Urban Migration in China

This is going to be the greatest story in China for next 10 years. We are talking about a group that is 1.6 times the entire US population, moving from China’s countryside to its cities in next decade. Some analysts are estimating some 500 million Chinese citizens are expected to have moved into China’s cities as part of the greatest urban migration ever recorded and there are couple of long-term institutional investors that I have good relations are rushing to lock up some valuable land parcels before 2020. Wang Mengkui, head of the cabinet's think-tank, told the Financial Times that the country's urban population would rise to around 800 million by 2020, up from an official 502 million at the end of last year.

A population shift of this magnitude cannot help, but to be a major catalyst for increasing real estate values, especially in such top-tier cities as Beijing, Shanghai and Guangdong, where I am partly based now. It will also significantly shift the market dynamics of second-tier municipalities such as Chongqing, where literally millions of people are pouring in from countryside. China’s urbanisation rate of 39 per cent now is equivalent only to that of the UK in the 1850s, that of the US in 1911 and that of Japan in 1950.

China just announced its 1Q growth of 11.9% - the country’s fastest expansion in nearly three years and a rate that was faster that what analysts were expecting. As a matter of fact, central planners are raising reserve requirements for lenders, are tightening up on permits and construction licenses and are even taking steps to halt illegal development. In some parts of China, local developers will often construct entire buildings and never pull a permit.

As the property prices in Beijing and Shanghai increase in expense, many companies, investors, and developers are shifting their focus to the second-and-third tier cities that have yet to experience the urbanization rush of their much-larger first-tier counterparts. I cannot deny that the speculative excesses that exist in very high-end residential real estate in the primary cities.

Is there a real estate bubble? No there isn’t because urban migration will create a near infinite future demand for residential and commercial real estate. Does China under consume? Yes but urban migration will raise consumption rates.
This latter claim was highlighted in an article in the the South China Morning Post, which claims that“President Hu Jintao’s pledge to spur urbanisation and domestic demand next year has been seen as an attempt to tackle the growing problem of industrial overcapacity.