industry have increased in number. In 1991, there were only 4,200 real estate developers in the market, but by 2004 there were more than 30,000. However, not all of them have a large piece of the real estate pie. Compared with the United States, where market share of the top 10 real estate developers was as high as 27.25 percent in 2004, China's top 10 developers only had two to three percent market share. It is expected that during the 11th Five-Year Plan period (2006-2010), the market of China's real estate industry will be shared among a few developers.


At present, foreign capital accounts for 12 percent to 15 percent of all investment in the Chinese real estate industry. Right through to 2010, foreign investment in real estate will continue to increase, dividing market share among foreign investors, state-owned enterprises and established domestic developers, leaving less room for medium-sized and small non-governmental interests.




In general, real estate prices in China will continue to grow from now until 2010. Prices in so-called second-class cities such as Xi'an and Wuhan are also expected to rise sharply.


Real estate products


The traditional construction model will be replaced by a sustainable construction model, and buyers will be paying more attention to mental and aesthetic satisfaction, in addition to physical satisfaction and safety.


Hot real estate areas


Prime real estate areas will be extended from the Yangtze River Delta and Pearl River Delta to the central inland and western cities. Currently, the eight cities most attractive to real estate developers are Shanghai, Beijing, Guangzhou, Chongqing, Shenzhen, Nanjing, Tianjin and Hangzhou.


Huang also highlighted four problems, which surfaced during the 10th Five-year Plan period (2001-2005), that still have to be overcome: limited funds and higher risks for banks; the rapid rise in housing prices and market risks; an ever-decreasing supply of land in urban areas and the corresponding increase in the cost of land; and high energy consumption rates due to extensive development.


(China.org.cn by Xu Lin November 4, 2005)


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