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China's Residential Developers Switch to Commercial Projects to Avoid New Government Regulations

China's Residential Developers Switch to Commercial Projects to Avoid New Government Regulations


China's attempts to avoid a real estate bubble bursting in the residential sector is having an immediate effect --  not on the housing market but on housing developers.

Many are switching from building homes to building commercial projects, including new hotels.

According to the China Index Academy, a property research institute, the planned floor space of the country's top 100 developers climbed by 5.92 percentage points for retail and by 0.91 percentage points for commercial properties in 2010 year-on-year, becoming a new engine for business.

"Our investment into the commercial real estate sector will account for 30 percent in the coming three years," Liu Ping, vice-president of Poly Real Estate Group Ltd., told the China Daily newspaper.

Meanwhile, resort property is also a new attraction for leading property developers.

The Shenzhen-based Guang Real Estate Group Co Ltd is planning a two-million-square-meter resort project in Weihai, Shandong province, hoping to lure wealthy customers from Beijing, Shanghai and the South Korean capital, Seoul.

"Given the current policy tightening, we have to further segment the market, identify customers' new demands and present competitive products," Yuan Yi, chairman of the Pan-Bohai Sea Cooperation Zone, affiliated to the Guang Real Estate Group, said at a recent conference of developers.

According to the China Real Estate Center, in the wake of the global financial crisis, around 12 percent of traditional property companies moved into the development of industrial parks because of the lower costs involved.

The center's statistics show that the unit price for industrial land stood at 723 Yuan ($110) for each square meter last year, compared with 8,442 Yuan for each square meter of residential land.

More property developers are focusing on lower-tier cities instead of the larger metro areas.

According to a joint study by the China Real Estate Research Association, China Real Estate Association and China Real Estate Appraisal, the sales value, sold floor space and price growth in second and third-tier cities have beaten the first-tier cities, making them the major focus for real estate companies.

"We'll watch the progress of China's urbanization process and further strengthen our exploration into lower-tier cities and increase our participation in government-subsidized housing construction,"  Mao Daqing, vice-president of the country's largest property developer, Vanke Group, told China Daily.

Despite short-term market volatility, the long-term prospects for China's property sector remains bullish.

McKinsey & Co's latest report shows that China will be the largest investor in both infrastructure and residential real estate by 2030.

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