Sat, July 13

Major cities in China are accelerating the absorption of talent.

On November 28, 2023, three viewpoints regarding the real estate trend are as follows: Firstly, the demand for new houses is decreasing; secondly, the housing market in first and second-tier cities is relatively stable, while the demand in third and fourth-tier cities is declining; thirdly, the urbanization process is still ongoing, and the demand for rentals is continuously increasing. Does this mean that the era of second-hand houses is approaching? Has the property market in small cities cooled down? Will more people choose to rent instead of buying? The interpretation of these viewpoints varies from person to person.

For example, regarding the differentiation between large, medium, and small cities, some believe in the “stronger get stronger, weaker get weaker” concept, which is not a new idea and has been reiterated for many years, appearing dull. However, when the same statement is made by different individuals, the weight and perspective of the viewpoint may vary. Real estate agencies often emphasize the differentiation between cities, encouraging people to blindly move to big cities to buy houses, chasing after core assets, and so on. But such statements are based on the current situation of new housing and second-hand housing transactions, providing insights into possible future developments.

As for whether to rent or buy, whether the market is rising or falling, ultimately depends on individual judgment.

Today, I would like to discuss my personal understanding of authority views, as well as the concept of differentiation and the difference between it and the differentiation we usually hear about. Differentiation involves housing demand, and behind housing demand is population mobility. Over the past two years, there have been two conflicting voices regarding population mobility, namely the “returning to hometown” faction and the “moving to the city” faction. Some people believe that it is becoming increasingly difficult to survive in big cities, and now the trend of “lying flat” is prevalent, with many friends choosing to return to their hometowns. On the other hand, some people point out that the population is clearly being attracted away, with their classmates and friends all going to the four major first-tier provincial capitals and coastal areas. In reality, both of these views are not wrong, they just differ in timing.

The Return to Hometown Initiative reported that in 2022, the permanent population of Guangdong decreased by 272,000 people, marking the first negative growth since records began in Guangdong. Similarly, major first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen also experienced rare declines in their permanent populations in 2022, with a corresponding trend of population returning to the central and western regions of China. For example, Yunnan saw a decrease of 309,300 people in 2021, but then increased by 30,000 people in 2022; Jiangxi also had negative growth in 2021 but saw an increase of 100,000 people in 2022.

The Urbanite faction mentioned that they recently read a report from Zhongjin, which analyzed the changes in population mobility based on data such as the number of mobile phone users, passenger traffic, and housing rents in the four municipalities of Beijing, Tianjin, Shanghai, and Chongqing. Firstly, in terms of the number of mobile phone users, the four municipalities had lower numbers compared to other regions in the country last year, but this year they have started to increase rapidly. Secondly, the usage of public transportation such as buses, urban rail transit, taxis, and passenger ferries. In 2019, the usage in the four municipalities decreased by 41.5%, lower than the national average of 35.1%, but by September 2023, the decrease had risen to 22.5%, higher than the national average of 24.2%. Thirdly, the housing costs in the Consumer Price Index (CPI), which mainly refers to rental costs. Interestingly, housing prices are not included in the CPI. Looking at the CPI housing costs of first and second-tier cities compared to the national average, the former were lower than the latter in 2022, but by 2023, the former had surpassed the latter.

What does this indicate? After a gap of 3 years, large cities are once again experiencing a significant influx of population, including graduates, migrant workers, white-collar workers, delivery drivers, food delivery workers, and assembly line workers from various industries. From 1996 to 2019, China’s urbanization rate increased by an average of 1.4% per year, showing a very stable trend. However, this trend was interrupted for 3 years between 2020 and 2022 due to external factors. Whether it is the permanent population, urbanization rate, or the proportion of urban employment, the growth has significantly slowed down. On one hand, there is a re-influx of population into large cities, while on the other hand, remote small towns are experiencing a downturn.

Starting this year, provinces like Hunan and Anhui are pushing forward with pilot reforms of institutions in counties with low populations to alleviate the financial burden of support. Taking Ma Duo County in Qinghai Province as an example, the institution integration was completed in September this year, reducing the original 25 institutions to 20, and the law enforcement team was streamlined from five teams to one team of no more than four people, reducing eight teams. In Shanxi Province, there are many small counties with a permanent population of less than 150,000, leading to an imbalance in the proportion of financially supported personnel. Six pilot counties in two batches are exploring reforms of institutions in counties with low populations.

Many may not be familiar with the reform of institutions in counties with low populations. Through the numbers, it can be seen that out of the 1,874 counties surveyed, 546 counties have a permanent population of less than 200,000, accounting for 29.1%. In the eastern region, there are 46 counties with a permanent population of less than 250,000; in the central region, there are 70; while in the western region, there are as many as 389; and in the northeast region, there are 40.

According to a report by China Business News, a small county in western China has a total population of just over 40,000 people, but the number of people financially supported by the government is close to 2,500, resulting in a ratio of 16.9 people supported by the government for every resident in the county. If the organization is streamlined, how much cost can be saved? This year, the organization department of Loufan County in Shanxi Province released a work summary mentioning that by integrating and merging 33 units, reducing the staff by 341 positions, and relocating 56 staff to townships, they successfully saved over 34.1 million yuan in personnel expenses, with operating expenses of about 9.9 million yuan.

