'Auxiliary capital' talk inflates housing bubble

Housing prices in the unremarkable city of Baoding in north China's Hebei Province surged over the past week on rumors that the city would become an "auxiliary national capital".

The market chatter began on March 19 when Caijing magazine reported that Baoding was the leading candidate to become an auxiliary capital.

The provincial government of Hebei, which neighbors Beijing and Tianjin, made no mention of the idea in two guidelines last week, but did suggested different development roles for major Hebei cities. Beijing and Tianjin have not yet announced any such plans.

The guidelines describe enlarging Baoding to accommodate administrative offices, colleges and universities, research institutions, medical and nursing services, which, according to the documents, will be transferred from Beijing.

Hebei's plans came after Chinese President Xi Jinping called for coordinated development of the region around Beijing in late February.

Investors from many parts of the country have rushed to snap up properties in Baoding, 150 km south of Beijing, driving up property prices by some 10 percent in just a week. Baoding is a city accustomed to a somewhat lackluster real estate market.

"Our residential project has been on the market for three years and sales have been slow, but there was a dramatic increase in customers last week," said Hao, a property consultant in "Lijing Lanwan", a new residential development of Baoding.

"We sold 50 apartments over the weekend, equivalent to our total sales in the last two months," she said.

Li, saleswoman for another new Baoding residential project, told Xinhua that their sales hit new records last week. High-rise apartments were selling at 7,200 yuan per square meter (just over 100 U.S. dollars per square foot), 1,000 yuan up on three months ago.

"We will put the price up by another 300 yuan soon. You should make a quick decision before the price goes even higher," said Li.

"Many projects used to sell 10 apartments a week, now sales have risen several fold... Property developers are taking the opportunity to clear huge inventories built up over years," said an official at Baoding housing and urban-rural development bureau who declined to be named.

Locals, however, are not all pleased by the upsurge in prices. Housing is becoming unaffordable in the low-income city, and people are worried about knock-on effects in prices of other goods and a negative impact on the lives of current city residents. ,

"Home prices in Baoding have been stable and we planned to buy an apartment next year, but we are making the purchase ahead of schedule," said local woman Zhang. "If we wait another year, it could be unaffordable."

Zhu Zhongyi, vice president of the China Real Estate Association, believes that as Beijing, Tianjin and Hebei become more integrated, the capital will transfer functions to nearby cities, but it will take time for detailed measures to be drawn up and carried out.

Without the support of industry, blind investment creates the risk of ghost cities, Zhu warned.

Yi Peng, head of urbanization research at the International Finance Forum, said the integration of Beijing, Tianjin and Hebei is not a new concept and little progress had been made.

"The localities should announce detailed measures rather than merely hype the concept," said Yi.