Reporting from Hefei, China — Hundreds of miles inland from the booming real estate markets of Beijing and Shanghai, an unlikely property fever is gripping this middling industrial outpost.
Rows of half-completed apartment buildings rise over former farmland, each crowned with yellow construction cranes that seem to outnumber trees in parts of this dusty city of 5 million residents.
Taxi drivers boast of owning multiple flats for investment. Billboards hawk developments with names such as Villa Glorious and Rich Country. Frenzied crowds pack sales events with bags of cash, buying units that exist only on blueprints. Average home values in Hefei soared 50% last year.
China's real estate rush, once confined to a handful of leading cities, has spilled into the hinterlands with a ferocity reminiscent of American expansion into exurbs like the Inland Empire.
In a country that economists say is treading dangerously close to a full-blown property bubble, Hefei represents more evidence of China's headlong embrace of housing to power economic growth.
"The situation in Hefei is a symbol of the craziness in China's real estate market," said Cao Jianhai, a professor of economics at the Chinese Academy of Social Sciences, a government think tank. "Prices in second- and third-tier cities are increasing more dramatically than in the first tier. It's very dangerous, and it puts local banks at risk."
With land increasingly difficult to secure in the most coveted cities, developers are turning to lesser-known destinations in China. Local officials eager to generate revenue through leases and development fees, and to meet growth targets set by the central government, are quick to grant permits.
Hefei, a provincial capital in central China's impoverished Anhui province, has swallowed swaths of countryside, toppled parts of its city center and relocated thousands of residents to feed a growing appetite for new residential property.
All this in a city where many residents are barely a generation removed from working the fields. The average annual income here is $2,000. The local economy centers on home-appliance manufacturing. There are few tourists. Occupants of some of the coming high rises will have little to view but flat fields in the smoggy distance and a man-made pond ambitiously named Swan Lake.
"No one had any idea real estate would get this hot here," said Huang Qingyuan, a sales agent for one of Hefei's most expensive housing estates — they go for about $120,000 per apartment.
While pricey by local standards, that's still a fraction of what homes cost in the capital. That's why buyers continue to pour in from across the region, accumulating apartments as a hedge against inflation in a nation where there are few investment alternatives. More residential units were sold here the first three months of 2010 than in Beijing or Shanghai — cities four times the size of Hefei.
Among the new developments is Binhu Century City, a massive complex just north of the airport. Nearly 200 apartment towers are being erected over what used to be fields of vegetables, rice and cotton.
When completed next year, the development will house 80,000 people and feature a 4.3-million-square-foot shopping mall. Residents will be connected by a new elevated highway, and plans are afoot to build a subway and high-speed rail.
Xi Zhou, a cameraman for a local news channel, paid $50,000 for his 900-square-foot unit in December. He figures it's now worth $80,000. He's so anxious to take possession that he visited Binhu's sales office on a recent weekday to gaze at his property in a plastic diorama of the complex. All but 100 of the 24,000 units have been sold.
"For people of my generation, property is all we talk about," said Xi, 27, who will share the new home with his wife and parents. "I felt a lot of pressure to buy because the longer I didn't, the more likely I wouldn't be able to afford anything."
China's central government is taking steps to cool the market. This month, lawmakers raised down-payment requirements for the purchase of second homes and gave banks new powers to restrict lending to speculators. Capital gains and monthly property taxes are being considered.
Still, economists say pushing back too far could squelch a sector that's creating jobs and filling government coffers.
Local governments and developers are "perfectly happy to ride this out," said Patrick Chovanec, a professor at Tsinghua University in Beijing. "There's no other source of revenue to rely on. But it's like they're on a treadmill. Real estate is not a renewable resource. They've got to sell more at increasingly higher prices."