Hefei’s property market is a prime example of China’s real estate boom and bust, according to a report by the state-owned China Economic Weekly on Tuesday.
The city, in the northeastern province of Anhui, is more known for being a manufacturing hub and also as a key defense against the Jin army during the Southern Song Dynasty. In 2016, however, it was also world’s fastest-rising property market.
A report by the Hurun Research Institute said new home prices rose close to 50% in 2016 from the year before, making Heifei the fastest-rising real estate market not just in China, but also globally.
Located on the periphery of big cities including Shanghai, Nanjing and Hangzhou, Hefei’s growth in housing prices had previously been relatively moderate compared to that of tier-1 cities, partly due to its small population and economy, the report said.
The boom occurred in 2016 due to speculative demand. Speculative investors flocked to Hefei, with a significant proportion acting as ‘intermediaries’ for wealthy backers or companies prepared to take out bank loans to make a quick profit, according to a real estate agent interviewed by China Economic Weekly.
“At the market’s peak, house prices would rise 200 (US$29.41) yuan or 300 yuan per square meter in the same time I take to cross a road,” said the agent.
In October 2 last year, however, Hefei’s authorities introduced their most stringent measures to date as part of a Golden Week crackdown on China’s property prices nationwide.
House prices in Binhu District, where Hefei’s property speculation bubble started, dropped by 40% to 50% in a matter of a few months, the report said. In February, around the time of the Spring Festival, new homes were selling for 11,000 yuan per square meter, a sharp decrease from their peak of 22,000 to 23,000 yuan per square meter prior to October. The decrease was due to speculative investors “discarding” the properties on the open market after the announcement in October, according to real estate professionals interviewed by China Economic Weekly.
Now, Hefei’s home prices are back to the levels of 2015, the report added. As Chinese investors rush to find their next goldmine, Hefei might offer a cautionary tale.