Real Estate Developments and Restrictions in China

In an effort to cool China’s property market and prevent a real estate bubble, authorities have already put in place restrictive measures to curb speculative buying in so-called first-tier cities. These measures include restricting the number of houses that can be bought by families, and not just individuals. Having achieved some degree of success, these measures are set to spread out to second and third-tier cities which are currently experiencing a tremendous real estate growth. At a recent State Council meeting, Premier Wen Jiabao urged cities experiencing dramatic property price increases to meet targets for affordable public housing, while at the same time intensifying their efforts to cool the real estate markets under their jurisdiction.

The unofficial system of classifying cities as first, second, or third-tier in China is primarily based on a city’s economic performance and potential for growth. Tiers can, therefore, change over time, and sometimes cities that are considered to be one tier by one group of investors, may be seen as a different tier by others. Over and above economic considerations, some may include historical and cultural significance, as well as infrastructure, population and geographical location in the criteria for determining a tier status.

Beijing, Shanghai, Guangzhou and Shenzhen are considered to be first tier cities, but the lines become blurred when deciding on second and third tiers. Nevertheless, it has been noted that there is huge potential for real estate growth in non-first tiered cities, and with stringent measure in place in first-tiered cities, speculators have shifted their attention to these other markets, resulting in China’s authorities widening the scope of restrictive measures.

The administrative divisions of the People’s Republic of China start with Provincial Levels, including Provinces, Autonomous Regions, Municipalities, and Special Administrative Regions. Provincial level boundaries have remained much the same as when put into place in the 17th century, while changes have taken place within the provinces at various times. The next level of administration is Prefectures, which include Autonomous Prefectures, Prefecture-Level Cities and Leagues. County Level includes Autonomous Counties, County-level Cities, City Districts, Banners, Autonomous Banners, Forestry Areas and Special Districts. Township Level includes Ethnic Townships, Towns, Subdistricts, Sumus and Ethnic Sumus. The Village Level includes Village Committees and Neighborhood Committees.

Back in 2007 a group of influential institutional property companies met in Chongqing for a real estate conference under the banner of “Second Tier and Beyond” to highlight the potential of second -tier cities, including the city hosting the conference. In a country with 93 cities with populations of more than one million, and at least 20 cities with populations of more than five million, it’s clear that the housing market needs to keep pace with population growth and the real estate market is important to China’s economy.