China Urbanization Drives People's Livelihood, Construction and Benefits Developers in Third-Tier Cities

BEIJING, Jan. 7, 2013 /PRNewswire/ -- Recently, the term "urbanization" has become a key word discussed by economists and politicians, especially experts from the real estate industry, after a plan for promoting new "urbanization" was released by the 18th National Congress of Communist Party of China ("NCCPC") held on November 8, 2012. Experts predict that the real estate market in third-tier cities, the key areas for promoting urbanization, will have enormous potential for development. In addition, urbanization will also benefit the development of supporting industries and directly drive local construction of various infrastructures affecting people's livelihood.

"Urbanization" has not only been listed in the national strategy in the 18th NCCPC, but it has also been deemed as a historical task of modernization in China by China's Central Economic Work Conference.

As Ha Jiming, Vice Chairman and Chief Investment Strategist of the Investment Management Department (China) of Goldman Sachs, said, urbanization will drive up investment in several fields, such as healthcare, education, water, power and transportation. Generally, the consumption per capita of urban residents is 3 times higher than that of rural residents. Therefore, when rural residents become urban residents, their consumption will rise, and the consumption level will be upgraded too.

Zhu Zhongyi, Vice Chairman of the China Real Estate Industry Association, also said that the reason why urbanization is regarded as an important engine for future economic development and the largest potential for boosting domestic demand is that it can drive both investment and consumption, including investment in infrastructure construction and real estate development.

The Plan for Promoting Sound Development of Urbanization in China (2011-2020) jointly prepared by more than 10 ministries and commissions, such as Ministry of Finance, Ministry of Land and Resources, and Ministry of Housing and Urban-Rural Development, under the leadership of the National Development and Reform Committee, will be published before or after "two sessions" are held in 2013 (namely the National People's Congress and the Political Consultative Conference, NPC & CPPCC). Construction in over 20 city clusters, including more than 180 cities at municipal level or above, and more than ten thousand towns, will be mapped out in such a plan.

According to the aforesaid plan, the future construction of new urbanization in China will depend on large cities and focus on medium- and small-size cities, and will gradually form city clusters with a high radiation effect and promote harmonious development among large cities, medium- and small-size cities, and small towns. Furthermore, the development of urbanization will promote the transformation from excessive expansion to quality upgrading.

"Obviously, the key areas of urbanization will be the regions and cities with low rates of urbanization," an analyst at Citic Securities said. Third-tier cities will, of course, benefit from the urbanization.

Data shows that sales volume of commodity houses in 13 national city clusters accounted for 80.84% of that in all cities at the municipal level or above in 2010, up 0.92% from 2005. This means that house sales have become more intensive in large cities. As an analyst at Credit Suisse Group predicted, the new urbanization wave will need investment in real estate and efforts in industrial manufacturing, and will also release great potential consumption.

Moreover, the strategy of new urbanization also benefits real estate enterprises. The real estate sector continuously takes the lead in the stock market, especially Vanke, Evergrande and Country Garden, which are the real estate enterprises with the largest number of projects in third-tier cities.

Data shows that, since the idea of new urbanization was issued by the 18th NCCPC last year, the share price of Evergrande, which owns the largest number of projects in third-tier cities, has continuously risen from 3.87 yuan to 4.5 yuan, up 16.3%, owing to the policy of urbanization. In addition, Vanke's share price, though it has declined slightly, also keeps rising; from 8.75 yuan in the last trading day in November of 2012 to 10.12 yuan as the closing quotation in the first trading day of 2013, up 15.66%.

SOURCE Sina Leju