Chinese border trading hub struggles with housing glut as North Korea ties fray

By Philip Wen

DANDONG, China (Reuters) - International sanctions on North Korea have helped sustain a housing glut in China's border city of Dandong, through which most trade with the North flows, in contrast to falling inventories in much of the rest of China, sales data showed.

Dandong, with a population of around 860,000, has accumulated more unsold housing inventory than much larger cities, including Nanjing with a population of 8.2 million, Hangzhou at 9.2 million and Shenzhen with 11.9 million.

Based on sales trends over the past six months, it will take Dandong 28.8 months to work through its current inventory overhang - the longest of 80 cities analysed by Shanghai-based E-house China R&D Institute.

"North Korea's constant talk of war has meant Dandong property prices have never gone up," said local resident Xiao Tengfei, who along with other family members purchased several apartments in Dandong's New Zone seven years ago.

Plans for the New Zone, some 15 kilometres from the existing city centre, included a sports centre, concert hall, a hospital and enough high-end real estate developments to house 400,000 new residents.

City planners developed the New Zone, expecting trade and tourism with the north to boom. But in its latest round of sanctions in response to North Korea's rapidly advancing missile and nuclear programme, Beijing has ordered North Korean-owned businesses in China to close by January. China is North Korea's main trading partner and many of those businesses are in Dandong.

Xiao said she never moved in when her building was finished in 2013 due to a lack of surrounding facilities and was now struggling to find buyers to offload her investment.

"My money has been tied up in here for years now."

BRIDGE TO NOWHERE

The Dandong New Zone was planned in anticipation of the opening of the New Yalu River Bridge, connecting Dandong with Sinuiju in North Korea, and was expected to help bring investment through jointly-run free trade zones.

Costing 2.2 billion yuan ($330.37 million) to build and slated to open in November 2015, the dual-carriageway bridge today sits abandoned. The North Korean side of it ends abruptly in a field of dirt and overgrown grass. [nL3N1BN010]

Similarly, construction has halted at the New Zone's half-finished concert hall and hospital. The gleaming new sport centre, while completed, is barely used, locals said.

Housing inventories in Dandong have remained stubbornly high since doubling in the space of two years to more than 4 million sq m - the rough equivalent of 44,000 homes - in late 2015.

The glut has meant Dandong homeowners and investors have failed to ride a housing boom in the rest of China.

With tighter restrictions on property purchases across the country's top-tier cities, such as Beijing and Shanghai, buyers have turned to smaller so-called third and fourth-tier cities, in many instances sending prices up by double-digit percentages.

But in Dandong, prices for new homes rose just 1.9 percent in August from a year earlier. That compares with the average price increase of 8.3 percent among all the 70 major cities surveyed by the National Bureau of Statistics.

Staff at six property sales centres that Reuters visited in Dandong's city centre and New Zone, however, tried to put an optimistic face on the drab market.

"The market is fine right now and these two months are probably the lowest point in terms of (China's) relations with North Korea," said one sales manager at a development offering sweeping views across the Yalu River into North Korea. "It will only get better from here."

($1 = 6.6591 Chinese yuan renminbi)

(Reporting by Philip Wen in Dandong; Additional reporting by Yawen Chen and Ryan Woo in Beijing; Editing by Bill Tarrant)