As the population moves towards major cities, counties and cities with smaller populations are accelerating their streamlining efforts, indicating a trend of population outflow. What was the past population movement like? For example, Sanya in Hongsixi, Heilongjiang and Nanjing in Hongsixi, Anhui Suzhou also in Hongsixi Suqian Shanghai in the west, Beijing in central China, Northeast in Guangzhou and Shenzhen in South China, provincial capitals in the west, prefecture-level cities in the west, and new urban areas in county towns are built next to their old urban areas, with clear levels and orderly order. Correspondingly, there are new urban areas, CBD industrial parks, high-speed rail new cities, and artificial lakes being built everywhere in county towns and terrains.

However, as the acceleration of population mobility leads to a decrease in rural population and an outflow of migrant workers from small county towns reaching its peak, the next step will be the higher-level cities. Taking two examples, firstly, not long ago, Suzhou launched a “surprise attack” on Wuhan, attracting a large number of master’s and doctoral degree holders to come, booking high-speed trains to Suzhou with free accommodation and meals, providing a one-stop solution to household registration and employment issues. Even if Wuhan is angry, there is nothing they can do. Secondly, Qingdao recently introduced a policy where renting a house can lead to household registration, and commercial properties can also be used for household registration. Nanjing has a similar policy, including renting a house in the points-based household registration scope. Major cities also feel the urgency, the previous standards seem to be no longer as high, a bachelor’s degree is no longer a strict requirement, being under 35 is no longer a restriction, and highly skilled workers are also valued, with various restrictions gradually decreasing. I prefer your previous rebellious style, can you restore it? When mega-cities are urgently trying to attract population inflow, how should cities like Taiyuan, Hohhot, Nanning, Nanchang, Lanzhou, and Changchun respond? And what will be the future for the hundreds of other prefecture-level cities?

The decline in urbanization rate has led to a slowdown in population mobility, resulting in a gradual decrease in population movement between cities. The confirmed status is gradually infiltrating towards higher-level cities, with the current trend of downsizing and streamlining less populated county towns, which may lead to exacerbation of aging issues in central county towns, potentially evolving into third or fourth-tier prefecture-level cities. The development of new urban areas is also being constrained, halting expansion towards second-tier provincial capital cities, leading to a contraction in planning. It is a mistake to only focus on the differentiation between cities without considering the real estate market in major cities. By solely focusing on the differentiation among medium and small cities without paying attention to authoritative views on this phenomenon, we may overlook the fact that authoritative views indicate that first and second-tier cities are relatively stable, while third and fourth-tier cities are on a downward trend, with no mention of an upward trajectory. Even as the urbanization process continues to advance, it will only increase rental demand, not housing demand. Such authoritative statements made in formal settings are carefully considered and thought out.

The decrease in demand for new houses is due to the reduction in land auction sales and new construction sales. On the other hand, the increase in rental demand can be attributed to the affordable housing policies related to Document No. 14. Housing prices in first and second-tier cities remain relatively stable, while the decline in prices in third and fourth-tier cities is a phenomenon reported by the media. This trend can be understood through population migration, as populations tend to concentrate in a few select cities. For example, areas like Jiangbei and Jiangning in Nanjing are already densely populated, while areas like Changxi Lake New Area and Xinzheng Economic and Technological Development Zone in Zhengzhou have not been fully occupied for many years. Some large cities such as Shenyang and Chongqing also face issues of excess population, not to mention cities like Taiyuan, Shijiazhuang, and Guiyang. Populations tend to concentrate in super and mega-cities, but ultimately only a few cities may benefit. For instance, the population of the New York metropolitan area accounts for about 9% of the total urban population in the United States, while even in Mumbai, India, the population only represents around 6% of the total urban population in India. The layout of the high-speed rail network, with eight horizontal and eight vertical lines, has not led to population concentration in central and western cities, but rather accelerated population outflow.

According to data from Zhongtai Securities, among the 36 cities along the Beijing-Shanghai high-speed rail and the Yangtze River Economic Belt, the proportion of permanent residents is decreasing in 21 cities. More importantly, even as the population gravitates towards major cities, it no longer brings about explosive purchasing power as it did in the past. Based on statistics from Zhongjin, this year the number of mobile phones, urban passenger traffic, and rent in the four major municipalities are all higher than the national average, yet the transaction prices of houses in major cities this year are still stagnant. As of October, house prices in 70 cities, including new house prices in cities like Guangzhou and Shenzhen, are declining, and the prices of second-hand houses in Beijing, Shanghai, Guangzhou, and Shenzhen are also falling across the board. The belief that house prices will rise without considering the impact of loans has disappeared. According to statistics from Huachuang Fixed Income, from November 17th to 23rd, the transaction volume of commercial housing in third-tier cities decreased by 41% and 29% compared to 2019. The concentration of population is unable to bring about purchasing power, only increasing the demand for renting, which drags down house prices, but not as sharply as in smaller cities. The concentration of population in major cities cannot bring about more demand for new house purchases because these people do not have enough funds. As for the future demand in third and fourth-tier cities, it only comes from two sources: one is the demand for purchasing houses from surrounding rural areas, but the scale is small; the other is the demand for housing improvement from local residents, such as low-density communities favored by local wealthy individuals. These two demands are not actually new demands but rather a transfer of purchasing power within the city or county. Only a very small number of properties will appreciate, and for the vast majority of properties in most cities and regions, they are gradually becoming detached from the population.