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Shantytown redevelopment – why does it mater:

We assess that new unit construction for shantytown redevelopment will be significantly dropped across China in 2019, and shantytown redevelopment program’s influence over property market will be significantly weakened in the coming years, as China plans to wrap up the program by end of 2020 with some provinces eager to finish it ahead of the deadline.

That said, some third- and fourth-tier cities will be under huge pressure as their property market relied heavily on shantytown redevelopment programs in the past. Particularly, smaller towns will net population loss (such as migrant workers, college students not returning to hometown) will see huge drop of property price, according to several people we have talked to in Beijing. Some third- and fourth-tier cities close enough to metro centers may be less affected—for example, sources in Hebei government that we had conversation with expressed optimism as Beijing plans to move a lot of unnecessary, burdensome industries out of capital region to the neighboring Hebei province. Similarly, smaller towns residing in the Guangdong-Hong Kong-Macau Greater Bay Area will continue to benefit from new residents escaping from high property price in Guangzhou and Shenzhen, the two urban hubs of the region.

At the same time, several sources familiar with the National Development and Reform Commission decision-making process expressed their optimism to cities alongside high-speed railway and other major transportation projects that are due to start construction in 2019. As mentioned in our last note, China is significantly increasing its approved investment on infrastructure as a stimulus to real economy in 2019; while shantytown redevelopment will see less monetary resettlement overall, shantytowns that are blocking proposed railways or highways will have to be resettled first in order to let those infrastructure projects go through as planned. This means that any monetary resettlement budget left on provincial level will be prioritized toward those shantytowns near new infrastructure projects. This will be a key point to watch as the overall property market faces downward pressure.

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