The New City Poised to Pierce Beijing’s Property Bubble
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2017-04-14 08:05:51

This is the second article in a series about Xiongan New Area, a planned city in northern Hebei province. Part one can be found here.

The recent announcement that the Chinese government plans to build a brand-new city in pastoral northern Hebei province marks a turning point for the Beijing real estate market. In fact, the news has already steadied housing prices at a moment when practically all of the city’s old and decrepit houses have been snatched up, some for prices as high as 100,000 yuan (about $14,500) per square meter. Indeed, prices were soaring toward the 200,000 yuan per square meter mark, tying up vast quantities of capital in the process.

At this point, Xiongan New Area stepped into the breach. Soon it became obvious that speculators and homebuyers who rushed to buy property in Beijing last year had sorely miscalculated. Investors are now hotfooting it to Xiongan, and they’re taking their funds with them.

Located in northern China’s Hebei province, 100 kilometers south of Beijing, officials envision Xiongan’s future as part of a so-called millennial program — a city to last a thousand years. Xiongan will take on all of Beijing’s functions unrelated to its role as the nation’s capital. The area’s strong economic outlook has even led to the emerging saying: “Shenzhen in the south, Pudong in the east, and Xiongan in the north,” referencing two of China’s most successful planned urban areas near Hong Kong and Shanghai, respectively. Set to grow to a size of 2,000 square kilometers, Xiongan looks set to dwarf them both.

In a decade or two from now, there will be a new megacity and special economic zone just 100 kilometers south of Beijing, accommodating more than 10 million people. While not all of these residents will come from northern China, rest assured that the majority will hail from Beijing, the nearby coastal city of Tianjin, Shijiazhuang in Hebei province, and Shanxi province, west of Beijing. Many of these new residents will be those who originally planned to move to Beijing in search of occupational opportunities. Instead, they will follow the gold rush to Xiongan.

Think about it: If you were an investor with 50 million yuan to spend right now, where would you invest it? In Beijing, where real estate costs 100,000 yuan per square meter? Or in Xiongan, where it is only 10,000 yuan? While real estate sales in Xiongan have been suspended for the time being, the local property market’s future remains bright. Xiongan’s location is superior to that of Shenzhen or Pudong, and there’s little risk involved in sinking your money into such a lucrative and untapped area.

Once Xiongan is a functioning city, there will be no basis for Beijing’s high property prices.

An official acquaintance of mine, who declined to reveal his name for this piece, told me that Xiongan’s real estate model will not be based on any template currently in existence. The millennial plan isn’t so much about money, industry, or technology, though these things will nonetheless play a role. Rather, it is a demonstration of China’s ability to develop itself, and therefore the focus will be on new systems, models, and culture. In terms of urban-rural integration, Xiongan will serve as a model for future cities. Globally speaking, it will be a window into a country poised to become a major global superpower in the coming years.

Reading between the lines of the plan, it seems clear that Xiongan will be a testing ground for a number of government policies: constructing a green, smart city from scratch; developing a host of high-tech, high-end industries; experimenting with forward-looking service and administrative innovations; building a green transport network; giving the market a greater role in economic growth; and further opening China to the outside world. This is the way China will pitch its urbanization drive in the future, as traditional cities struggle to adapt to the detrimental effects of population growth.

About 22 million people live in Beijing. It is thought that if the universities, state-owned enterprise headquarters, research institutes, and similar organizations start to move out, that number could shrink by around 5 million. Many people likely to follow the above institutions out of the capital are now less likely to buy houses in Beijing. Once they leave the city, housing prices will suffer as the pool of potential buyers shrinks, leading the city’s overheating property market to correct itself. 

More critically, the Xiongan-bound exodus of residents means that Beijing’s potential future homebuyers will be fewer and farther between. In China, many college graduates choose to stay and work in the cities where they went to university, and in the future Xiongan will provide healthy competition for those who wish to settle there after graduation, find work, or start their own business.

Beijing real estate prices are currently so high partly due to the city’s vast educational and medical resources, and partly due to its wide range of employment opportunities. Once Xiongan is a functioning city, there will be no basis for such high prices. 

Capital is limited. Over the next 20 years, I expect to see a great financial miracle take place in Xiongan. Beijing won’t be the only large city affected; over the next five years housing prices will level off in others as well. This will also be due to a reduction in available funding, compulsory registration of property rights to their true beholders, and the introduction of property tax. Ultimately, Xiongan will prove itself as one of the decisive needles to puncture urban China’s property bubble.

Translator: Kilian O’Donnell; editors: Lu Hongyong and Matthew Walsh.

(Header image: A construction site in Anxin County, part of the planned site of Xiongan New Area, Hebei province, April 11, 2017. Wu Huiyuan/Sixth Tone)