If you thought China’s cities were big now, just wait a few decades. A study released late last year by McKinsey & Company estimated that the country’s urban population would reach 1 billion by 2030, up from 572 million in 2005. This means that China will add more people to its cities than the entire population of the US over the 25-year period.
Analysts see this drive to urbanization as one of the key fundamental strengths underpinning China’s residential property markets. McKinsey estimates that 40 billion square meters of ground floor area will be built in 5 million buildings to accommodate this influx of new residents.
"We have always believed that the slowdown in the mass market residential [market] is a temporary phenomenon because the underlying fundamentals of the market are phenomenal. That’s not necessarily the case in a place like the US or the UK or Australia," said Michael Klibaner, national director and head of research for property consultancy Jones Lang LaSalle in Shanghai
The trend is one of both necessity and central government policy as China seeks to quadruple per capita GDP by 2020 from its 2000 level and move its workers from labor-intensive industries to service industries. In addition, changes to the laws governing land-use rights will in theory incentivize farmers to migrate to the cities, hopefully with cash in their pockets.
This wave of migration will create eight "megacities" with populations of over 10 million, up from the current two. Furthermore, 81 new urban centers with a total population of 27 million will emerge between 2006 and 2025, most located within 50 kilometers of current cities.
While not all of these new urban dwellers will be able to afford to buy houses, the long-term growth story for residential markets remains in place, according to Rong Ren, CEO of Harvest Capital, which has about US$1 billion under management in two Greater China-focused real estate funds.
"These people, though many will not be our consumers for the time being, they will come up in the future," he said, adding that if one estimates a modest 20 square meters per head, the required amount of housing will be "massive" for the next 15 years.