Home builders move to smaller cities

As the central government's tightening signals become stronger and stronger in the country's biggest urban centers, developers are moving to second and third tier cities in search of friendlier environments, and higher profits.

The government's tightening policies on housing bubbles in China's biggest cities are something developers can't ignore. So many are moving the battlefield to the nation's smaller urban centers.

During the first quarter of this year, China's top 20 home builders earned two-thirds of their profits in smaller cities. Top brand names, such as Vanke, are now getting 90 percent of their land acquisitions from second and third tier cities.

Chen Xiaotian, General Manager, China Real Estate Info. Group, said, "The move from first tier cities, to second and third tier areas, will be gradual. This is because demand in first tier cities is still strong. So, in the short term, sales in those cities will remain considerable for developers. But in the long run, the move is inevitable."

China's third tier cities, mostly provincial capitals where property bubbles haven't been obvious, now account for 17 percent of housing developers' sales revenue, up 7 percent from last year.

Analysts estimate that, in the next decade, second and third tier cities will become the main battleground for property development, and are set to experience a housing boom.